(C)Insurance-10

LOGISTIC
(a) Insurance
Meaning; Types of insurance: Life insurance, General insurance; (Fire, Health and Marine - meaning only)
principles of insurance.
Meaning:
Insurance may be defined as a contract in writing where-by one party (known as the insurer)
undertakes to indemnify the other party (called the insured) in consideration for a certain sum of
money (called premium) against any lossas a result of some uncertain event.
The event or contingency against which insurance is made is called the 'risk".
The contract providing for insurance is known as 'insurance policy’.
Types of insurance:
 Life insurance.
 Non-Life insurance (General insurance)
 Fireinsurance
 Health insurance
 Marine insurance.
 Motor Vehicle insurance
 Social Insurance
 Fidelity Insurance.
Life insurance
Life insurance may be defined as 'a contract whereby the insurer, in consideration of a premium,
undertakes to pay certain sum of money, either on the death of the insured or on the expiry of a
specified period, whichever is earlier.
Life insurance is not a contract of indemnity because sum assured is always payable and only the
time of payment is uncertain.
Therefore, life insurance is also called life assurance'*.
General insurance
General Insurance may be defined as a contract in writing whereby one party (known as the insurer)
undertakes to indemnify the other party (called the insured) in consideration for a certain sum of
money (called premium) against any loss as a result of some uncertain event.
General insurance is a contract of indemnity.
Health Insurance
Health insurance means insurance for protection of health against various types of diseases. In
caseof ill health, the insured person receives the cost of treatment/hospitalisation up to the insured
amount.
Mediclaim is the most popular health insurance policy.

Fire Insurance
Fire insurance may be defined as a contract in writing whereby the insurance company in
consideration of a sum of money (called premium) undertakes to indemnify the insured (owner of
the property) for any loss or damage to the insured property or goods caused by accidental fire. A
fire insurance policy is generally for one year.
Marine Insurance
Marine insurance is a contract of indemnity whereby the insurance company undertakes toindemnity
the insured for the loss or damageto the ship or cargo or freight on account of marine adventure.
Principles of Insurance.
What are the different Principles (elements) of Insurance?
1. Utmost good faith (Uberrimae Fidae)
An insurance contract is based on utmost good faith on the part of both the parties. It is the legal
duty of the proposer (one who wants to get an insurance policy) to disclose all the material facts
about the subject to be insured.
2. Insurable interest.
In the absence of insurable interest, a contract of insurance becomes a wagering contract which is
null and void and unenforceable at law.
A person is said to have an insurable interest in the subject matter insured, if he is benefitted by its
existence and suffers a financial loss by its destruction.
For example, a trader has insurable interest in his goods and creditor has insurable interest in the life
of the debtor till the loan is repaid. Thus insurable interest is the financial interest of the insured in
the subject matter of insurance.
3. Indemnity.
Indemnity means a promise to compensate in case of loss. The object of every insurance contract is
to place the insured as nearly as possible in the same financial position after the loss as he was
before the loss.
The insured is entitled to recover from the insurer only the amount of loss actually suffered. The
maximum amount of compensation will be upto the sum insured or the value of the policy. The
insured will not be allowed to make any profit out of the happening of any loss covered by insurance
contract.
Suppose A has insured his house for 10,00,000. Due to a fire A's house is destroyed but A has been
able to salvage household goods worth 50,000.A will be compensated up-to Rs. 9,50,000
(10,00,000-50,000).All insurance contracts except those of life insurance are contracts of indemnity
4. Doctrine of subrogation.
It implies that after indemnifying the insured for his loss the insurer becomes entitled to all the
rights and remedies relating to the property insured. The insurer shall step into the shoes of the
insured. Subrogation applies only after the insurer has paid the claim to the insured. Doctrine of
subrogation is a corollary [consequence] of indemnity.
For example, X insures his house against fire for Rs. S0,000. The house is put on fire by his
neighbour Y. X gets a claim of Rs.50,000 from the insurance company. Later on he also recovers Rs.
30,00 from Y. X will have to return Rs.30,000 to the insurance company. Doctrine of subrogation is
applicable to all contracts of indemnity and it is not applicable to life insurance. Insurer's right of
subrogation will extend only to the extent of the sum insured. The insurer can recover only what the
insured himself could recover.
5. Contribution.
When an insured has taken more than one policy on the same property, he shall not be entitled to
claim from each insurer more than the rateable proportion of the loss for which they are liable. He
cannot claim more than the total loss from all insurers put together.
The contributions payable by different insurers can be calculated with the help of the following
formula:
Sum insured with one insurance company X Amount of loss

Total sum insured with all the insurance companies
6. Causa proxima (Proximate cause).

In a contract of insurance, the insurer is liable only for insured perils and not for expected or
uninsured perils. "causa proxima non-remotaspectatur' i.e., only immediate cause and not the
remote cause is to be taken notice of, while determining the liability of the insurers.
For example, all passengers in an air flight are insured against death in the event of a plane crash.
One passenger dies due to heart attack in the plane itself. The insurance company is not liable to pay
compensation because plane crash is not the proximate cause of death.
7. Mitigation of loss.
According to this principle, it is the duty of the insured to take all possible steps to minimise the loss
or damage in case of a mishap. The insured should not be careless in the event of any accidental loss
Just because the property is insured. He should behave like a prudent person and make reasonable
efforts to save the insured property.
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LOGISTIC

The contract providing for insurance is known as 'insurance policy’.

General insurance is a contract of indemnity.

Mediclaim is the most popular health insurance policy.

What are the different Principles (elements) of Insurance?

1. Utmost good faith (Uberrimae Fidae)

Sum insured with one insurance company X Amount of loss

6. Causa proxima (Proximate cause).

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