Unit 2

Insurance and Risk:

Introduction to Insurance

Every risk involves the loss of one or other kind. In older time, the contribution by the person
was made at the time of loss. Today, only one business, which offers all walks of life, is
insurance business. Owing to growing complexity of life, trade and commerce, individual and
business firms and turning to insurance to manage various risks. Every individual in this world is
subject to unforeseen uncertainties which may make him and his family vulnerable. At this place,
only insurance helps him not only to survive but also recover his loss and continue his life in a
normal manner.

Insurance is an important aid to commerce and industry. Every business enterprise involves large
number of risks and uncertainties. It may involve risk to premises, plant and machinery, raw
material and other things.  Goods may be damaged or may be destroyed due to fire or flood.
Some risk can be avoided by timely precautions and some are unavoidable and are beyond the
control of a business. These unavoidable risks can be protected by insurance. 

Insurance is a contract between two parties. One party is the insured and the other party is the
insurer. Insured is the person whose life or property is insured with the insurer. That is, the
person whose risks are insured is called insured. Insurer is the insurance company to whom risk
is transferred by the insured. That is, the person who insures the risk of insured is called insurer.
Thus insurance is a contract between insurer and insured. It is a contract in which the insurance
company undertakes to indemnify the insured on the happening of certain event for a payment of
consideration. It is a contract between the insurer and insured under which the insurer undertakes
to compensate the insured for the loss arising from the risk insured against. 

Insurable risk

Definition: A risk that conforms to the norms and specifications of the insurance policy in such a
way that the criterion for insurance is fulfilled is called insurable risk.

Description: There are various essential conditions that need to be fulfilled before acceptance of
insurability of any risk. In case of a scenario where the loss is too huge that no insurer would
want to pay for it, the risk is said to be uninsurable.

A risk may not be termed as insurable if it is immeasurable, very large, certain or not definable.
7 elements of an insurable risk are;

1. Large numbers of exposure units.

2. Define and measurable loss.

3. Determinable probability distribution.

4. Calculable chance of loss.

5. Fortuitous loss.

6. Non-catastrophic loss.

7. Premium should be economically feasible.

These are explained below;

1. Large Numbers of Exposure Units

The theory of insurance is based on the law of large numbers.

Therefore the prime necessity for a risk to be insurable is that there must be a sufficiently large
number of homogeneous exposures in order to combine losses that are reasonably predictable.

Lost data can be compiled over time, and losses for the group as a whole can be predicted with
some accuracy.

The loss costs can then be spread over all insured’s in the underwriting class. Also, the
probabilistic estimates used by the insurance company, by logic, assume a large number of units
in a distribution and insurance products are priced accordingly.

2. Define and Measurable Loss

A second requirement is that the loss should be both determinable and measurable. This means
the loss should be definite as to cause, time, place, and amount. Life insurance in most cases
meets this requirement easily.

The cause and time of death can be readily determined in most cases, and if the person is insured,
the face amount of the life insurance policy is the amount paid.

The losses are fairly predictable and can be measured in money terms. Loss of peace of mind,
tension etc. Or loss of life cannot be indemnified.

3. Determinable Probability Distribution

The probability distribution of happening of an adverse event if determinable. This condition is

necessary to establish the free premium according to the theory of equivalence.

If there is not determinable distribution, there is no question of issuing a cover by an insurance

company.

4. Calculable Chance of Loss

A fourth requirement is that the chance of loss should be calculable. The insurer must be able to
calculate both the average frequency and the average severity of future losses with some
accuracy.

This requirement is necessary so that a proper premium can be charged that is sufficient to pay
all claims and expenses and yield a profit during the policy period. Certain losses, however, are
difficult to insure because the chance of loss cannot be accurately estimated, and the potential for
a catastrophic loss is present.

Example: floods, wars, and cyclical unemployment occur on an irregular basis, and prediction of
the average frequency and the severity of losses are difficult.

Thus, without government assistance, these losses are difficult for private companies to insure.
5. Fortuitous Loss

The adverse event may or may not occur in future and once which the insurance company has no
control. Naturally, if the event is non-random or the loss has occurred in the past, there is no
question of insurance.

Also, it is important to note that randomness is ensured *by underwriters who guard against
adverse selection; the tendency of the poorer than average insured to seek or continue insurance
coverage.

6. Non-catastrophic Loss

The losses should be non-catastrophic. Not all the units in a homogeneous group will be subject
to an adverse event. This means that a large proportion of exposure units should not incur losses
at the same time.

As we stated earlier, pooling is the essence of insurance. If most or all of the exposure units in a
certain class simultaneously incur a loss, then the pooling technique breaks down and becomes
unworkable.

Premiums must be increased to prohibitive levels, and the insurance technique is so long a viable
arrangement by which losses of the few are spread over the entire group.

Example: insurers ideally wish to avoid all catastrophic losses. In reality, however, this is
impossible, because catastrophic losses periodically result from floods, hurricanes, tornadoes,
earthquakes, forest fires, and other natural disasters. Catastrophic losses can also result from acts
of terrorism.

7. Premium should be Economically Feasible

It is the final requirement that the premium should be economically feasible. The insured must be
able to pay the premium.

In addition, for the insurance to be an attractive purchase, the premiums paid must be
substantially less than the face value, or amount, of the policy.

Since the insurance pool is structured to be sufficiently large, the price charged by the insurer for
buying the risk is generally low. It should be sufficient to cause the rich for the insurer as well as
viable for the insured.
Social and Economic benefits of insurance

Insurance benefits individuals, organizations and society in more ways than the average person
realizes.  Some of the benefits of insurance are obvious while others are not.

1. The obvious and most important benefit of insurance is the payment of losses.  An
insurance policy is a contract used to indemnify individuals and organizations for covered
losses.

2. The second benefit of insurance is managing cash flow uncertainty.  Insurance provides

payment for covered losses when they occur.  Therefore, the uncertainty of paying for
losses out-of-pocket is reduced significantly.

3. A third and uncommon benefit of insurance is complying with legal requirements. 

Insurance meets statutory and contractual requirements as well as provides evidence of
financial resources.

4. Another very important benefit of insurance is promoting risk control activity.  Insurance
policies provide incentives to implement a loss control program because of policy
requirements and premium savings incentives.

5. The fifth benefit of insurance is the efficient use of an insured's resources.  Insurance
makes it unnecessary to set aside a large amount of money to pay for the financial
consequences of the risk exposures that can be insured.  This allows that money to be
used more efficiently.

6. Another uncommon, important benefit of insurance is support for the insured's credit. 

Insurance facilitates loans to individuals and organizations by guaranteeing that the
lender will be paid if the collateral for the loan is destroyed or damaged by an insured
event.  This reduces the lender's uncertainty of default by the party borrowing funds.

7. The seventh benefit of insurance is it provides a source of investment funds.  Insurance

companies collect premiums up front, invest those premiums in a variety of investment
vehicles, and pay claims if they occur.

8. The last benefit of insurance is reducing social burden.  Insurance helps reduce the
burden of uncompensated accident victims and the uncertainty of society.

Understanding these benefits is critical when analyzing the need for insurance and helps insureds
justify the purchase of insurance.   
Benefits to Business or Industry

(a) Shifting of Risk : Insurance is a social device whereby businessmen shift specific risks to the
insurance company. This helps

the businessmen to concentrate more on important business issues.

(b) Assuring Expected Profits : An insured businessman or policyholder can enjoy normal
expected profits as he would not be

required to make provisions or allocate funds for meeting future contingencies.

(c) Improve Credit Standing : Insured assets are easily accepted as security for loans by the
banks and financial institutions so

insurance improve credit standing of the business firm

(d) Business Continuation – With the help of property insurance, the property of business is
protected against disasters and chance of closure of business is reduced

Benefits to the Society

(a) Capital Formation : As institutional investors, insurance companies provide funds for
financing economic development. They mobilize the saving of the people and invest these saving
into more productive channels

(b) Generating Employment Opportunities : With the growth of the insurance business, the
insurance companies are creating more and more employment opportunities.

(c) Promoting Social Welfare : Policies like old age pension scheme, policies for education,
marriage provide sense of security to the policyholders and thus ensure social welfare.

(d) Helps Controlling Inflation : The insurance reduces the inflationary pressure in two ways,
first, by extracting money in supply to the amount of premium collected and secondly, by
providing funds for production narrow down the inflationary gap.
Government and Controlling Authorities:
 IRDA framework

A. Organizational Structure of IRDAI:

Composition of IRDAI:

As per Sec. 4 of IRDAI Act, 1999, the composition of the Authority is:

a) Chairman;

b) Five whole-time members;

c) Four part-time members,

(appointed by the Government of India)

IRDAI’s Head Office is at Hyderabad

All the major activities of IRDAI including ensuring financial stability of insurers and
monitoring market conduct of various regulated entities is carried out from the Head Office.

IRDAI’s Regional Offices are at New Delhi & Mumbai

The Regional Office, New Delhi focuses on spreading consumer awareness and handling of
Insurance grievances besides providing required support for inspection of Insurance companies
and other regulated entities located in the Northern Region. This office is functionally
responsible for licensing of Surveyors and Loss Assessors. Regional Office at Mumbai handles
similar activities, as in Regional Office Delhi, pertaining to Western Region.

B. Insurance Regulatory Framework:

1. Insurance Regulatory and Development Authority of India (IRDAI), is a statutory body

formed under an Act of Parliament, i.e., Insurance Regulatory and Development Authority Act,
1999 (IRDAI Act 1999) for overall supervision and development of the Insurance sector in India.

