In last few weeks, we are just dealing about the insurance and its terms. And now i am going to tell about some important terms about insurance. The life insurance business deals with risks relating to life of human beings. The circumstances that create the loss or damage(risks) are mainly two, death and old age. Insurance does not prevent either. It can mitigate the consequences in those circumstances. Human beings also run the risk of sickness, accidents and unemployment. These are insurable in non-life insurance. Sickness and accident risks, including disability, are insurable as supplementary benefits, also called riders, under life insurance policies.
December 30, 2009
December 29, 2009
Insurable Interest
All risks are not insurable. Otherwise, an insurance contract would be no different from a wagering contract or betting. It was explained earlier that speculative risks are not insurable. A wagering con tract is speculative in nature and is illegal in terms of Section 30 of the Indian Contract Act. A subject matter of a valid contract has to be legal. What distinguishes as insurance contract from a wagering contract and makes it non-speculative, is that the insured must have an insurable interest in the subject of insurance.
In simple terms, it means that the proposer must have a stake in the continuance of the subject matter insured and could suffer a loss, if the risk occurs. What is insured is the financial or pecuniary interest in the subject matter of insurance. The insured must be in a relationship with the subject matter of insurance, whereby he benefits from its safety and well being and would be prejudiced by its loss or damage.
December 20, 2009
Concept of Reinsurance
Insurance companies are taking risks. They have to pay claims as and when they occur. They cannot be sure when the claim will occur and how big the claim may be. This is so because of the very nature of perils. Insurers normally are financially sound enough to be able to pay claims. But there are limits. An event like the tsunami or a hurricane may generate claims amounting to crores of rupees, which may put a very heavy strain on the reserves of the insurer.
Insurers protect themselves from such situations, which may be beyond their capacity, by reinsuring the risk with other insurers. If there is a claim, the burden by the primary insurer and the reinsurers. There are some companies which are exclusively in the business of reinsurance. In India the General Insurance Corporation of India is the national reinsurer. Reinsurance business is placed globally. Where there is a major calamity, the claims affect several insurers all over the world, though the system of reinsurance.