Insurance Expert

December 29, 2009

LIFE INSURANCE CONTRACTS

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A life insurance policy promises that the insurer will pay to the policyholder a certain sum of money if the person insured dies or any other soecified contingency happens. It is a contract, within the meaning of the Indian Contract Act, 1872. A contrct is an agreement between two or more parties to do, or not to do, so as to create a legally binding relationship. A simple contract must have the following essentials
Offer and acceptance
Consideration
Capacity to contract
Consensus ‘ad item’
Legality of object or purpose
Capability of performance
Intention to create legal relationship
Insurance is a contract between the insurer and the policyholder. The policyholder can be different from the person whose life is insured, as will be seen later. Insurance is a specialised type of contract. Apart from the usual essentials of a valid contract, insurance contracts are subject to two additionl principles viz. Principle of Utmost Good Faith and the Principle of Insurable Interest. These apply to all insurances, both life and non-life.

A life insurance policy promises that the insurer will pay to the policyholder a certain sum of money if the person insured dies or any other specified contingency happens. It is a contract, within the meaning of the Indian Contract Act, 1872. A contract is an agreement between two or more parties to do, or not to do, so as to create a legally binding relationship. A simple contract must have the following essentials

Offer and acceptance

Consideration

Capacity to contract

Consensus ‘ad item’

Legality of object or purpose

Capability of performance

Intention to create legal relationship

Insurance is a contract between the insurer and the policyholder. The policyholder can be different from the person whose life is insured, as will be seen later. Insurance is a specialised type of contract. Apart from the usual essentials of a valid contract, insurance contracts are subject to two additional principles viz. Principle of Utmost Good Faith and the Principle of Insurable Interest. These apply to all insurances, both life and non-life.

December 20, 2009

Invention of Insurance

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Insurance has been known to exist in some form or other since 3000 BC. The Chinese traders, travelling treacherous river rapids would distribute their goods among several vessels, so that the loss from any one vessel being lost, would be partial and shared, and not total. The Babylonian writing off the loans, in case of the shipment  being stolen. The inhabitants of Rhodes adopted the principle of ‘general average’, whereby, if goods are shipped together, the owners would bear the losses in proportion, if loss occurs, due to jettisoning during distress.

The geeks had started benevolent societies in the late 7th century AD, to take care of the funeral and families of members who died. The friendly societies of England were similarly constituted.  The Great Fire of London in 1666, in which more than 13000 houses were lost, gave a boost to insurance and the first fire insurance company, called the Fire Office, was started in 1680.

December 17, 2009

Working Fuctionality of Insurance

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The mechanism of Insurance is very simple. People who are exposed to same risks come together and agree that, if any one of them suffers a loss, the others will share the loss and make good to the person who lost. All people who sent goods are exposed to the same risks, which are related to water damage, sinking of the vessel, piracy,etc. The owning factories are not exposed to these risks, but they are exposed to different kinds of risks like fire, hailstorms, earthquakes, lightning , burglary, etc.

Like this, different kinds of risks can be identified and separate groups made, including those exposed to such risks. By this method, the heavy loss that any one of them in the group may suffer (all of them may not suffer such losses at the same time) is divided into bearable small losses by all the others in the group. In other words, the risk is spread among the community and the likely big impact on one is reduced to smaller manageable impacts on all. Insurance helps to spread the cost or risks.

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December 13, 2009

Role Of Insurance In Economic Development

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For economic development, investment are necessary. Investments are made out of savings. A life insurance company is a major instrument for the mobilization of savings of people, particularly from the middle and lower income groups. These savings are channeled into investments for economic growth. The Insurance Act has strict provisions to ensure that insurance funds are invested in safe avenues, like Government bonds, companies with record of profits and so on.

The L.I.C is not an exception. All good life insurance companies have huge funds, accumulated through the payments of small amounts of premia of individuals. These funds are invested in ways that contribute substantially for the economic development of the countries in which they do business. The private insurers in India are new and have accumuated funds equal to about one-eight of the L.I.C’s. But even their investments in the various sectors and contributing directly and indirectly to the country’s economic development, would be of similar proportions.

November 18, 2009

Advantages Of Life Insurance

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Life insurance has no competition from any other business. Many people think that life insurance is an investment or a means of saving. This is not a correct view. When a person saves, the amount of funds available at any time is equal to the amount of money set aside in the past, plus interest. This is so in a fixed deposit in the bank, in national savings certificates, in mutual funds and all other savings instruments. If the money is invested in buying shares and stocks, there is the risk of the money being lost in the fluctuations of the stock market.

Even if there is no loss, the available money at any time is the amount invested plus appreciation. In life made, but the amount one wished to have at the end of the savings period. The final fund is secured from the very beginning. One is playing for it only as long as one lives or for a lesser period, if so chosen. The assured fund is not affected. There is no other scheme which provides this kind of benefit. Therefore life insurance has no substitute.

November 10, 2009

Insurance is a Social Security

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Under a socialistic system the responsibilities of full security would be placed upon the state to find resources for providing social security. In the capitalistic society, provisions of security is largely left to the individuals. The society provides instruments, which can be used in securing this aim. Insurance is one of them. In a capitalistic society too there is a tendency to provide some social security by the State under some schemes, where members are required to contribute e.g. the social security scheme in UK.

In India , Social security finds a place in our Constitution. Article 41 requires the state, within the limits of its economic capacity and development, to make effective provision for securing the right to work, to education and to provide public assistance in case of unemployment, old age, sickness and disablement and in other cases of undeserved want. Part of the State’s obligations to the poorer sections are met through the mechanism of the life insurance. As per the law and the directions of the regulatory authorities, insurance companies in India are obliged to extend insurance benefits to economically weaker sections of the society in the unorganized sector.

November 1, 2009

Insurance Of Intangibles

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The concept of insurance has been extended beyond the coverage of tangible assets. Exporters run the risk of losses, if the importers in the other country default in payments or in collecting the goods. They will also suffer heavily due to sudden changes in currency exchange rates, economic policies or political disturbances in the other country. These are dynamic risks and are insured.

Doctors and other professionals run the risk of being charged with negligence and subsequent liability for damages. The amounts in question can be fairly large, beyond the capacity of individuals to bear. These are insured. Thus, insurance is extended to intangibles. In some countries, the voice of a singer or the legs of a dancer may be insured. These are assets which produce the income and provide living to the owners. The object insured is intangible, but it is linked to a financial loss, and therefore becomes insurable. Indian non-life insurers are perhaps, considering the feasibility to insure such risks.

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