Types of Insurance

Insurance is divided into two board two types: Life Insurance Policy & General Insurance Policy.

What is insurance??

Life Insurance Policy:

Life insurance policy covers the "life-risk" of the insured person. In life insurance policy, the amount is payable on the happening of an event which is bound to occur i.e. death. In case of death, the nominee will get the Insurance Policy amount. This form of Insurance is also described as "Assurance". 

However life insurance policy also provides for payment of the policy value at maturity or by instalments and an agreed bonus. The payment may either be in lumpsum on aturity of the policy or may be paid in instalments called annuity.

Further life insurance can be divided into three types as Whole life insurance, Term assurance and Annuity. In whole life insurance, payment is made only on the death of Insured. In term assurance, the policy amount is paid in "lump-sum" on maturity of the term of the Life Insurance Policy(say 20 years). In Annuity, the policy amount is disbursed in installments(generally monthly) on the maturity of policy.

General Insurance Policy:

General insurance means insurance other than life insurance. It is called property and casualty insurance in U.S. & Canada and non-life insurance in Europe. General insurance is classified into three categories:

1. Fire Insurance
2. Marine Insurance
3. Miscellaneous Insurance

What is Insurance?

Insurance is a contract where one party the Insurance Company called "Insurer" undrtakes to indemnify specified losses sufferred by the other party called "Insured" for a special considerations called "Premium". Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.

Important terms used in Insurance Business:

 Insurance Policy:

Insurance Policy is the document issued by the insurance company containing terms of insurance contract which specifies the losses covered by the policies. It also contain details about the maximum amount that can be paid out in the event of losses/death which is called policy amount.

Premium:

Premium is the amount paid by the insured to the Insurance Company in consideration of the contract of Insurance. The payment is generally made anually.

Claims:

A claim occurs when a policy fall due for payment. In life insurance, it arrises on death or on maturity of policy whereas in case of general insurance, the claim arises only when the loss occurs.

 Surrender Value:

When the policy holder wishes to realise the amount of policy before the expiry of the full period of the policy, he surrenders his right under the policy and is paid amount calculated by fixed formula. It applies only on Life Insurance Policy.

 Commission:

Insurance companies get business through agents and thes agents receive commission on the basis of the amount of premium they generate for Insurance company.

Reinsurance:
If insurance company does not wish to bear the  whole risk of policy, then it will reinsurance a part of risk with other insurer.

Paid Up Policy:
If an insured is unable to continue to paying premium on his life policy, he may discontinue the payment and convert the policy into a "Paid-Up" policy. It is applicble only to life insurance.

Annuity:
It is a contract that provides an income for a specific period of time to say for a number of years or for life.

Catastrophic Loss:
A loss which is unbearable i.e. it causes severe consequences such as bankruptcy to a family, organization, or insurer.

Principles of Insurance:

There are several principles governing insurance business. The important principles are mentioned below:

Principle of indemnity:

Insurance is a contract of indemnity. The insurer is called indemnifier and the insured is indemnity.  In a contract of indemnity, only those who suffer loss are compensated to the extent of actual loss suufered by them. One cannot make profit by insuring the risks.

Insurable Interest:

All and sundry cannot enter into contracts of insurance.  For example, A cannot insure the life of B who is a total stranger. But if B happens to be his wife or his debtor or his manager, A has insurable interest.

Principle of uberrimae fiedei:

There is no positive duty to tell the whole truth in relation to subject matter of the contract but there is only negative obligation to tell nothing but the truth under ordinary law of contract. But in case of contract of insurance, there is an implied condition that each party must disclose every material fact known to him.

Type Of INSURANCE