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INSURANCE

BUSINESS PROJECT

INTRODUCTION
Everyone is exposed to various risks. Future is very
uncertain, but there is way to protect ones family and
make ones childrens future safe. Insurance is a tool by
which fatalities of a small number are compensated out
offunds (premium payment) collected from plenteous.
Insurance companies pay back forfinancial losses
arising out of occurrence of insured events e.g. in
personal accidentpolicy death due to accident, in fire
policy the insured events are fire and other alliedperils
like riot and strike, explosion etc. hence insurance
safeguard against uncertainties. It provides financial
recompense for losses suffered due to incident of
unanticipated events, insured with in policy of
insurance. Moreover, through a number of acts
ofparliament, specific types of insurance are legally
enforced in our country e.g. third party insurance under
motor vehicles Act, public liability insurance for
handlers of hazardous substances under environment
protection Act. Etc. It is an arrangement by which a

DEFINITION OF INSURANCE
Insurance has been defined to be that in, which a sum of
money as a premium ispaid by the insured in consideration
of the insurers bearings the risk of paying a largesum upon
a given contingency. The insurance thus is a contract
whereby:
Certain sum, termed as premium, is charged in
consideration.
Against the said consideration, a large amount is
guaranteed to be paid bythe insurer who received the
premium.
The compensation will be made in certain definite sum,
i.e., the loss or thepolicy amount which ever may be.
The payment is made only upon a contingency.
More specifically, insurance may be defined as a contact
between two parties, whereinone party (the insurer) agrees
to pay to the other party (the insured) or the beneficiary,
acertain sum upon a given contingency (the risk) against
which insurance is required.

TYPES OF INSUARANCE
The different type of insurance have come about by practice
within insurance companies, and by the influence of legislation
controlling the transacting ofinsurance business, broadly,
insurance may be classified into the following categories:
1.Classification from business point of view
a)Life insurance
b)General insurance
2.Classification on the basis of nature of insurance
a)Life insurance
b)Fire insurance
c)Marine insurance
d)Social insurance
e)Miscellaneous insurance
3.Classification from risk point of view
a)Personal insurance
b)Property insurance
c)Liability insurance
d)Fidelity general insurance

TYP
ES
OF
INS
UR
AN
CE:
-

THE IMPORTANCE OF INSURANCE


Insurance benefits society by allowing individuals to share the
risks faced by manypeople. But it also serves many other
important economic and societal functions. Because insurance is
available and affordable, banks can make loans with the
assurance that the loans collateral (property that can be taken
as payment if a loan goes unpaid) is covered against damage.
This increased availability of credit helps people buy homes and
cars . Insurance also provides the capital that communities need
to quickly rebuild and recovereconomically from natural
disasters, such as tornadoes or hurricanes. Insurance itself has
become a significant economic force in most industrialized
countries. Employers buy insurance to cover their employees
against work-related injuries and health problems. Businesses
also insure their property, including technology used in
production, against damage and theft. Because it makes
business operations safer , insurance encourages businesses to
make economic transactions, which benefits the economies of
countries. In addition, millions of people work for insurance
companies and related businesses.Insurance as an investment
that offers a lot more in terms of returns, risk cover & as also
that tax concessions & added bonusesNot all effects of

THE INSURANCE INDUSTRY TODAY


Since the 1970s, the insurance business has grown
dramatically and undergone tremendous changes. As a result
of the deregulation of financial services businessesincluding
insurance, banking, and securities tradingthe roles, products,
and services ofthese formerly distinct businesses have
become blurred. Advances in communications technology have
also allowed traditionally distinct financial businesses to keep
instantaneous track of developments in otherbusinesses and
compete for some of the same customers. Some insurance
companies now offer deposit accounts and mortgages.
Developments in computer technology that have given
insurance providers the ability to quickly access and process
information have allowed them to custom-designpolicies to fit
the needs of individual customers. But the increasing
complexity of policies has also made some aspects of buying
and selling insurance more difficult. In addition, improvements
in geological and meteorological technology have thepotential
to change the way property insurers calculate risks of damage.

