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Concept of Business Risk
Business risk is the possibility of occurrence of any unfavorable event that has the potential to minimize gains and maximize loss of a business. Business risk is influenced by numerous factors, including sales volume, per-unit price, input costs, competition, the overall economic climate and government regulations. 
Business risk can arise from internal or external sources, such as changes in customer preferences, employee behavior, production processes, market conditions, natural calamities, etc. Business risk can affect the profitability and sustainability of a business, and therefore, it is essential for a business to identify, assess and manage its risk exposure.
There are many types of insurance policies available, and virtually any individual or business can find an insurance company willing to insure them—for a price. Common personal insurance policy types are auto, health, homeowners, and life insurance. Businesses obtain insurance policies for field-specific risks, such as medical malpractice, fire, or theft. Some insurance policies are required by law, such as car insurance or workers’ compensation. Insurance policies have three core components: the premium, the policy limit, and the deductible.
Insurance is studied under two concepts:
a. Functional Basis
b. Contractual basis
The functional basis of insurance refers to the primary purpose and role of insurance in managing risk and providing financial protection. Functionally, insurance serves as a mechanism to spread and pool risks among a large group of individuals or entities. The key function is to offer financial compensation to policyholders in the event of specified contingencies, such as accidents, illnesses, or property damage. This pooling of risks allows for the efficient allocation of financial resources to support those who suffer losses, thereby promoting stability and security within a community or society.
According to Prof. R.S Sharma, "Insurance is a cooperative device to spread loss caused by a particular risk over a number of persons who are exposed to it, who agree to insure themselves against that risk."
Some of the functions of functional basis of insurance are:
1. Providing certainty: Insurance eliminates the uncertainty of an unexpected and sudden financial loss by providing the certainty of regular payment of premium and the reimbursement of loss in case of the occurrence of the insured event.
Concept of Insurance
Insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured. Insurance is a form of protection from any possible financial losses that may result from accidents, injury, property damage, or liability.There are many types of insurance policies available, and virtually any individual or business can find an insurance company willing to insure them—for a price. Common personal insurance policy types are auto, health, homeowners, and life insurance. Businesses obtain insurance policies for field-specific risks, such as medical malpractice, fire, or theft. Some insurance policies are required by law, such as car insurance or workers’ compensation. Insurance policies have three core components: the premium, the policy limit, and the deductible.
Insurance is studied under two concepts:
a. Functional Basis
b. Contractual basis
A. Functional Basis of Insurance
The functional basis of insurance is the approach that focuses on the functions and purposes of insurance in the society and the economy. The functional basis of insurance emphasizes the benefits and advantages of insurance for the individuals and the organizations that are exposed to various risks and uncertainties.The functional basis of insurance refers to the primary purpose and role of insurance in managing risk and providing financial protection. Functionally, insurance serves as a mechanism to spread and pool risks among a large group of individuals or entities. The key function is to offer financial compensation to policyholders in the event of specified contingencies, such as accidents, illnesses, or property damage. This pooling of risks allows for the efficient allocation of financial resources to support those who suffer losses, thereby promoting stability and security within a community or society.
According to Prof. R.S Sharma, "Insurance is a cooperative device to spread loss caused by a particular risk over a number of persons who are exposed to it, who agree to insure themselves against that risk."
Some of the functions of functional basis of insurance are:
1. Providing certainty: Insurance eliminates the uncertainty of an unexpected and sudden financial loss by providing the certainty of regular payment of premium and the reimbursement of loss in case of the occurrence of the insured event.
2. Providing protection: Insurance provides protection against the possible losses and damages that may result from accidents, injuries, property damage, or liability. For those who are covered, insurance is a lifesaver, both monetarily and emotionally.
3. Pooling of risk: Insurance pools the risks of many individuals and organizations who are exposed to similar or homogeneous risks. Insurance collects the premiums from the insured parties and creates a fund that is used to pay the claims of the insured parties who suffer losses. Insurance reduces individual risk by distributing it among several insured parties.
4. Legal requirement: Insurance is sometimes required by the law or by the contract to protect the interests of the parties involved. For example, car insurance is mandatory in many countries to cover the liability of the drivers in case of accidents. Similarly, in order to protect themselves against any liabilities that may arise from carrying out the terms of the contract, the parties may be required under the contract to secure insurance.
5. Capital formation: Insurance contributes to the capital formation of the society and the economy by collecting and investing the premiums paid by the insured parties. Insurance provides a source of funds for productive and profitable ventures that generate income and employment. Capital loss due to unanticipated circumstances can also be mitigated with insurance.