2. The powers and functions of the Authority are laid down in the IRDAI Act, 1999 and
Insurance Act, 1938. The key objectives of the IRDAI include promotion of competition so as to
enhance customer satisfaction through increased consumer choice and fair premiums, while
ensuring the financial security of the Insurance market.

3. The Insurance Act, 1938 is the principal Act governing the Insurance sector in India. It
provides the powers to IRDAI to frame regulations which lay down the regulatory framework for
supervision of the entities operating in the sector. Further, there are certain other Acts which
govern specific lines of Insurance business and functions such as Marine Insurance Act, 1963
and Public Liability Insurance Act, 1991.

4. IRDAI adopted a Mission for itself which is as follows:

 To protect the interest of and secure fair treatment to policyholders;

 To bring about speedy and orderly growth of the Insurance industry (including annuity
and superannuation payments), for the benefit of the common man, and to provide long
term funds for accelerating growth of the economy;

 To set, promote, monitor and enforce high standards of integrity, financial soundness, fair
dealing and competence of those it regulates;

 To ensure speedy settlement of genuine claims, to prevent Insurance frauds and other
malpractices and put in place effective grievance redressal machinery;

 To promote fairness, transparency and orderly conduct in financial markets dealing with
Insurance and build a reliable management information system to enforce high standards
of financial soundness amongst market players;

 To take action where such standards are inadequate or ineffectively enforced;

 To bring about optimum amount of self-regulation in day-to-day working of the industry

consistent with the requirements of prudential regulation.

5. Entities regulated by IRDAI:

a. Life Insurance Companies - Both public and private sector Companies

b. General Insurance Companies - Both public and private sector Companies. Among them, there
are some standalone Health Insurance Companies which offer health Insurance policies.

c. Re-Insurance Companies

d. Agency Channel

e. Intermediaries which include the following:

 Corporate Agents

 Brokers

 Third Party Administrators

 Surveyors and Loss Assessors.

6. Regulation making process:

  Section 26 (1) of IRDAI Act, 1999 and 114A of Insurance Act, 1938 vests power in the
Authority to frame regulations, by notification.

 Section 25 of IRDAI Act, 1999 lays down for establishment of Insurance Advisory
Committee consisting of not more than twenty five members excluding the ex-officio
members. The Chairperson and the members of the Authority shall be the ex-officio
members of the Insurance Advisory Committee.

 The objects of the Insurance Advisory Committee shall be to advise the Authority on
matters relating to making of regulations under Section 26.

 Accordingly the draft regulations are first placed in the meeting of Insurance Advisory
Committee and after obtaining the comments/recommendations of IAC, the draft
regulations are placed before the Authority for its approval.

 Every Regulation approved by the Authority is notified in the Gazette of India.

 Every Regulation so made is submitted to the Ministry for placing the same before the
Parliament.

7. The Authority has issued regulations and circulars on various aspects of operations of the
Insurance companies and other entities covering:

 Protection of policyholders’ interest

 Procedures for registration of insurers or licensing of intermediaries, agents, surveyors

and Third Party Administrators;

 Fit and proper assessment of the promoters and the management

 Clearance /filing of products before being introduced in the market

 Preparation of accounts and submission of accounts returns to the Authority.

 Actuarial valuation of the liabilities of life Insurance business and forms for filing of the
actuarial report;

 Provisioning for liabilities in case of non-life Insurance companies

 Manner of investment of funds and periodic reports on investments

 Maintenance of solvency

 Market conduct issues

C. Supervisory Role:
1. The objective of supervision as stated in the preamble to the IRDAI Act is “to protect the
interests of holders of Insurance policies, to regulate, promote and ensure orderly growth of the
Insurance industry”, both Insurance and Reinsurance business. The powers and functions of the
Authority are laid down in the IRDAI Act, 1999 and Insurance Act, 1938 to enable the Authority
to achieve its objectives.

2. Section 25 of IRDAI Act 1999 provides for establishment of Insurance Advisory Committee
which has Representatives from commerce, industry, transport, agriculture, consume for a,
surveyors agents, intermediaries, organizations engaged in safety and loss prevention, research
bodies and employees’ association in the Insurance sector are represented. All the rules,
regulations, guidelines that are applicable to the industry are hosted on the website of the
supervisor and are available in the public domain.

3. Section 14 of the IRDAI Act,1999 specifies the Duties, Powers and functions of the Authority.
These include the following:

 To grant licenses to (re) Insurance companies and Insurance intermediaries

 To protect interests of policyholders,

 To regulate investment of funds by Insurance companies, professional organisations

connected with the (re)Insurance business; maintenance of margin of solvency;

 To call for information from, undertaking inspection of, conducting enquiries and
investigations of the entities connected with the Insurance business;

 To specify requisite qualifications, code of conduct and practical training for

intermediary or Insurance intermediaries, agents and surveyors and loss assessors

 To prescribe form and manner in which books of account shall be maintained and
statement of accounts shall be rendered by insurers and other Insurance intermediaries;

D. Prudential approach: Reporting, Risk monitoring and intervention:

1. Reporting Requirements:

Insurers are required to submit various returns like financial statements on an annual basis duly
accompanied by the Auditors’ opinion statement on the annual accounts; reports of valuation of
assets, valuation of liabilities and solvency margin; actuarial report and abstract and annual
valuation returns giving information about the financial condition for life Insurance business;
Incurred But Not Reported claims in case of general Insurance business; Reinsurance plans on an
annual basis; and monthly statement on underwriting of large risks in case of general Insurance
companies; details of capital market exposure on a monthly basis; Investment policy, Quarterly
and annual returns on investments.
2. Solvency of Insurers:

In order to monitor and control solvency requirements, it has been made mandatory to the
insurers to submit solvency report on quarterly basis. In case of any deviation, the Supervisor
initiates necessary and suitable steps so as to ensure that the Insurer takes immediate corrective
action to restore the solvency position at the minimum statutory level.

Computation of solvency margin takes into account the inherent risk that respective line of
business poses to the insurer. Higher requirements are placed for risky lines of business
compared to others posing less risk to the insurers. Even though the insurers are required to
maintain a minimum solvency ratio of 150% at all times, the actual solvency margin maintained
by insurers are well above the required solvency margin leading to the solvency margin ratio
significantly higher than 150% on average.

Quarterly solvency ratio reports have to be submitted to the Supervisor, maintaining minimum
solvency ratio of 150%. This provides the regular a mechanism to monitor the solvency position
periodically over the financial year in order to ensure compliance with the requirements and
hence to initiate suitable action in the event of any early warning signal on the Insurer’s financial
condition.

3. Asset-Liability Management:

Under Asset-Liability Management reporting, Insurer must provide the year wise projected cash
flows, in respect of both assets and liabilities. Insurers must maintain mismatching reserves in
case of any mismatch between assets and liabilities as a part of the global reserves. Further, Life
insurers are required to submit a report on sensitivity and scenario testing exercise in the
prescribed format. Non-life insurers must submit a report on ‘Financial Condition’ covering the
sensitivity analysis of the financial soundness in meeting the policyholders’ liabilities.

The supervisor requires management of investments to be within the insurer’s own organization.
In order to ensure a minimum level of security of investments in line with Insurance Act
Provisions, the regulations prescribe certain percentages of the funds to be invested in
government securities and in approved securities. The regulatory framework lays down the
norms for the mix and diversification of investments in terms of Types of Investment, Limits on
exposure to Group Company, Insurer’s Promoter Group Company. Investment Regulations lay
down the framework for the management of investments. The exposure limits are also prescribed
in the Regulations. The Investment Regulations require a proper methodology to be adopted by
the insurer for matching of assets and liabilities.

4. Reinsurance:

Transfer of risk through Reinsurance is recognized only to the extent specified in the regulations.
Due safeguards are built in to ensure that adjustments are made to provide for quality of assets
held. No other risk transfer mechanism exists in the current system. In order to minimize the
counterparty risk, the re-insurers with whom business is placed must have the minimum
prescribed rating by an independent credit rating agency as specified in the regulations.
Legislation has specified the minimum capital requirements for an Insurance company. It further,
prescribes that Insurance companies can capitalize their operations only through ordinary shares
which have a single face value.

Reinsurer

General Insurance Corporation of India (GIC of India) is the sole National Reinsurer, providing
Reinsurance to the Insurance companies in India. The Corporation’s Reinsurance programme has
been designed to meet the objectives of optimising the retention within the country, ensuring
adequate coverage for exposure and developing adequate capacities within the domestic market.
It is also administering the Indian Motor Third Party Declined Risk Insurance Pool – a
multilateral Reinsurance arrangement in respect of specified commercial vehicles where the
policy issuing member insurers cede Insurance premium to the Declined Risk pool based on the
underwriting policy approved by IRDAI.

5. Corporate Governance:

In order to protect long- terms interests of policyholders, the IRDAI has outlined appropriate
governance practices applicable to Insurance companies for maintenance of solvency, sound
long-term investment policy and assumption of underwriting risks on a prudential basis from
time to time. The IRDAI has issued comprehensive guidelines for adoption by Insurance
companies on the governance responsibilities of the Board in the management of the Insurance
functions. These guidelines are in addition to provisions of the Companies Act, 1956, Insurance
Act, 1938 and other applicable laws.

Corporate Governance Guidelines issued by IRDAI, requires insurers to have in place requisite
control functions. The oversight of the control functions is vested with the Boards of the
respective insurer. It lays down the structure, responsibilities and functions of Board of Directors
and the senior management of the companies. Insurers are required to adopt sound prudent
principles and practices for the governance of the company and should have the ability to quickly
address issues of non-compliance or weak oversight and controls.

The Guidelines mandated the insurers to constitute various committees viz., Audit Committee,
Investment Committee, Risk Management Committee, Policyholder Protection Committee and
Asset-Liability Management Committee. These committees play a critical role in strengthening
the control environment in the company.