EVOLUTION OF INSURANCE IN INDIA


The marine insurance is the oldest form of insurance. If we trace Indian history
there are evidence that marine insurance was practiced here about three
thousand years ago. It indicates that there was the practice of marine insurance
carried out by the traders in India with those of Sri lanka, Egypt and Greece .It
is wonderful to see that Indians had even anticipated the doctrine of average
and contribution. Freight was fixed according to season and was then very
much at the mercy of the wind and otherelements. Travelers by sea and land
were very much exposed to the risk of losing theirvessels and merchandise
because of piracy on open seas and highway robbery ofcaravans was very
common. The practice of insurance was very common during the rule of Akbar
to Aurangzeb, but the nature and coverage of the insurance in this period is not
well known. It was the British insurer who introduced general insurance in India
in the modern form. The Britishers opened general insurance in India around
the year 1700 .The first company known as the sun insurance office was set up
in Calcutta in the year 1710.This was followed by several insurance companies
like London assurance and royal exchange assurance (1720), Phoenix Assurance
Company (1782). Etc. General insurancebusiness in the country was
nationalized with effect from 1st January 1973 by the General Insurance
Business (Nationalization) Act, 1972. More than 100 non-life insurance
companies including branches of foreign companies operating within the
country were amalgamated and grouped into four companies, viz., the National
Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental
Insurance Company Ltd., and the United India Insurance Company Ltd. with
head offices at Calcutta, Bombay, New Delhi and Madras, respectively.

EVOLUTION OF INSURANCE IN
INDIA(contd.)
Life insurance in the current form came in India from united kingdom
with the establishment of a British firm, oriental life assurance company
in 1818 followedby Bombay life assurance company in 1823, the madras
equitable life insurance society in 1829 and oriental life assurance
company in 1874. Prior to 1871, Indian lives were treated as sub
standard and charged an extra premium of 15% to 20%. Bombay mutual
life assurance society, an Indian insurer that came in to existence in
1871, was the first to cover Indian lives at normal rates. The Indian
insurance company Act 1923 was enacted, to enable the government to
collect statistical information about life and non-life insurance business
transacted in India by Indian and foreign insurer, including theprovident
insurance societies. The first half of the 20th century marked by two
world war, the adverse affects of the World War I and World War II on the
economy of India, and in between them theperiod of world wide
economic crises triggered by the Great depression. The first half ofthe
20th century was also marked by struggles for Indias independence. The
aggregate effect of these events led to a high rate of bankruptcies and
liquidation of life insurance companies in India. This had adversely
affected the faith of the general public in the utility of obtaining life
coverIn this background, the Parliament of India passed the Life
Insurance of India Act on19th June 1956, and the Life Insurance
Corporation of India was created on 1stSeptember, 1956, by

EVOLUTION OF INSURANCE
ORGANIZATION
With a view to serve the society, the insurance organizations have been developed in
different forms with innovation of insurance practice for social welfare and development;
some of these forms are outlined here.
a) Self-insurance
The arrangement in which an individual or concern sets up a private fund to meet the future
risk. If some losses happened in the future the firm meets the loss out of the fund. While it
may be called self insurance it is not a single matter of fact, insurance at all because there
is no hedge, no shifting, or distributing the burden of risk among largerPersons. It is merely a
provision to meeting the unforeseen event. Here the insuredbecome the insurer for the
particular risk. But it can be effectively worked only when there is wide distribution of risks
subjected the same hazard.
b) Partnership
A partnership firm may also carry on the insurance business for the sake of profit. Since itis
not an entity distinct from the persons comprising it, the personal liability of partners in
respect to the partnership debts is unlimited. In case of huge loss the partners may have
topay from their own personal funds and it will not be profitable to them to starts
insurancebusiness .in the early period before the advent of joint stock companies many
insurance undertakings were partnership firms or unincorporated companies
c) Joint stock companies
The joint stock companies are those, which are organized by the shareholders who subscribe
the necessary capital to start the business. These are formed for earning profits for the
stockholders who are the real owners of the companies. The management of a company is
entrusted to a board of directors who is elected by the shareholders from amongst
themselves. The company can operate insurance business and policy holders have nothing to
do with the management of the concern. But in life insurance it is thepractice to share

EVOLUTION OF INSURANCE
ORGANIZATION (contd.)
d) Mutual fund companies
The mutual fund companies are co- operative association formed for
thepurpose of effecting insurance on the property of its members. The
policyholders are themselves the shareholders of the companies each
member is insured as well as insured. They have power to participate in
management and in the profit sharing to the full extent. Whenever the
income is more than the expenses and claims, it is accumulated I the
form of saving and is entitled in reducing the rate of premium. Since the
insured are insurers also, they always try to reduce the management
expenses and to keep the business at sound level.
e) Co-operative insurance organizations
Cooperative insurance organizations are those concerns, which are
incorporated and registered under Indian cooperative societies Act. The
concerns are also called co operative insurance societies these
societies like mutual fund companies are non profit organization .the aim
is to provide insurance protection to its members at the lowest
reasonable net cost .the Indian insurance Act. 1938, has provided