6. Efficiency improvement: Insurance helps to improve the efficiency and productivity of the individuals and the organizations by reducing the fear and anxiety of losses and damages. Insurance encourages the insured parties to adopt preventive and safety measures to reduce the frequency and severity of losses. Products and services are incentivized to be more innovative and of higher quality through insurance.
7. Economic progress: Insurance facilitates the economic progress and development of the society and the economy by providing stability and security to the individuals and the organizations. Insurance enables the insured parties to undertake risky and profitable activities that enhance the economic growth and welfare. By helping those who have lost everything in a natural disaster, a war, or any other catastrophic event, insurance also contributes to social and humanitarian purposes.
Contractual Basis of Insurance
The contractual basis of insurance is the approach that focuses on the legal and technical aspects of insurance as a contract between the insurer and the insured. The contractual basis of insurance emphasizes the rights and obligations of the parties involved in the insurance contract and the principles and rules that govern the formation and execution of the contract.The contractual foundation of insurance concerns the legally enforceable and statutory accord between the insurance provider and the insured. The insurance contract or policy delineates the stipulations, prerequisites, and responsibilities of each participating entity. The insurer promises to provide coverage for defined risks in exchange for premiums from the policyholder in accordance with the conditions of the agreement.
The insurance agreement delineates the obligations and rights of every participant, encompassing the extent of protection, limitations, premium disbursements, and the procedure for lodging claims. The contractual foundation guarantees clarity and legal enforceability in the insured-insurer relationship.
According to Richard Brown, a legal expert specializing in insurance law, "the contractual basis of insurance refers to the legally binding agreement between the insurer and the insured."
Some of the aspects of the contractual basis of insurance are:
1. Definition of insurance contract: In exchange for the insured's premium payment, an insurance contract stipulates that the insurer would compensate the insured against losses or damages resulting from the occurrence of a specific event or eventuality.
2. Elements of insurance contract: An insurance contract is a contract in which the insurer agrees to indemnify the insured for the losses or damages that may arise from the occurrence of a specified event or contingency, in exchange for the payment of a premium by the insured.
3. Principles of insurance contract: To preserve the integrity and validity of an insurance agreement, it must be founded upon the following principles: contribution, proximate cause, uttermost good faith, insurable interest, indemnity, subrogation, and loss mitigation.
4. Types of insurance contract: Different types of insurance contracts can be distinguished by a range of factors, including the subject matter of the contract, the mechanism of payment, the level of coverage, the method of valuation, and the nature of the risk.
5. Terms and conditions of insurance contract: Among the many things spelled out in an insurance policy are the parties' respective responsibilities and rights, the policy's coverage parameters, any limitations or exclusions on responsibility, the steps to take when filing a claim, and the consequences for noncompliance.
6. Modification and termination of insurance contract: There are several ways in which an insurance contract can be changed or ended: by the parties' mutual agreement, by the covered event happening, by the contract's performance, by its expiration, by a breach of contract, or by the law.
2. Insured: The insured is the party that receives insurance coverage, usually an individual or a business. The insured pays a premium to the insurer and is entitled to receive financial protection or reimbursement against losses from the insurer.
3. Insured amount: The insured amount is the maximum amount of money that the insurer will pay to the insured in case of a claim. The insured amount is also known as the policy limit, the sum insured, or the face value of the policy.
4. Insurance premium: The insurance premium is the amount of money that the insured pays to the insurer for the insurance coverage. The insurance premium is usually paid periodically, such as monthly, quarterly, or annually. The insurance premium is determined by various factors, such as the type and amount of coverage, the risk profile of the insured, and the duration of the policy.
5. Insurance policy: The insurance policy is the contract that represents the agreement between the insurer and the insured. The insurance policy contains the terms and conditions of the insurance coverage, such as the insured amount, the insurance premium, the exclusions and limitations of the liability, the procedure and requirements for making and settling claims, and the remedies and recourse for breach of contract.
2. Stability in Business: Insurance provides stability and security to the business by covering the risks and uncertainties that may affect the business operations and performance. Insurance helps to prevent and minimize the losses and disruptions that may arise from unforeseen events, such as fire, theft, natural calamities, etc.
3. Increases Efficiency: Insurance helps to increase the efficiency and productivity of the business by reducing the fear and anxiety of losses and damages. Insurance encourages the business to adopt preventive and safety measures to reduce the frequency and severity of losses. Insurance also provides incentives for innovation and improvement of the quality and standards of the products and services.
