36 2 1 7 Services Life and Non Life.1265

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2.1.7 Services : Life and Non-Life:
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Life insurance is a contract between an insured (insurance policy holder) and
aninsurer, where the insurer promises to pay a designated beneficiary a sum of money
(the "benefits") upon the death of the insured person. Depending on the contract,
other events such as terminal illness or critical illness may also trigger payment. The
policy holder typically pays a premium, either regularly or as a lump sum. Other
expenses (such as funeral expenses) are also sometimes included in the benefits.
Life policies are legal contracts and the terms of the contract describe the limitations
of the insured events. Specific exclusions are often written into the contract to limit
the liability of the insurer; common examples are claims relating to suicide, fraud,
war, riot and civil commotion.
Life-based contracts tend to fall into two major categories:
Protection policies – designed to provide a benefit in the event of specified event,

typically a lump sum payment. A common form of this design is term insurance.
Investment policies – where the main objective is to facilitate the growth of capital by
regular or single premiums. Common forms (in the US) are whole life, universal
life and variable life policies.
Insurance other than ‘Life Insurance’ falls under the category of General Insurance.
General Insurance comprises of insurance of property against fire, burglary etc,
personal insurance such as Accident and Health Insurance, and liability insurance
which covers legal liabilities. There are also other covers such as Errors and Omissions
insurance for professionals, credit insurance etc.
Non-life insurance companies have products that cover property against Fire and
allied perils, flood storm and inundation, earthquake and so on. There are products
that cover property against burglary, theft etc. The non-life companies also offer
policies covering machinery against breakdown, there are policies that cover the hull
of ships and so on. A Marine Cargo policy covers goods in transit including by sea, air
and road. Further, insurance of motor vehicles against damages and theft forms a
major chunk of non-life insurance business.
In respect of insurance of property, it is important that the cover is taken for the
actual value of the property to avoid being imposed a penalty should there be a claim.
Where a property is undervalued for the purposes of insurance, the insured will have
to bear some proportion of the loss. For instance if the value of a property is Rs.100
and it is insured for Rs.50/-, in the event of a loss to the extent of say Rs.50/-, the
maximum claim amount payable would be Rs.25/- (50% of the loss being borne by
the insured for underinsuring the property by 50%). This concept is quite often not
understood by most insured.
Personal insurance covers include policies for Accident, Health etc. Products offering
Personal Accident cover are benefit policies. Health insurance covers offered by non-
life insurers are mainly hospitalization covers either on reimbursement or cashless
basis. The cashless service is offered through Third Party Administrators who have
arrangements with various service providers, i.e., hospitals. The Third Party
Administrators also provide service for reimbursement claims. Sometimes the insurers
themselves process reimbursement claims.
Accident and health insurance policies are available for individuals as well as groups. A
group could be a group of employees of an organization or holders of credit cards or
deposit holders in a bank etc. Normally when a group is covered, insurers offer group
discounts.
Liability insurance covers such as Motor Third Party Liability Insurance, Workmen’s
Compensation Policy etc offer cover against legal liabilities that may arise under the
respective statutes— Motor Vehicles Act, The Workmen’s Compensation Act etc. Some
of the covers such as the foregoing (Motor Third Party and Workmen’s
Compensation policy ) are compulsory by statute. Liability Insurance not compulsory
by statute is also gaining popularity these days. Many industries insure against Public
liability. There are liability covers available for Products as well.
There are general insurance products that are in the nature of package policies
offering a combination of the covers mentioned above. For instance, there are
package policies available for householders, shop keepers and also for professionals
such as doctors, chartered accountants etc. Apart from offering standard covers,
insurers also offer customized or tailor-made ones.
Suitable general Insurance covers are necessary for every family. It is important to
protect one’s property, which one might have acquired from one’s hard earned
income. A loss or damage to one’s property can leave one shattered. Losses created
by catastrophes such as the tsunami, earthquakes, cyclones etc have left many
homeless and penniless. Such losses can be devastating but insurance could help
mitigate them. Property can be covered, so also the people against Personal Accident.
A Health Insurance policy can provide financial relief to a person undergoing medical
treatment whether due to a disease or an injury.
Industries also need to protect themselves by obtaining insurance covers to protect

their building, machinery, stocks etc. They need to cover their liabilities as well.
Financiers insist on insurance. So, most industries or businesses that are financed by
banks and other institutions do obtain covers. But are they obtaining the right covers?
And are they insuring adequately are questions that need to be given some thought.
Also organizations or industries that are self-financed should ensure that they are
protected by insurance.
Most general insurance covers are annual contracts. However, there are few products
that are long-term. It is important for proposers to read and understand the terms
and conditions of a policy before they enter into an insurance contract. The proposal
form needs to be filled in completely and correctly by a proposer to ensure that the
cover is adequate and the right one.

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2.1.7 Services : Life and Non-Life:

Life-based contracts tend to fall into two major categories:

Protection policies – designed to provide a benefit in the event of specified event,

Industries also need to protect themselves by obtaining insurance covers to protect

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