6. On and off site Supervision:

Onsite Inspections:
The Authority has the power to call for any information from entities related to insurance
business – Insurance companies and the intermediaries, as may be required from time to time.

On site inspection is normally carried out on an annual basis which includes inspection of
corporate offices and branch offices of the companies. These inspections are conducted with
view to check compliance with the provisions of Insurance Act, Rules and regulations framed
thereunder.

The inspection may be comprehensive to cover all areas, or may be targeted on one, or a
combination of, key areas. When a market-wide event having an impact on the insurers occurs,
the Supervisor obtains relevant information from the insurers, monitors developments and issues
directions as it may consider necessary. Though there is no specific requirement, events of
importance trigger such action. The supervisor reviews the “internal controls and checks” at the
offices of Insurance companies, as part of on-site inspection.

Off-site Inspection:

The primary objective of off-site surveillance is to monitor the financial health of Insurance
companies, identifying companies which show financial deterioration and would be a source for
supervisory concerns. This acts as a trigger for timely remedial action.

The off-site inspection conducted by analyzing periodic statements, returns, reports, policies and
compliance certificates mandated under the directions issued by the Authority from time to time.
The periodicity of these filings is generally annual, half-yearly, quarterly and monthly and are
related to business performance, investment of funds, remuneration details, expenses of
management, business statistics, auditor certificates related to various compliance requirements.

The statutory and the internal auditors are required to audit all the areas of functioning of the
Insurance companies. The particular area of focus is the preparation of accounts of the company
to reflect the true and fair position of the company as at the Balance Sheet date. The auditors also
examine compliance or otherwise with all statutory and regulatory requirements, and in
particular whether the Insurance company has been compliant with the various directions issued
by the supervisor. In addition, the Authority relies upon the certifications which form part of the
Management Report. The Board is required to certify that the management has put in place an
internal audit system commensurate with the size and nature of its business and that it is
operating effectively.

All Insurance companies are required to publish financial results and other information in the
prescribed formats in newspapers and on their websites at periodic intervals.

7. Micro Insurance and Rural & Social Sector Obligations

The IRDAI had issued micro Insurance regulations for the protection of low income people with
affordable Insurance products to help cope with and recover from common risks with
standardised popular Insurance products adhering to certain levels of cover, premium and benefit
standards. These regulations have allowed Non Governmental Organisations (NGOs), Self Help
Groups (SHGs) and other permitted entities to act as agents to Insurance companies in marketing
the micro Insurance products and have also allowed both life and non-life insurers to promote
combi-micro Insurance products.

The Regulations framed by the Authority on the obligations of the insurers towards rural and
social sector stipulate targets to be fulfilled by insurers on an annual basis. In terms of these
regulations, insurers are required to cover year wise prescribed targets (i) in terms of number of
lives under social obligations; and (ii) in terms of percentage of policies to be underwritten and
percentage of total gross premium income written direct by the life and non-life insurers
respectively under rural obligations.

Legal aspects of insurance

GENERAL LAW OF CONTRACTS

A contract is an agreement enforceable by law. It is the means by which one or more parties bind
themselves to certain promises. With a life insurance contract, the insurer binds itself to pay a
certain sum upon the death of the insured. In exchange, the policyowner pays premiums. The
voluntary act of terminating an insurance contract is called cancellation. For a contract to be
legally valid and binding, it must contain certain
elements - offer and acceptance, consideration, legal purpose, and competent parties. Let’s
consider each.

Offer and Acceptance

To be legally enforceable, a contract must be made with a definite, unqualified proposal

(offer) by one party and the acceptance of its exact terms by the other. In many cases, the offer of
an insurance contract is made by the applicant when the application is submitted with the initial
premium. The insurance company accepts the offer when it issues the policy as applied
for. When an offer is answered by a counteroffer, the first offer is void.

Consideration

For a contract to be enforceable, the promise or promises it contains must be supported by

consideration. Consideration can be defined as the value given in exchange for the promises
sought. In an insurance contract, consideration is given by the applicant in exchange for the
insurer’s promise to pay benefits. It also consists of the application and the initial premium. This
is why the offer and acceptance of an insurance contract are not complete until the insurer
receives the application and the first premium. The Consideration clause also contains
information such as the schedule and amount of premium payments.
Legal Purpose

To be legal, a contract must have a legal purpose. This means that the object of the contract
and the reason the parties enter into the agreement must be legal. A contract in which one party
agrees to commit murder for money would be unenforceable in court because the object or
purpose of the contract is not legal. Insurance contracts are always considered to possess a legal
purpose.

Competent Parties

To be enforceable, a contract must be entered into by competent parties. With a contract of

insurance, the parties to the contract are the applicant and the insurer. The insurer is considered
competent if it has been licensed or authorized by the state(s) in which it conducts business. The
applicant, unless proven otherwise, is presumed to be competent with three possible exceptions:

► Minors

► The mentally infirm

► Those under the influence of alcohol or narcotics Each state has its own laws governing the
legality of minors and the mentally infirm entering into contracts of insurance. These laws are
based on the principle that some parties are not capable of understanding the contract they agree
to.

SPECIAL FEATURES OF INSURANCE CONTRACTS

The elements just discussed must be contained in every contract for it to be enforceable by law.
In addition to these, insurance contracts have distinguishing characteristics that set them apart
from many other legally binding agreements. Some of these characteristics are unique to
insurance contracts. Let’s review these distinctions.

Aleatory (偶然性)

Insurance contracts are aleatory. This means there is an element of chance and potential
for unequal exchange of value or consideration for both parties. An aleatory contract is
conditioned upon the occurrence of an event. Consequently, the benefits provided by an
insurance policy may or may not exceed the premiums paid. For example, an individual who has
a disability insurance policy will collect benefits if she becomes disabled. However, if no
disability strikes, benefits are not paid. Both insurance and gambling contracts are typically
considered aleatory contracts.

Adhesion

Insurance contracts are contracts of adhesion. This means that the contract has been prepared by
one party (the insurance company) with no negotiation between the applicant and insurer. In
effect, the applicant “adheres” to the terms of the contract on a “take it or leave it” basis when
accepted. Any confusing language in a contract of adhesion would be interpreted in favor of the
insured. The purpose is to correct any advantage that may result for the party who prepared the
contract. A policy of adhesion can also be described as one which the insurance company can
modify.

Unilateral

Insurance contracts are unilateral. This means that only one party (the insurer) makes any kind of
enforceable promise. Insurers promise to pay benefits upon the occurrence of a specific event,
such as death or disability. The applicant makes no such promise. In fact, the applicant does not
even promise to pay premiums. The insurer cannot require the premiums to be paid. Of course,
the insurer has the right to cancel the contract if premiums are not paid.

总结: 单方面性指只有保险公司对受保人做出承诺。

Personal Contract

Life insurance is a personal contract or personal agreement between the insurer and the insured.
The owner of the policy has no bearing on the risk the insurer has assumed. For this reason,
people who buy life insurance policies are called policy owners rather than policyholders. Policy
owners actually own their policies and can give them away if they wish. This transfer of
ownership is known as assignment. To assign a policy, a policy owner simply notifies the insurer
in writing. The company will then accept the validity of the transfer without question. The new
owner is granted all of the rights of policy ownership.

Conditional

An insurance contract is conditional. This means that the insurer’s promise to pay benefits
depends on the occurrence of an event covered by the contract. If the event does not materialize,
no benefits are paid. Furthermore, the insurer’s obligations under the contract are conditioned on
the performance of certain acts by the insured or the beneficiary. For example, the timely
payment of premiums is a condition for keeping the contract in force. If premiums are not paid,
the company is relieved of its obligation to pay a death benefit.

Valued or Indemnity

An insurance contract is either a valued contract or an indemnity contract. A valued contract

pays a stated sum regardless of the actual loss incurred. Life insurance contracts are valued
contracts. If an individual acquires a life insurance policy insuring her life for $500,000, that is
the amount payable at death. There is no attempt to value actual financial loss upon a person’s
death.
An indemnity contract, however, is one that pays an amount equal to the loss. Contracts of
indemnity attempt to return the insured to their original financial position. Fire and health
insurance policies are examples of indemnity contracts. An insured that owns a $50,000 fire
insurance policy and suffers a $5,000 loss due to fire will be able to collect up to $5,000, not
$50,000.

Utmost Good Faith

Insurance is a contract of utmost good faith. This means both the policyowner and the insurer
must know all material facts and relevant information. There can be no attempt by either party to
conceal, disguise, or deceive. A consumer purchases a policy based largely on the insurer and
agent’s explanation of the policy’s features, benefits, and advantages. Insurance applicants are
required to make a full, fair and honest disclosure of the risk to the agent and insurer. Concepts
related to utmost good faith include warranties, representations, and concealment. These
represent grounds through which an insurer might seek to avoid payment under a contract.

Warranty

A warranty in insurance is a statement made by the applicant that is guaranteed to be true in

every respect. It becomes part of the contract and, if found to be untrue, can be grounds for
revoking the contract. Warranties are presumed to be material because they affect the insurer’s
decision to accept or reject an applicant.

Representation

A representation is a statement made by the applicant that they consider to be true and accurate
to the best of the applicant’s belief. It is used by the insurer to evaluate whether or not to issue a
policy. Unlike warranties, representations are not a part of the contract and need be true only to
the extent that they are material and related to the risk. Statements made by applicants for
insurance are considered to be representations and not warranties.

