What insurance does?
Economic value of assets: Assets is insured against the risk of being destroyed or made
non-functional due to any accidental occurrence.
There are two Typ of insurance
1) Life
2) Non Life
Insurance can exist only if there is a risk.
People having the same nature of risk come together and form a pool fund and is used to
protect against risk.
Insurance does not protect the asset nor prevents its loss. It just reduces the financial
impact of its loss to the owners and those who depend on it.
Business of insurance
Insurance companies bring together people who are exposed to the same risk and act as a
trustee for their fund and use it to compensate those who suffer a loss.
It works on the principle of transferring the risk of an individual to a group.
Indian contracts act 1872
All insurance comes under this act in India
The essentials of a valid contract of insurance are
1) Intention to create legal relation
2) Offer and acceptance
3) Consideration
4) Capacity to contract
5) Certainty of terms
6) Consensus ad idem
7) Legality of purpose
8) Possibility of performance
9) Principle of insurable interest
10) Principle of utmost good faith (Ubrema Fides)
Insurable interests
It exist if the policy owner or the nominee is likely to benefit financially if the insured
continues to live and is likely to suffer from an economic loss if the insured dies.
Principle of utmost good faith or Uberrima Fides
It is the duty of the proposer, the insured and the insurer to disclose all material facts fully
and accurately relating to risk to be covered whether required or not.
Non disclosure and misrepresentation can lead to cancellation of the policy.
Life insurance
1)
Term insurance: It pays a death benefit to legal heirs of a person should the insured
die during the term of the policy.
2)
Whole life insurance /term insurance: This guarantees a minimum death benefit
through out the course of life provided the required premium is paid.
3)
Endowment assurance: It pays out either on death of the insured or maturity
whenever it occurs after a fixed number of years.
4)
Annuities A form of pension in which the insurance company makes a series of
periodic payments to a person (annuitant) or his legal heirs or dependents over a
number of years (term) in return of the money paid to the insurance company either in
lump sum or in installments.
5)
Unit linked policy: A life insurance policy in which the benefits depend on the
performance of a portfolio of shares.
6)
Group life insurance: A life insurance that covers a number of people usually a
group of employees or the members of a particular club or association.
Insurance benefits under Income tax act 1961
Any sum received under life insurance is exempted from income tax U/S 10 sub section
10d. All premiums paid get a rebate u/s 88 subject to a specified sealing.
Married women property act 1874
Policy of husband cannot be attached to the creditors under any circumstances
Riders
Additional provisions, which can be, attached to a policy to cover some special
circumstances and give additional benefits.
Age :Age as per the company rules
Section 64vb of insurance act 1938
No risk to be assumed unless premiums are received in advance.
Premiums
The consideration is payable for a contract of insurance of life insurance.
Proposal form
The application in which the proposal is made.
Moral hazard
The incentive to cheat in the absence of penalties for cheating normally associated with
adverse selection.
Prohibition of rebates sec 41 of insurance act 1938
NO person is allowed to give a rebate of any kind to anybody under any circumstances...
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