4. Loan Facility: Insurance provides loan facility to the insured parties by using the insurance policy as a collateral security. Insurance enables the insured parties to obtain loans from banks and financial institutions at lower interest rates and easier terms. Insurance also helps the insured parties to repay the loans in case of any loss or damage to the insured property.
5. Promotion of Trade and Commerce: Insurance promotes trade and commerce activities by providing protection and security to the traders and businessmen who are involved in domestic and international trade. Insurance covers the risks and losses that may occur during the transportation and storage of goods and commodities. Insurance also facilitates the smooth and uninterrupted flow of trade and commerce by providing credit and guarantee facilities.
6. Capital Formation: Insurance contributes to the capital formation of the society and the economy by collecting and investing the premiums paid by the insured parties. Insurance provides a source of funds for productive and profitable ventures that generate income and employment. Insurance also helps to prevent the loss of capital due to unforeseen events.
7. Employee Welfare: Insurance provides employee welfare by providing various benefits and facilities to the employees and their dependents. Insurance covers the risks and losses that may arise from the death, disability, illness, or injury of the employees. Insurance also provides pension, gratuity, medical, and other benefits to the employees and their dependents. Insurance also helps to improve the morale and motivation of the employees and to retain them in the organization.
b. Accidental and Unintentional Loss: This means that the loss or damage that the insured party suffers must be accidental and unintentional, and not deliberate or intentional. This helps the insurer to avoid moral hazard, which is the tendency of the insured party to act recklessly or dishonestly because of the insurance coverage.
c. Determinable and Measurable Loss: This means that the loss or damage that the insured party suffers must be determinable and measurable, in terms of the cause, the time, the place, and the amount of the loss. This helps the insurer to verify and assess the validity and value of the claim, and to provide the appropriate compensation to the insured party.
d. No Catastrophic Loss: This means that the loss or damage that the insured party suffers must not be catastrophic, or of such a magnitude and extent that it affects a large number of insured parties at the same time. This helps the insurer to avoid the risk of insolvency, which is the inability of the insurer to pay the claims of the insured parties due to insufficient funds.
e. Calculable Chance of Loss: This means that the probability or likelihood of the loss or damage that the insured party suffers must be calculable, based on the past data and the statistical analysis. This helps the insurer to estimate the expected losses, and to determine the appropriate premium and policy limit for the insurance coverage.
f. Economically Feasible Premiums: This means that the premium or the amount of money that the insured party pays to the insurer for the insurance coverage must be economically feasible, or affordable and reasonable for the insured party. This helps the insurer to attract and retain the insured parties, and to generate sufficient revenue to cover the claims and the expenses.
2. Principle of Utmost Good Faith: This principle requires both the insurer and the insured to act in good faith and disclose all material facts that could influence the decision to insure or the terms of the insurance policy. Material facts are those that could affect the risk assessment, the premium calculation, or the policy coverage. If either party conceals or misrepresents material facts, the contract may be void or voidable.
3. Principle of Indemnity: This principle states that the insurer agrees to indemnify or compensate the insured for the actual loss or damage suffered by the insured, subject to the policy limit. The insurer does not pay more than the actual loss or the insured amount, whichever is lower. The purpose of this principle is to restore the insured to the same financial position as before the loss, and to prevent the insured from making a profit out of the insurance contract.
4. Principle of Subrogation: This principle states that after the insurer pays the claim to the insured, the insurer acquires the right to sue the third party who is responsible for the loss or damage to the insured. The insurer steps into the shoes of the insured and exercises the legal rights of the insured against the third party. The purpose of this principle is to prevent the insured from recovering twice for the same loss, and to enable the insurer to recover the claim amount from the third party.
5. Principle of Proximate Cause: This principle states that the insurer is liable to pay the claim only if the proximate cause or the nearest cause of the loss or damage is covered by the policy. The proximate cause is the most dominant and effective cause that leads to the loss or damage, irrespective of other causes that may have contributed to the loss or damage. The insurer is not liable to pay the claim if the proximate cause is excluded by the policy.
6. Principle of Contribution: This principle applies when the insured has more than one insurance policy covering the same subject matter and the same risk. In the event of a loss, the insured can claim from any of the insurers, but not more than the actual loss. The insurer who pays the claim can then claim a proportionate share of the claim amount from the other insurers, based on the ratio of their respective policy limits. The purpose of this principle is to prevent the insured from making a profit out of the insurance contract, and to distribute the loss among the insurers.
7. Principle of Mitigation of Loss: This principle states that the insured has a duty to take reasonable steps to minimize or mitigate the loss or damage to the subject matter of the insurance. The insured must act as if the subject matter is not insured and try to reduce the extent and impact of the loss or damage. The insurer can reduce the claim amount if the insured fails to perform this duty and aggravates the loss or damage. The purpose of this principle is to discourage negligence and carelessness on the part of the insured, and to reduce the liability of the insurer.