Concealment The issue of concealment is also important to insurance contracts. Concealment is

defined as the failure by the applicant to disclose a known material fact when applying for
insurance. If the purpose for concealing information is to defraud the insurer (that is, to obtain a
policy that might not otherwise be issued if the information were revealed), the insurer may have
grounds for voiding the policy. Again, the insurer must prove concealment and materiality.

In most cases, life insurers have only a limited period of time to uncover false warranties,
misrepresentations, or concealment. After that time period passes (normally two years from
policy issue), the contract cannot be voided or revoked for these reasons.

Insurable Interest (可保权益)

Another element of a valid insurance contract is insurable interest. Insurable interest is a
component of legal purpose. This means that the person acquiring the contract (the applicant)
must be subject to loss upon the death, illness, or disability of the person being insured. To have
“an insurable interest” in the life of another person, an individual must have a reasonable
expectation of benefiting from the other person’s continued life. A policy obtained by a person
not having an insurable interest in the insured is not valid and cannot be enforced. Thus,
insurable interest must exist between the applicant and the individual being insured. When the
applicant is the same as the person to be insured, there is no question that insurable interest
exists. Individuals are presumed to have insurable interest in themselves.

It is important to note that insurable interest must only exist at the time of the application of a life
or health insurance contract. It doesn’t have to continue throughout the duration of the policy nor
does it have to exist at the time of claim.

Stranger-Originated Life Insurance (STOLl)

Stranger-Originated Life Insurance (STOLI) transactions are life insurance arrangements where
investors persuade individuals (typically seniors) to take out new life insurance, naming the
investors as beneficiary. This is sometimes called Investor-Originated Life Insurance (IOLI).
These arrangements are used to circumvent state insurable interest statutes.

Generally, the investors loan money to the insured to pay the premiums for a defined period
(usually two years based on the life insurance policy’s contestability period).

Eventually the insured assigns ownership to the investors, who receive the death benefit when
the insured dies. In return, the seniors receive financial incentives. This normally includes: an
upfront payment, a loan, or a small continuing interest in the policy’s death benefit. After the two
year period, the investors make the premium payments on behalf of the insured.

AGENTS AND BROKERS

Contracts of insurance are binding and enforceable. As such, all parties to the contract (the
insurer and the applicant) are subject to specific legal requirements. We discussed some of the
more important regulations that states impose on people who solicit and sell insurance. Next, we
will focus on the legal aspects of negotiating and issuing contracts of insurance.

The Law of Agency

As noted earlier, an agent is an individual who is authorized by an insurer to sell its goods and
services on its behalf. An agent’s role involves the following duties:

► Describing the company’s insurance policies to prospective buyers and explaining the
conditions under which the policies may be obtained

► Soliciting applications for insurance

► Collecting premiums from policyowners

► Rendering service to prospects and to those who have purchased policies from the company

The authority of an agent to undertake these functions is clearly defined in a “contract of agency”
(or agency agreement) between the agent and the company. Within the authority granted, the
agent is considered to be the insurance company. The relationship between an agent and the
company represented is governed by agency law.

Principles of Agency Law

By legal definition, an agent is a person who acts for another person or entity (known as the
principal) with regard to contractual arrangements with third parties. An authorized agent has the
power to bind the principal to contracts (and to the rights and responsibilities of those contracts).
With this in mind, we can review the main principles of agency law:

► The acts of the agent (within the scope of his authority) are the acts of the principal

► A contract completed by an agent on behalf of the principal is a contract of the principal

► Payments made to an agent on behalf of the principal are payments to the principal

► Knowledge of the agent regarding business of the principal is presumed to be knowledge of

the principal

Agent Authority

Agent authority is another important concept of agency law. Authority is what’s given by an

insurer to a licensee to transact insurance on their behalf. Technically, only those actions for
which an agent is actually authorized can bind a principal. In reality, an agent’s authority can be
quite broad. There are three types of agent authority: express, implied, and apparent. Let’s take a
look at each.

1. Express authority. Express authority is the authority a principal deliberately (故意地)

gives to its agent. Express authority is granted by means of the agent’s contract, which is
the principal’s appointment of the agent to act on its behalf. For example, an agent has
the express authority to solicit applications for insurance on behalf of the company. (指为
了工作需要, 代理所拥有的权利, 例如签字。)

2. Implied authority. Implied authority is the unwritten authority that is not expressly
granted, but which the agent is assumed to have in order to transact the business of the
principal. Implied authority is incidental to express authority because not every single
detail of an agent’s authority can be spelled out in the agent’s contract. For example, an
agent’s contract may not specifically state that he can print business cards that contain the
 company’s name, but the authority to do so is implied. (例如代理的名片上可以冠以保
险公司的名字, 尽管无明文规定。)

3. Apparent authority. Apparent authority is the appearance or assumption of authority

based on the actions, words, or deeds of the principal. It can also exist because of
circumstances the principal created. For example, by providing an individual with a rate
book, application forms, and sales literature, a company creates the impression that an
agency relationship exists between itself and the individual. The company will not later
be allowed to deny that such a relationship existed. (明文规定的权利)

► The significance of authority (whether express, implied, or apparent) is that it ties the
company to the acts and deeds of its agents. The law will view the agent and the company as one
and the same when the agent acts within the scope of his authority. ► An insurer may be liable
to an insured for unauthorized acts of its agent when the agency contract is unclear about the
authority granted.

Agent as a Fiduciary (受托人)

Fiduciary is another legal concept which governs the activity of an agent. A fiduciary is a person
who holds a position of financial trust and confidence. Agents act in a fiduciary capacity when
they accept premiums on behalf of the insurer or offer advice that affects a person’s financial
security.

Brokers versus Agents

Unlike agents, brokers legally represent the insureds. A broker (or independent agent) may
represent a number of insurance companies under separate contractual agreements. A broker
solicits and accepts applications for insurance and then places the coverage with an insurer.

Professional Liability Insurance (E&O)

Just as doctors should have malpractice insurance to protect against legal liability arising from
their professional services, insurance agents need errors and omissions (遗漏) (E&O)
professional liability insurance. Under this insurance, the insurer agrees to pay sums that the
agent legally is obligated to pay for injuries resulting from professional services that he rendered
or failed to render.

https://www.policybazaar.com/corporate-insurance/articles/what-is-professional-indemnity-
insurance/#:~:text=Professional%20Indemnity%20Insurance%20Policy%20is%20offered%20to
%20professionals%20like%20Lawyers,insurance%20provider%20is%2012%20months.

OTHER LEGAL CONCEPTS

In addition to the principles of contract and agency law, there are other legal concepts that apply
to insurance and the power of agents. These include waiver, estoppel, parol evidence rule, void
vs voidable contracts, and fraud.

Waiver

A waiver is the voluntary giving up of a legal, given right. If an insurer fails to enforce (waives)
a provision of a contract, it cannot later deny a claim based on a violation of that provision.

Estoppel (不容反悔)

The concepts of waiver and estoppel are closely related. Estoppel is the legal impediment to one
party denying the consequences of its own actions or deeds if such actions or deeds result in
another party acting in a specific manner or if certain conclusions are drawn. In other words, it is
the loss of defense.

Parol Evidence Rule

Parol evidence is oral or verbal evidence, or that which is given verbally in a court of law. The
parol evidence rule states that when parties put their agreement in writing, all previous verbal
statements come together in that writing and a written contract cannot be changed or modified by
parol (oral) evidence.