EVOLUTION OF INSURANCE
ORGANIZATION (contd.)
f) Lloyds Association
Lloyds association is one of the greatest insurance institutions in the world.
Taking its name from the coffee house Lloyd where underwriters assembled to
transactbusiness and pick-up news. The organization traces its origins to the
latter part of the seventeenth century .so it is the oldest insurance organization
in existing form in the world. In 1871,Lloyds Act was passed incorporating the
members of the association into a single corporate body with perpetual
succession and a corporate seal .the powers ofLloyds corporation were extended
from the business of marine insurance to the otherinsurance and guarantee
business. The Lloyds Association also publishes, Lloyds list and register of
shipping for the information of insuring public and the insurers.
g)State InsuranceThe government of a nation, some times, owns the insurance and runs
thebusiness for the benefit of the public. The sate insurance is defined as that
insurance which is under public sector. In Brazil, Japan and Mexico, the insurance
are largely nationalized. Previously, the state undertook only those insurances,
which were regarded as vital for the national interest.

Few Life Insurance policies are:Whole life policies- Cover the insured for life. The insured does not
receive money while he is alive; the nominee receives the sum assured
plus bonus upon death of the insured.
Endowment policies- Cover the insured for a specific period. The
insured receives money on survival of the term and is not covered
thereafter.
Money back policies- The nominee receives money immediately on
death of the insured. On survival the insured receives money at regular
intervals during the term. These policies cost more than endowment with
profit policies.
Annuities / Children's policies- The nominee receives a guaranteed
amount of money at a pre-determined time and not immediately on death
of the insured. On survival the insured receives money at the same predetermined time. These policies are best suited for planning children's
future education and marriage costs.
Pension schemes- are policies that provide benefits to the insured only
upon retirement . If the insured dies during the term of the policy, his
nominee would receive the benefits either as a lump sum or as a pension
every month. Since a single policy cannot meet all the insurance

INSURANCE

PRINCIPLES OF
INSURANCE

1. Nature of contract:
Nature of contract is a fundamental principle of insurance contract. An insurance contract
comes into existence when one party makes an offer or proposal of a contract and the other
party accepts the proposal.
A contract should be simple to be a valid contract. The person entering into a contract should
enter with his free consent.
2. Principal of utmost good faith:
Under this insurance contract both the parties should have faith over each other. As a client it
is the duty of the insured to disclose all the facts to the insurance company. Any fraud or
misrepresentation of facts can result into cancellation of the contract.
3. Principle of Insurable interest:
Under this principle of insurance, the insured must have interest in the subject matter of the
insurance. Absence of insurance makes the contract null and void. If there is no insurable
interest, an insurance company will not issue a policy.An insurable interest must exist at the
time of the purchase of the insurance. For example, a creditor has an insurable interest in the
life of a debtor, A person is considered to have an unlimited interest in the life of their spouse
etc.
4. Principle of indemnity:
Indemnity means security or compensation against loss or damage. The principle of indemnity
is such principle of insurance stating that an insured may not be compensated by the insurance
company in an amount exceeding the insureds economic loss.In type of insurance the insured
would be compensation with the amount equivalent to the actual loss and not the amount
exceeding the loss.This is a regulatory principal. This principle is observed more strictly in
property insurance than in life insurance.The purpose of this principle is to set back the insured
to the same financial position that existed before the loss or damage occurred.

PRINCIPLES OF INSURANCE
(contd.)
5. Principal of subrogation:
The principle of subrogation enables the insured to claim the amount from the
third party responsible for the loss. It allows the insurer to pursue legal methods to
recover the amount of loss, For example, if you get injured in a road accident, due
to reckless driving of a third party, the insurance company will compensate your
loss and will also sue the third party to recover the money paid as claim.
6. Double insurance:
Double insurance denotes insurance of same subject matter with two different
companies or with the same company under two different policies. Insurance is
possible in case of indemnity contract like fire, marine and property insurance.
Double insurance policy is adopted where the financial position of the insurer is
doubtful. The insured cannot recover more than the actual loss and cannot claim
the whole amount from both the insurers.
7. Principle of proximate cause:
Proximate cause literally means the nearest cause or direct cause. This principle
is applicable when the loss is the result of two or more causes. The proximate
cause means; the most dominant and most effective cause of loss is considered.
This principle is applicable when there are series of causes of damage or loss.