Void versus Voidable Contracts

The terms void and voidable are often incorrectly used interchangeably. A void contract is
simply an agreement without legal effect. In essence, it is not a contract at all, for it lacks one of
the elements specified by law for a valid contract. A void contract cannot be enforced by either
party. For example, a contract having an illegal purpose is void, and neither party to the contract
can enforce it. An insurer may also void an insurance policy if a misrepresentation on e
application is proven to be material.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
~~~~~~~ A **voidable contract is an agreement which, for a reason satisfactory to the court,
may be set aside by one of the parties to the contract. It is binding unless the party with the right
to reject it wishes to do so. Say that a situation develops under which the policyholder has failed
to comply with a condition of the contract: the policyholder ceased paying the premium. The
contract is then voidable, and the insurance company has the right to cancel the contract and
revoke the coverage.

Fraud

In the event of fraud, insurance contracts are unique in that they run counter to a basic rule of
contract law. Under most contracts, fraud can be a reason to void a contract. With life insurance
contracts, an insurer has only a limited period of time (usually two years from date of issue) to
challenge the validity of a contract. After that period, the insurer cannot contest the policy or
deny benefits based on material misrepresentations, concealment, or fraud.

Essentials of Insurance contracts

Insurance means protection against loss. It is the process of safeguarding the interest of people
from loss and uncertainty. It is based on contract. It is a valid agreement that incorporates certain
terms and conditions. It may be described as a social device to reduce or eliminate a risk of loss
to life and property. The essential elements of insurance are listed below:

1. Agreement

The agreement means communication by the parties to one another regarding their intentions to
create a legal relationship. For a valid contract of insurance, there must be an agreement between
the parties. That is one making offer or proposal and another accepting the proposal or signifying
his acceptance of the proposal.

2. Free consent

There must be free consent between the two parties in the contract. Parties entering into the
contract should enter it by their free will and consent.

The contract entered via undue force, influence, fraud, misrepresentation, hiding the facts is not
the valid contract. Consent received forcefully can't be a free consent.

3. Components of the contract

An agreement must be legally competent between the parties to enter into the contract. It means
both parties in the insurance contract must be at

the age of majority. He/she must have a sound mind and not disqualified by the law of the
country. It states that a person who is minor, lunatics,

idiot and alike cannot enter into an insurance contract. The contract done with these parties will
be declared as void.

4. Increase self-respect

There is a direct connection between self-respect and independence of a person in society.

Insurance supports to the person to be independent. It provides economic support to an
individual, businessman which helps to increase the self-respect of the person in the society.
5. Legal consideration

There must be valid considerations in a valid insurance contract. Consideration is the value that
each party gives to the other party. For the establishment of the legal relationship, there should
be a creation of an obligation between them and to make it enforceable by law there must be a
lawful consideration.

6. Compliance with legal formalities

In the contract of insurance, the agreement between parties must be in written form and signed
by both the parties. It must be properly tested by the witness and registered otherwise, it may not
be enforced by the court.

7. Competent of contract

The parties to the contract should satisfy certain qualifications to enter into contracts. A person
who is at the age of majority according to the law, who is of sound mind and who is not
disqualified by the law can enter into the contract. So, the person of unsound mind, disqualified
and minors cannot enter into insurance contracts. A contract made by incompetent parties will be
invalid.

8. Certainty

The terms and conditions of a contract should be clear and certain. They should be clearly
understood by both parties. Hence, to make it clear and certain, the insurance company provides
a printed policy document. It contains all the terms and conditions of the policy.

9. Insurable interest

Insurable interest refers that the insured must suffer if the loss takes place in the property. In the
case of a property interest, ownership of property can support to insurable interest but in the case
of life insurance, close family ties or marriage will satisfy the requirement of insurable interest.

10. Encourage Saving

The insurance should pay the amount of premium regularly and compulsorily. It develops the
habit of saving. The deposited insurance premium cannot be withdrawn like a bank deposit. Life
insurance is the best method of saving an investment. It is a good means to make provision for
retirement age.

11. Writing and registration

The insurance contract must be in writing, duly signed, stamped and registered.

12. Warranties
Certain conditions and promises imposed in the contract are called warranties. A warranty is that
by which the insured undertakes that some particular thing shall or shall not be done. Warranty is
a very important condition in an insurance contract which is to be fulfilled by the insurance
company.

Principles of insurance

Insurance is a contract between the insurer and the insured. It needs to follow some certain basic
principles. Every business has their own values and assumptions which play important role in
related business. To run the insurance business effectively, it has its own values, assumptions,
and guidelines. Such values, assumptions, and guidelines are known as principles. The principles
of insurance are listed below:

Principle of Indemnity

The principle of indemnity states that the insurer agrees to pay no more than the actual amount of
loss. Indemnity is the security or compensation against loss or damage. The principle of
indemnity is such principle of insurance stating that an insured may not be compensated by the
insurance company in an amount exceeding the insured’s economic loss.

Principle of Utmost Good Faith

An insurance contract is based on the principle of utmost good faith. Under this insurance
contract, both the parties should have faith over each other. They must behave or act in utmost
good faith. As a client, it is the duty of the insured person to disclose all the facts to the insurance
company. Any fraud or misrepresentation of facts can result in cancellation of the contract.

Principle of Insurable Interest

Under this principle of insurance, the insured must have an interest in the subject matter of the
insurance. In the absence of insurable interest, no one can get a property insured and can claim
the compensation of loss from the insurance company by destroying property.

Principle of Proximate Cause

The proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This principle is
applicable when the loss is the result of two or more causes. The proximate cause means; the
most dominant and most effective cause of loss. This principle is applicable when there are series
of causes of damage or loss.

The Principle of Loss Minimization: This principle says, that the insured must take all
necessary steps to curtail the loss of insured property, in the case of events like fire, blast, etc.
Just because the insured has an insurance policy, it doesn’t mean that he/she can act negligently.
It is the main responsibility of the insured to act diligently and take all steps to cut losses to the
insured property.

Arbitration

An alternative dispute resolution clause in a contract that requires the parties to resolve disputes
arising out of or concerning the contract through arbitration as opposed to mediation or litigation.
Usually, each party appoints an arbitrator. The two arbitrators select a third, or an umpire, and a
majority decision of the three becomes binding on the parties in the arbitration proceedings.

Average

When you insure your assets, like a building, you advise your Insurer of the ‘insurance value’
which then forms the sum insured under your policy. The insurer charges you an Insurance
Premium based on this declared sum insured.

If you get this insurance value wrong and it is lower than the real value at risk, then your
premium will be based on the wrong value and will be lower than you should have paid to cover
the property at risk.

It would not be fair on the insurer and their other customers if you received a full insurance
payment if you have only paid a part of the whole premium that should be due. To protect
Insurers in this scenario, the policy contains a Condition of Average.

Simply the Condition of Average says that if you declare an insured value that is X% of the true
value, then you have only paid X% of the premium due and will only receive X% of your claim.

An Example of the Condition of Average being applied in an Insurance Claim

If a policy of insurance covering a building has a sum insured of £80,000 and at the time of a
loss the real insurance value is £100,000 then the proportion of Average  would be
£80,000/£100,000 or 80%. You will only receive 80% of any loss you suffer.

Now consider that you suffer damage of £5,000 and there is a £250 policy excess. This means
your claim would be reduced as follows:

 Claim £5,000 x 80% Average = £4,000

 Less policy excess: £250

 Insurer’s payout: £3,750

Note the policy excess is deducted after the claim has been reduced by average so the impact is
not watered down. This might seem harsh, but Insurers want to encourage customers to think
carefully about insurable values and declare these honestly so as to contribute a fair premium
into the pool of premiums from which everyone’s claims are paid.
Classification of insurance:

Life insurance:

Meaning

Life Insurance is an arrangement between the Insurance company/Government which guarantees

of compensation for loss of life in return for payment of a specified premium. In Life Insurance,
the beneficiary whose name has been mentioned in the contract receives the specified sum, from
the insurer in case of happening of the event i.e. Loss of Life.

Features and Benefits

1. Risk Coverage: Insurance provides risk coverage to the insured family in form of monetary
compensation in lieu of premium paid.

2. Difference plans for different uses: Insurance companies offer a different type of plan to the
insured depending on his need for insurance. More benefits come with the more premium.

3. Cover for Health Expenses: These policies also cover hospitalization expenses and critical
illness treatment.

4. Promotes Savings/ Helps in Wealth creation: Insurance policies also come with the saving
plan i.e. they invest your money in profitable ventures.

5. Guaranteed Income:  Insurance policies come with the guaranteed sum assured amount
which is payable on happening of the event.

6.  Loan Facility: Insurance companies provide the option to the insured that they can borrow a
certain sum of amount. This option is available on selected policies only.  

7. Tax Benefits: Insurance premium is tax deductible under section 80C of the income tax Act,
1961.

Types of plans

Types of Life Insurance - Importance

When buying life insurance, you can be overwhelmed by an avalanche of information. The basic
premise of Life insurance policy is Protection but there are certain products available in the
market which allows the policyholder to use it as a wealth creation & long term savings tool.
There are various types of life insurance available in the market today. Types of life insurance
policies can be classified in terms of the customer segment they cater to such as child insurance
plans, retirement plans and savings and investment plans. On the other hand they can be
categorised by the benefits/ coverage that they provide such as term life insurance, whole life
policy, Endowment Policy.

Types of Life Insurance Policies in India

1. Term Life Insurance 

2. Whole Life Insurance 

3. Endowment Policy 

4. Money Back Policy 

5. Savings & Investment Plans 

6. Retirement Plans 

7. Unit Linked Insurance Plans – Ulips 

8. Child Insurance Policy

Term Life Insurance 

Term life insurance is a type of life insurance that provides a death benefit to the beneficiary
only if the insured dies during a specified period. If the insured survives until the end of the
period, or term, the coverage ceases without value and a payout or death claim cannot be made.
Term life insurance is income replacement that remains active for a specified number of years.
Term life insurance is the most affordable type of life insurance. It can further be classified into:

 Level Term Life Insurance: where the death benefit remains the same throughout the
policy term and the renewal premium is constant.

 Decreasing Term Life Insurance: where the death benefit under the plan decreases with
time and the renewal premium is constant. For example: Mortgage redemption policies,
credit life insurance.

 Increasing Term Life Insurance: where the coverage and premium increase.

Benefits of Term Life Insurance Plans

  Provides life coverage and financial security to the family of the insured at an affordable
premium rate.

 Term insurance plans can be bought online in a simple and hassle freeway.

 As compared to other life insurance policies term insurance plans offer higher coverage
at a minimum premium rate.

 Term insurance plans offer flexible payout options to the policyholder.

 The premiums paid towards the term insurance plans are eligible for tax exemption under
section 80C of Income Tax Act 1961.

 Term insurance plans also offer the option of additional rider benefit in order to enhance
the coverage of the policy.

Whole Life Insurance 

Whole life insurance is a type of life insurance that provides you coverage throughout your
lifetime provided the policy is in force. Whole life insurance policies also contain a cash value
component that increases over time. You can withdraw your cash value or take out a loan against
it as per your convenience. In addition, in case of your unfortunate demise before you pay back
the loan, the death benefit paid to your beneficiaries will be reduced.

Benefits of Whole Life Insurance Policy

 One of the major benefitsof whole life insurance plan is that it provides coverage against
death for the entire life of the insured i.e. up to 100 years of age.

 Some whole life insurance plans offer the advantage of period payment to the insured.
The whole life insurance plans offer survival benefits to the insured in form of period
payments.

 Tax benefit can be availed under section 80C and 10(10D) of Income Tax Act 1961.

 Whole life insurance plans offer loan facility to the policyholder.

 The whole life insurance plans can be bought online in a simple and hassle-free way.

Endowment Policy 

An endowment policy is defined as a type of life insurance that is payable to the insured if he/she
is still living on the policy's maturity date, or to a beneficiary otherwise. An endowment policy
provides you with a dual combination of protection and savings. In an endowment policy, if the
insured dies during the term of the policy, the nominee receives the sum assured plus the bonus
or participating profit or guaranteed additions, if any. The bonus or profit is paid for the number
of years that the insured survives in the policy term.

Benefits of Endowment Policy

 Endowment plan provides the dual benefit of savings cum insurance coverage.

 Tax benefit can be availed under section 80C and 10(10D) of Income Tax Act 1961.

 Endowment policy offers the benefit of long term savings to the policyholder.

 Endowment plans also come with rider benefits to increase the coverage of the policy.

 Endowment plan also comes with an additional bonus facility as a terminal bonus and
reversionary bonus.

 As compared to the other investment options endowment plans are considered as a low
risk investment option.

Money Back Policy 

Money back policy gives you money during the policy tenure. A money back policy gives you a
percentage of the sum assured at regular intervals during your policy term. If you live beyond the
term of the policy then you will receive the remaining portion of the corpus and the accrued
bonus also at the end of the policy term.

But in case of an unfortunate event before the full term of the policy is over; the beneficiaries are
entitled to receive the entire sum assured regardless of the number of instalments paid out.
Money back policies are the most expensive insurance options offered by insurance companies
as they offer returns to the insured during the policy tenure.

Money Back policy gives way for a person to plan the course of his life with a sum that is
expected in regular intervals. Plans such as children’s education, children’s marriage can be
executed in a better way with the help of this policy.

Benefits of Money Back Policy

 Money back policies are low-risk savings options which also offer the benefit of life
coverage.

 Money back policy offers regular income to the policyholder in particular intervals of
time in form of survival benefit.

 Tax benefit can be availed under section 80C and 10(10D) of Income Tax Act 1961.

 Money back policy helps the insured to fulfill the short-term financial goals of life.
  Additional rider benefits are offered under the policy in order to increase the coverage of
the policy.

 Money back plans also come with an additional bonus facility.

 Money back plans offer risk free returns to the policyholder.

Savings & Investment Plans 

Savings & Investment Plans provide you the assurance of lump sum funds for you and your
family's future expenses. While providing an excellent savings tool for your short term and long
term financial goals, these plans also assure your family a certain sum by way of an insurance
cover. This is a broad categorisation which covers both the traditional and unit linked plans.

Benefit of Savings and Investment plans

 Savings investment plans offer the benefits of market linked returns to the policyholder.

 These plans not only provide an opportunity to create corpus over a long period of time
but also offers life protection to the family of the insured in case of any eventuality.

 Tax benefit can be availed under section 80C and 80D of Income Tax Act 1961.

 Savings investment plan helps to fulfill the shirt-term and long-term financial goals of
life.

Retirement Plans 

A savings and investment plan that provides you with income during retirement is called
Retirement Plan. Retirement plans are offered by life insurance companies in India and help you
to build a retirement corpus. On maturity, this corpus is invested for generating a regular income
stream which is referred to as pension or annuity. Retirement plans are further classified into.

 'With cover' and 'without cover' plans: 'With cover' pension plans offer an assured life
cover in case of an eventuality and in 'Without cover' pension plan, the corpus built till is
given out to the nominees in case of an eventuality. There is no life cover in without
cover plans.

 Immediate Annuity Plans: In case of immediate annuity plans, the pension commences
within one year of having paid the premium.

 Deferred Annuity Plans: In case of deferred annuity, the pension does not commence
immediately; it is ‘deferred‘up to a time, which is decided upon by the policyholder.

Benefits of Retirement Plan

  Helps the insured to create a financial cushion for future so that they can secure the life
after retirement.

 The policyholder is entitled to gain tax benefit under section 80C of Income Tax Act
1961. Moreover, in case the insured contributed towards pension plan like National
Pension Scheme (NPS), Atal Pension Yojana (APY) then they are eligible for tax
exemption under section 80CCD of Income Tax Act 1961.

 During the vesting age, the policyholder receives the monthly pension.

 Retirement plan helps the insured to achieve the long term financial goals of life.

Unit Linked Insurance Plans – Ulips  (Market Related Product)

Unit linked insurance plans are a type of life insurance plan that provide you with a dual
advantage of protection and flexibility in investment. A unit-linked insurance plan (ULIP) is a
type of life insurance where the cash value of a policy varies according to the current net asset
value of the underlying investment assets. The premium paid is used to purchase units in
investment assets chosen by the policyholder.

Types of Unit Linked Insurance Plans (according to investment):

 Aggressive ULIP‘s which invest 80-100% in equity.

 Balanced ULIP‘s which invest 40-60% in equity.

 Conservative ULIP‘s which invest up to 20% in equity.

Types of Unit Linked Insurance Plans (according to death benefit) 

 Type I ULIP: It gives the higher of the sum assured or fund value as death benefit

 Type II ULIP: This plan pays the policy holder both benefits i.e. sum assured plus fund
value as death benefit.

Benefits of Unit Linked Insurance Plan-ULIP

 ULIP plan offers the dual benefit of investment cum insurance coverage.

 ULIP offers the facility to switch between funds.

 The premium paid towards ULIP plans is eligible for tax benefit under section 80C of
Income Tax Act.

 Additional rider benefits are offered under the policy in order to increase the coverage of
the policy.
  ULIP plans allow the insurance holder to make a partial withdrawal within the tenure of
the policy.

Child Insurance Policy 

A child insurance policy is a saving cum investment plan that is designed to meet your child‘s
future financial needs. A child insurance policy allows your kids to live their dreams. Child
insurance policy gives you the advantage to start investing in the children‘s plan right from the
time the child is born and provisions to withdraw the savings once the child reaches adulthood.
Some child insurance policies do allow intermediate withdrawals at certain intervals.

Life insurance is not just to fulfil the daily expenses of the family in the absence of breadwinner.
It should be capable enough to bail out the family during large financial exigencies. So, one
should always choose one or two best types of life insurance which can support his/her family in
different stages of life.

Benefits of Child Plan

 Secured the future of the child financially even in the absence of the parents.

 Child insurance plans offer premium waiver benefit in case of demise of the insured
during the tenure of the policy.

 Tax benefit can be availed under a different section of Income Tax Act 1961.

 A secured loan can be availed under the child insurance plan.

 Offers flexible premium payment options.

Traditional insurance plans

Traditional insurance plans, which include term, endowment and whole life policies, offer
multiple benefits in terms of risk cover, return and safety. Traditional policies are considered
risk-free, as they provide fixed returns in case of death or maturity of the term. Investment
guidelines also ensure safety of funds with a cap on equity investment.

Traditional Participating plans are the most popular category of traditional life insurance

products. Though it is popular in Indian market for many decades now, there is still lack of

understanding about these products.  Participating plans provides the policyholder 90% share of

surplus whereas 10% is the share of life insurer. This sharing mechanism aligns the intent of both
the policyholder and the life insurer as high investment surplus will drive higher returns for both

parties. In participating plans as the investments are primarily in debt instruments, the returns do

not have the volatility generally witnessed in market linked plans. Traditional participating plans

are truly protection oriented financial instrument as it has a strong sum assured orientation along

with consistent returns. 

Annuity

Life Insurance vs. Annuity: An Overview

At first glance, permanent life insurance policies and annuity contracts have almost polar

opposite goals. Life insurance is there to help your family if you die unexpectedly or
prematurely. Meanwhile, annuities act as a safety net, usually for those in their senior years, by
providing a guaranteed stream of income for life.

However, the companies that market these products try to convince customers that both
are prudent investment alternatives to the stock and bond markets. And in both cases, the tax-
deferred growth on any underlying assets is a key selling point.

As it happens, insurance and annuity contracts also have a similar drawback: Steep costs that
have the tendency to weigh down returns.

Annuity

Most of us hope to live until a ripe old age, but longevity can have perils. Among them is the risk
of outliving your money.

Annuities were developed to help mitigate that concern. Basically, an annuity is a contract with
an insurer whereby you agree to pay the company a certain amount, either in a lump sum or
through installments. In turn, it makes a series of payments to you now or at some future date.

Sometimes those payments last for a specific time period—say, 10 years. But many annuities
offer lifetime disbursements. As a result, the fear of exhausting your assets starts to subside.

Pension Plans
Pension plans or retirement plans offer you the dual benefits of investment and insurance cover.
You just have to invest a certain amount regularly to accumulate over a specific tenure in a
phase-by-phase manner. This will ensure a steady flow of monthly pension once you retire.
Example, Public Provident Fund is a popular retirement planning scheme.
If you begin contributing early, it will build towards a secure golden year money-wise. A well-