THE INSURABILITY
ASPECT
Insurability can mean either whether a particular type of loss (risk) can
be insured in theory, or whether a particular client is insurable for by a
particular company because of particular circumstance and the quality
assigned by an insurance provider pertaining to the risk that a given
client would have.
An individual with very low insurability may be said to be uninsurable,
and an insurance company will refuse to issue a policy to such an
applicant.

INSURABLE INTEREST
Insurable interest refers to the right of property to be insured. It may
also mean the interest of a beneficiary of a life insurance policy to
prove need for the proceeds, called the "insurable interest doctrine".

INDEMNIFICATION

To compensate for loss or damage; to


provide security for financial
reimbursement to an individual in case
of a specified loss incurred by the
person.
Insurance companies indemnify their
policyholders against damage caused by
such things as fire, theft, and flooding,
which are specified by the terms of the
contract between the company and the
insured.

THE LEGAL ASPECTS


To be Legally Binding an insurance contract must have the following five elements:
1) Offer and Acceptance
To be legally enforceable, a contract must be made with a definite, unqualified offer by one
party and the acceptance of its exact terms by the other party.The Offer- with many
insurance contracts, the offer is made when the applicant submits the application with the
initial premium. The Acceptance- the acceptance is confirmed when the insurance company
accepts the offer and issues a policy. The company may counteroffer and then the applicant
has the choice to accept or reject the new terms.
No Initial Premium- When the applicant does not submit an initial premium with the
application, the role of offer and acceptance is reversed. The insurer can respond by issuing a
policy (the offer) that the applicant can accept by paying the planned premium when the
policy is delivered.
2) Consideration
In order for an insurance contract to be legally binding, there must be an exchange of value.
Consideration is the value given in exchange for the services sought after. The submission of
the completed application (offer) plus the payment of the initial premium (consideration) to
the insurance company generally creates a binding contract provided that the application
passes the underwriting process.
3) Legal Intent
The subject of the insurance contract must be of legal purpose and/or a legal business entity
in order for the contract to be enforceable. A contract whereas one party agrees to commit a
crime for payment of services would not be enforceable in court because the subject matter
is not of legal content.

(contd.)
4) Competent Parties
To cement a valid contract, the parties involved (individuals, groups, or businesses) must
be capable of entering into a contract per the law. For an insurance contract, the insurer
(insurance company) is considered competent if it is licensed or approved by the state
or states in which it conducts business.
The applicant is presumed to be a competent party, unless one of these exceptions
apply:

Mentally Incompetent

Minor

Under the influence of alcohol or drugs


If one of the parties is not competent, then the contract is voidable by the incompetent
party.
5) Legal Form
Contracts must also follow the laws and guidelines of state regulations. For example- not
all contracts are required to be in written form, but state laws might mandate a written
contract to make it binding.
State Insurance Regulation attempts to accomplish the following (MAPS):
Maintain competition. Available coverage to all that want and need it. Protect policy
owners against insurer mistreatment. Save the solvency of insurers If an insurance
contract lacks one of the five characteristics of a valid contract above, the contract will
not posses legal effect and cannot be enforced by either party.

THE DOS & DONTS IN INSURANCE

Pay premium by
cheque/DD/payorders/Online
payment modes
Insist for receipt of premium paid
Fill up the proposal form yourself and
give complete & factual information,
false or misleading information may
lead to dispute at the time of claim
Disclose all material facts viz. any
disease suffered in the past, details
of claims taken on the expiring policy,
On receipt, verify policy details. In
case of any discrepancy, report
immediately to avoid any
inconvenience
Provide updated address and contact
no for correspondence
Buy policies from Licensed IRDA
agents & brokers
Please report if policy is not received
within 15 days after payment of
premium

Don't pay cash to any


unauthorized person
Don't sign a blank
proposal form
Don't provide false or
misleading information
Don't leave any portion
of the proposal form
blank or unanswered
Don't share sensitive
information viz. credit
card, debit card, bank
details etc over phone to
the tele caller

IMPORTANT DOCUMENTS
PERTAINING TO INSURANCE
The need for insurance is driven by peace of mind on
the part of the insurer for his/her loved ones if an
adverse situation should arise. So it would be
common sense to assume that insurance documents
and details of insurance policies should be easy to
locate should a loved one need to make a claim. The
archive for insurance documents should include all
insurance policies and their relevant details.
Hard copies of all policies
List of all policies, their amounts, nominations and
including a who to contact column which contains
phone numbers and contact details of insurers in
case of someone needing to make a claim in your
absence

DONE BY:DEEPIKA R
PARASWANI
CLASS- XI-D
ROLL NO.-11410

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