chosen retirement plan can help you rise above inflation, thanks to the power of compounding.
The corpus (investment+gains) in your name by the retiring age can take care of increasing
healthcare costs and lifestyle requirements.

Riders-Business Insurance,
A rider is an insurance policy provision that adds benefits to or amends the terms of a basic
insurance policy. Riders provide insured parties with options such as additional coverage, or they
may even restrict or limit coverage.
There is an additional cost if a party decides to purchase a rider. Most are low because they
involve very little underwriting.
A rider is also referred to as an insurance endorsement.

Group Insurance
Group Insurance covers a defined group of people, for example members of a professional
association, or a society or employees of an organization. Group Insurance may offer life cover,
health cover, and/or other types of personal insurance.
Most insurance companies in India have introduced group insurance policies to meet insurance
needs of specific groupsincluding professionals,employers-employees, co-operative
societies,among others.
Group insurance has several advantages chief among which is a life cover made available to
members irrespective of age, gender, socio economic background or profession,so long as they
belong to the group that is applying for insurance.

Pricing
For life insurance policy you must pay a price in terms of premium. All insurance companies
employ actuaries to fix the premiums of their policies. The actuaries need to consider various
factors (both measurable and non-measurable) and build them into the premiums. There are some
factors that the actuaries already have information on (like mortality rate, claims paid
percentages, etc.,) and the rest of the information comes from the applicant. We will first look at
the information provided by the applicants that play a part in Life Insurance Price, one by one.
· Age: Young, fit people who are just about to begin the most productive part of their lives are
the ones who get the cheapest policies. The premium component gradually increases as the age
of the applicant progresses. There is no intentional discrimination here against older people.
Mortality trends state that the chances of mortality increase is directly proportional to age
increase and the insurance companies base their calculations on the age risk factor. So, the older
you are the higher you pay!
· Type of policy: There are various types of policies; term, partial payment, pension plans, cash
value…..etc., As a general rule, you can be sure that premiums increase directly proportional to
the cash value benefits and complexity. Term plans are the cheapest and any other investment
based policy will cost you higher. The coverage amount also plays a part. Higher the coverage,
higher the premium.
· Duration of the policy: This plays a more important part in wealth building insurance policies
but even otherwise, longer duration policies are priced cheaper.
· Medical history and health: History of previous illness is a risk while underwriting a policy
and therefore carries such people carry higher premium. This is a very important factor and if an
applicant has illness history or have existing ailments, they have to be disclosed to the company,
otherwise, the insurance company will outright reject the claim (when the need arises) citing
suppression of vital information. Height and weight details are also used as factors.
· Personal habits and occupation: Habitual smokers and drinkers will be charged higher, as
will people employed in hazardous jobs (Fire fighters, scuba divers). Some hobbies (bungee
jumping, car racing) are also deemed high risk and will attract higher premiums.
· Other factors: Apart from the information provided by the applicant, the insurance actuaries
need to input many other factors listed
below:
o Mortality – Life insurance is based on the sharing of the risk of death by a large group of
people. The amount at risk must be known to predict the cost to each member of the group.
Mortality tables are used to give the company a basic estimate of how much money it will need
to pay for death claims each year. By using a mortality table a life insurer can determine the
average life expectancy for each age group.
o Interest – The second factor used in calculating the premium is interest earnings. Companies
invest your premiums in bonds, stocks, mortgages, real estate, etc., and assume they will earn a
certain rate of interest on these invested funds.
Expense – The third consideration is the expenses of operating the company. The company
estimates such expenses as salaries, agents’ compensation, rent, legal fees, postage, etc. The
amount charged to cover each policy’s share of expenses of operation is called the expense
loading. This is a cost area that can vary from company to company based on its operations and
efficiency

Non-Life Insurance:
A general insurance is a contract that offers financial compensation on any loss other than death.
It insures everything apart from life. A general insurance compensates you for financial loss due
to liabilities related to your house, car, bike, health, travel, etc. The insurance company promises
to pay you a sum assured to cover damages to your vehicle, medical treatments to cure health
problems, losses due to theft or fire, or even financial problems during travel.
Simply put, a general insurance offers financial protection for all your assets against loss,
damage, theft, and other liabilities. It is different from life insurance.
You can get almost anything and everything insured. But there are five key types available:
1. Health Insurance
2. Motor Insurance
3. Travel Insurance
 4. Home Insurance
5. Fire Insurance

Features of Fire insurance contract

Fire insurance is the oldest form of insurance. In the early development of industrial society, fire
was the main source of energy. The industrial or commercial activities were not possible without
fire. However, there was a need to insure the risk of uncontrolled or uncertain fire. Fire insurance
is designed to provide for financial loss to property due to fire and a few other related hazards.
The property that can be covered under fire insurance includes Building, Machinery,
Equipments, Accessories, Goods, Raw Materials, Electrical Installation of building, Residential
houses, Furniture and fittings, Pipelines located outside and inside the building.
A contract of fire insurance is a contract whereby the insurer undertakes, in consideration of
the premium paid, to make good any loss or damage caused by fire during a specific period.
The fire insurance contract specifies the maximum amount which the assured can claim in case
of loss. This amount is fixed by the parties at the time of the contract. It is, however, not the
measure of the loss. The loss can be ascertained only after the fire has occurred. The insurer is
liable to make good the actual amount of loss not exceeding the maximum amount fixed by the
parties.
“Fire insurance is a contract between the insurer and the insured whereby the insurer undertakes
to indemnity the insured for destruction of or damage to the properly caused by fire or other
specified perils during an agreed period of time, in return for payment of a premium in lumpsum
or by installments”.

Characteristics of Fire Insurance

1. Fire insurance is a contract of indemnity. The insurer is liable only to the extent of the
actual loss suffered. If there is no loss there is no liability even if there is a fire.
2. Fire insurance is a contract of good faith. The policy-holder and the insurer must disclose
all the material facts known to them.
3. Fire insurance policy is usually made for one year only. The policy can be renewed
according to the terms of the policy.
4. The contract of insurance is embodied in a policy called the fire policy. Such policies
usually cover specific properties for a specified period.
5. Insurable Interest: A fire policy is valid only if the policy-holder has an insurable
interest in the property covered. Such interest must exist at the time when the loss occurs.
In English cases it has been held that the following persons have insurable interest for the
 purposes of fire insurance- owner; tenants, bailees, including carriers; mortgages and
charge-holders.
6. In case of several policies for the same property, each insurer is entitled to contribution
from the others. After a loss occurs and payment is made, the insurer is subrogated to the
rights and interests of the policy-holder. An insurer can reinsure a part of the risk.
7. Fire policies cover losses caused proximately by fire. The term loss by fire is interpreted
liberally. Example: A women hid her jewellery under the coal in her fireplace. Later on
she forgot about the jewellery and lit the fire. The jewellery was damaged. Held, she
could recover under the fire policy.
8. Nothing can be recovered under a fire policy if the fire is caused by a deliberate act of
policy-holder. In such cases the policy-holder is liable to criminal prosecution.
9. Fire policies generally contain a condition that the insurer will not be liable if the fire is
caused by riot, civil disturbances, war and explosions. In the absence of any specific
expectation the insurer is liable for all losses caused by fire, whatever may be the causes
of the fire.
10. Assignment: According to English law a policy of fire insurance can be assigned only
with the consent of the insurer. In India such consent is not necessary and the policy can
be assigned as a chose-in-action under the Transfer of Property Act. The insurer is bound
when notice is given to him. But the assignee cannot be recovering damages unless he
has an insurable interest in the property at the time when the loss occurs. A stranger
cannot sue on a fire policy.
11. Payment of Claims: Fire policies generally contain a clause providing that upon the
occurrence of fire the insurer shall be immediately notified so that the insurer can take
steps to salvage the remainder of the property and can also determine the extent of the
loss. Insurance companies keep experts on their staff of value the loss. If in a policy there
is an international over valuation of the property by the policy-holder, the policy may be
avoided on the ground of fraud.

For more details you can refer https://www.mbaknol.com/mercantile-law/fire-insurance/

Marine insurance – definition, types & policies

Marine insurance is such insurance which provides compensation of losses on the hull, cargo,
passenger and third party liabilities due to marine risks. There is a definite categorization of
various types of marine insurance and different types of marine insurance policies according to
the needs, requirements, and specifications of the transporter.
Different types of Marine Insurance are as follows:
1. Hull Insurance:
Hull insurance is the insurance against loss caused by damage or destruction of waterborne craft
or aircraft to the owner. It is the insurance of the ship which includes all the articles and pieces of
furniture in the ship. Hull and machinery insurance can be done to protect the shipowner and
investment in the ship. If the ship is damaged, the owner of the ship gets indemnity from the
insurance company. This type of marine insurance is usually, taken out by the owner of the ship
in order to avoid any loss of the ship in case of any mishaps occurring.
2. Cargo Insurance:
The goods sent through waterway is known as cargo. Cargo insurance is also called marine cargo
insurance. It covers physical damage or loss of your goods while in transit by land, sea, and air.
It also offers considerable opportunities and cost advantages if managed correctly. It is insured
by the owner and insurance of goods shipped through waterways is known as cargo insurance. If
the cargo is ruined, the owner gets the indemnity from the insurance company.
3. Marine Liability Insurance:
Liability insurance is that type of marine insurance where compensation is bought to provide any
liability occurring on account of a ship crashing or colliding. In the course of the marine
adventure, one ship may collide with another ship. The goods of another ship may lose. Marine
insurance provides the compensation of such liabilities nowadays if insurance has made
insurance of such liabilities. A crew member traveling with expensive items, such as laptop
computers, gold watches etc. should make sure that he has such items separately insured.
4. Freight Insurance:
To transfer the goods from one port to another, the amount paid to the owner of the ship is called
freight. The payment of such freight can be made in two ways: either in advance or after the ship
reaches its destination safely. Freight insurance offers and provides protection to merchant
vessels’ corporations. It stands for the chance of losing money in the form of freight, in case the
cargo is lost due to the ship meeting in an accident. This type of marine insurance solves the
problem of companies losing money because of a few unprecedented events and accidents
occurring.

Different Types of Marine Insurance Policies

1. Voyage Policy:
This policy gives more importance to the voyage. A voyage policy is that kind of marine
insurance policy which is valid for a particular voyage. It covers the risk from the port of
departure up to the port of destination. This type of policy is considered more useful for cargo.
The insurance company should give indemnity for loss/ damage of any property of the insured
during the period of the voyage. The liability of the insurer continues during landing and re-
shipping of the goods. The policy ends when the ship reaches the port of arrival. This type of
policy is purchased generally for cargo. Under this policy "from" and " to" has great importance.
2. Time Policy:
The policy which is issued for a fixed period of time is known as time policy. A marine
insurance policy is valid for a specified time period generally valid for a year. All the marine
perils during that period are insured. This type of policy is suitable for full insurance. The policy
is generally taken for one year although it may be for less than one year. But there is no
restriction to make this type of policy for less than one year. This policy is more commonly used
for hull insurance than for the cargo insurance. The ship is insured for a fixed period irrespective
of voyages. The policy is generally issued for one year. For example, a period of time from 12
March 2015 to 11th December 2015. This policy is effective for this period.
3. Mixed Policy:
The joint form of voyage policy and time policy is called mixed policy. In this policy, the
elements of voyage policy and of time policy are combined. The reference is made certain period
after completion of the voyage. The meaning of the mixed policy is that a new policy takes birth
from the combination of the fundamental things of time and the place policy. Generally, this
policy is used for ship insurance. For example, a mixed policy is a policy which states the ship
should reach from 1st December 2015, from Paris to October 2015 in New York. Policy expires
whichever is met first.
4. Open or Un-valued Policy:
In this type of marine insurance policy, the value of the cargo and consignment is not put down
in the policy beforehand. The value thus left to be decided later on is called the unvalued or open
policy. The insurable value of the policy includes the price of the insured's property, investment
price, incidental expenditure, and all the expenditure as well. The unvalued policy is not used in
practice so much. This policy is used only in freight insurance.
5. Valued Policy
The opposite of an open marine insurance policy is a valued policy. In this type of policy, the
value of the cargo and consignment is ascertained and mentioned in the policy document
beforehand, thus, making clear about the value of the reimbursements in case of any loss to the
cargo and consignment. Under this policy, the value of the policy is decided at the time of the
contract. Generally, the insured amount in this type of policy includes the price of cargo, ship,
freight and approximate profit. Thus the value which is mentioned in the policy is the insured
amount.
6. Port Risk Policy:
The Port Risk Policy is taken out in order to ensure the safety of the ship while it is stationed in a
port. It covers the risks when a ship is anchored in a port. It is an ocean marine insurance
designed to protect a vessel that is portside for a long period of time. Coverage terminates as
soon as the vessel leaves port.
7. Wage Policy:
Wage policy is one where there are no fixed terms of reimbursements mentioned. This is a policy
held by a person who does not have any insurable interest in the insured subject. He simply bets
or gambles with the underwriter. The policy is not enforced by law.
8. Floating Policy:
The floating policy is also called declaration policy. This policy is useful for the merchant who
delivers cargo regularly. When a person ships goods regularly in a particular geographical area,
he will have to purchase a marine policy every time. It involves a lot of time and formalities. He
purchases a policy for a lump sum amount without mentioning the value of goods and name of
the ship, etc. It is the agreement between the insurer and insured that the insured declares a
number of goods on the basis of shipment documents.
9. Named Policy
The policy which is issued by mentioning the name of the ship and price of the cargo is called
named policy. This type of policy has been receiving popularity in marine insurance.
10. Block Policy
It is the policy which takes the risk in the block that is from sea route and land route. It does not
only protect from the risk of the marine route but also covers the risk occurred on the land too. It
takes the risk of transportation from the place of the seller to the place of the buyer. It is a very
useful policy for landlocked countries.
Auto insurance – need, types of policies, claims
Car insurance is an agreement between the insurance company and the car owner wherein, the
car owner will pay premiums and the insurance company covers for loss or damage caused to the
car. Car Insurance is mandatory in India regardless of whether it is a commercial vehicle or a
personal vehicle. Most of the insurance companies in India have tie-ups with car manufacturers
and they offer car owners instant quotes.

Types of Car Insurance in India

There are two types of . Listed below are the two types of car insurance.
 Third party liability insurance cover- Third party liability insurance offers limited
protection. This type of car insurance protects you only against the costs incurred from
the damage done by your vehicle to another vehicle, property or person.
 Comprehensive insurance cover- Comprehensive car insurance offers cover against
damage to the vehicle, death of the driver or passengers and damage caused by the
vehicle to a third party vehicle, property or person.

Car Insurance Cover

Listed below are the features that are usually covered under a car insurance policy.

 Bodily injury- It offers cover for any bodily injury incurred from an accident where the
insured car was involved
 Damage- It offers cover for the damage incurred to the car either due to an accident, theft
or certain natural calamities
 Third party property damage- It pays up for the damage incurred by a third party vehicle
involved in an accident with the insured vehicle
 Death- It also offers cover for the death of the driver/ passengers present in the insured
vehicle at the time of accident or calamity

Factors that influence the premium of the car insurance

Listed below are some of the factors that influence the premium of a car insurance
 Vehicle related factors-The make, type of fuel, model etc, all matter when it comes to
determining the insurance for the car premium. Usually diesel cars attract a higher
premium when compared to petrol cars.
 Location-The premium usually tends to be higher in urban areas and near highways.
 Driver-The age and profession of the driver also plays a role in determining the premium
of the car insurance . Multiple drivers leads to higher premiums.
Car Insurance clauses and exclusions
Listed below are some of the car insurance clauses and exclusions.
 Any issues related to the vehicle due to general aging of the car
 Consequential loss
 Mechanical breakdown of the car
 Wear and tear of car parts such as tires
 The policy won’t offer any cover for the damages incurred from using the car outside the
geographical location of the country
 No cover will be offered if the person is driving without a license
  No cover will be offered if the driver was under the influence of alcohol or drugs
 Damage incurred to the vehicle during a war or nuclear attack
 The policy does not offer cover if the car was damaged while being used for purposes
other than what was mentioned in the policy

Advantages of a car insurance

Listed below are the advantages of a car insurance.
 Car insurance provides benefit in case of death arising out of accidents
 Covers the repair cost of vehicle repairs due to damage caused in an accident.
 Covers damage caused by other than an accident for example, theft, fire, etc.
 Offers cover for damage caused to third party
Car insurance is a very efficient tool that will protect your dream car against damages and
mitigate your costs in case of an accident. There is no dearth of options for car insurance
schemes on the market. It is always advisable to compare between different plans and choose the
one suitable for you best.

Health Insurance – introduction

Health insurance covers cost of an insured individual's medical and surgical expenses. Subject to
the terms of insurance coverage, either the insured pays costs out-of-pocket and is subsequently
reimbursed or the insurance company reimburses costs directly.
Health insurance is an insurance product which covers medical and surgical expenses of an
insured individual. It reimburses the expenses incurred due to illness or injury or pays the care
provider of the insured individual directly.

Plans in India, Schemes

Types of Health Insurance

There are mainly 3 types of Health Insurance covers which are as follows.

Individual Mediclaim: 

► The simplest form of health insurance is the Individual Mediclaim policy. It covers the
hospitalization expenses for an individual for upto the sum assured limit. The premium is
dependent on the sum assured. It is a cover which takes care of medical expenses following
Hospitalization / Domiciliary Hospitalization of the insured in case of sudden illness, accident
and any surgery which is required in respect of any disease which has arisen during the policy
period.

► This cover is a hospitalization cover and reimburses the medical expenses incurred in respect
of covered disease / surgery while the insured was admitted in the hospital as an inpatient. The
cover also extends to pre- hospitalization and post- hospitalization for periods of 30 days and 60
days respectively. 
► Example: If a family has 4 members you can take an individual cover of Rs. 2 lakhs each for
each member. Each member is now covered for 2 lakhs. If all the 4 members are hospitalized, all
4 of them can get expenses recovered upto Rs 2 lakhs each. All the 4 policies are independent.

Family Floater Policy: 

► Family Floater Policy is an enhanced version of the mediclaim policy. The policy covers each
family member and the entire family’s expenses are covered up to the sum assured limit. The
family floater plan’s premium is less than the separate insurance cover for each family member. 

► Example: If a family of 4 takes a family floater policy of Rs. 8 lakhs, they can claim medical
expenses upto Rs. 8 lakhs in that policy year. If one person is hospitalized and claims Rs. 3
lakhs, it will be paid, but they will be left with only Rs. 5 lakh worth of medical expenses that
can be reimbursed in that year. The next year, the policy will start with a fresh Rs. 8 lakhs. So, in
many ways the family floater plan offers flexibility in terms of utilizing the overall insurance
coverage among the group.

Unit Linked Health Plans: 

► Health Insurance Companies have introduced Unit Linked Health Plans which combine health
insurance with investment and pay back an amount at the end of the insurance term. The returns
are dependent on market performance. These plans are new and still in development phase.
People who can handle market linked products like ULIP and ULPP are only recommended to
take this plan.

► For a number of reasons, it is advisable to stay clear of unit linked health plans. Treat
insurance purely as an expense. Opt for an Individual Mediclaim policy if you are single and opt
for a Family Floater policy if you have family. Health insurance premiums come under tax
exemption under section 80D for a maximum of Rs.15,000/-.

Micro-Health Insurance
The IRDA micro-insurance Regulations, 2005 defines micro insurance as a general or life
insurance policy with a sum assured of Rs 50,000 or less. In other words, micro-insurance aims
to provide financial protection to low-income families, particularly those with approximate
income of less than Rs. 250 per day.

Third Party Administrator

A third-party administrator (TPA) is an organization that processes insurance claims or certain

aspects of employee benefit plans for a separate entity. It is also a term used to define
organizations within the insurance industry which administer other services such as
underwriting, customer service.
Third Party Administrators for Health Insurance are a link between the insured and the
insurance company. A Third Party Administrator is the same as an ASO - administrative
services only company. The duties of the TPA are to serve as the liaison between the insured
person or company and the health insurance provider. This TPA company will typically file
claims for the insured, but will also certify insurability for the insurance company. That means
that the TPA works for both the insured and the provider, though the continued employment will
typically depend on the satisfaction of the provider.

List of TPA http://www.emediclaim.com/list-of-tpa.html