There are different types of life insurance policies, each with its own features, benefits, and drawbacks. The most basic distinction is between term life insurance and permanent life insurance. Term life insurance provides coverage for a fixed period of time, usually ranging from 10 to 30 years, while permanent life insurance provides coverage for the entire life of the policyholder, as long as the premiums are paid. Permanent life insurance also has a cash value component, which is a savings account that accumulates over time and can be accessed by the policyholder.
There are different types of whole life policies, such as:
1. Ordinary whole life policy: This is the most basic and common type of whole life policy, which provides level premiums, fixed death benefit, and guaranteed cash value growth.
2. Limited payment whole life policy: This is a type of whole life policy that allows the policyholder to pay the premiums for a shorter period of time, such as 10, 20, or 30 years, or until a certain age, such as 65 or 70. The policy remains in force for the entire life of the policyholder, but the premiums are higher than an ordinary whole life policy.
3. Convertible whole life policy: This is a type of whole life policy that gives the policyholder the option to convert the policy into another type of permanent life insurance, such as universal or variable life, without having to undergo a medical exam or provide evidence of insurability. The conversion option is usually available for a limited period of time, such as before the policyholder reaches a certain age or before the policy reaches a certain duration.
According to Richard Brown, a legal expert specializing in insurance law, "the contractual basis of insurance refers to the legally binding agreement between the insurer and the insured."
Some of the aspects of the contractual basis of insurance are:
1. Definition of insurance contract: In exchange for the insured's premium payment, an insurance contract stipulates that the insurer would compensate the insured against losses or damages resulting from the occurrence of a specific event or eventuality.
2. Elements of insurance contract: An insurance contract is a contract in which the insurer agrees to indemnify the insured for the losses or damages that may arise from the occurrence of a specified event or contingency, in exchange for the payment of a premium by the insured.
3. Principles of insurance contract: To preserve the integrity and validity of an insurance agreement, it must be founded upon the following principles: contribution, proximate cause, uttermost good faith, insurable interest, indemnity, subrogation, and loss mitigation.
4. Types of insurance contract: Different types of insurance contracts can be distinguished by a range of factors, including the subject matter of the contract, the mechanism of payment, the level of coverage, the method of valuation, and the nature of the risk.
5. Terms and conditions of insurance contract: Among the many things spelled out in an insurance policy are the parties' respective responsibilities and rights, the policy's coverage parameters, any limitations or exclusions on responsibility, the steps to take when filing a claim, and the consequences for noncompliance.
6. Modification and termination of insurance contract: There are several ways in which an insurance contract can be changed or ended: by the parties' mutual agreement, by the covered event happening, by the contract's performance, by its expiration, by a breach of contract, or by the law.
Basic Terms used in Insurance:
1. Insurer: The insurer is the party that provides insurance coverage, usually an insurance company. The insurer agrees to indemnify the insured for the losses or damages that may arise from the occurrence of a specified event or contingency, in exchange for the payment of a premium by the insured.2. Insured: The insured is the party that receives insurance coverage, usually an individual or a business. The insured pays a premium to the insurer and is entitled to receive financial protection or reimbursement against losses from the insurer.
3. Insured amount: The insured amount is the maximum amount of money that the insurer will pay to the insured in case of a claim. The insured amount is also known as the policy limit, the sum insured, or the face value of the policy.
4. Insurance premium: The insurance premium is the amount of money that the insured pays to the insurer for the insurance coverage. The insurance premium is usually paid periodically, such as monthly, quarterly, or annually. The insurance premium is determined by various factors, such as the type and amount of coverage, the risk profile of the insured, and the duration of the policy.
5. Insurance policy: The insurance policy is the contract that represents the agreement between the insurer and the insured. The insurance policy contains the terms and conditions of the insurance coverage, such as the insured amount, the insurance premium, the exclusions and limitations of the liability, the procedure and requirements for making and settling claims, and the remedies and recourse for breach of contract.
Roles/ Importance of Insurance
1. Safeguard against risk of loss: Insurance provides financial protection or reimbursement against losses or damages that may result from accidents, injuries, property damage, or liability. Insurance helps to reduce the financial burden and the emotional stress of the insured parties.2. Stability in Business: Insurance provides stability and security to the business by covering the risks and uncertainties that may affect the business operations and performance. Insurance helps to prevent and minimize the losses and disruptions that may arise from unforeseen events, such as fire, theft, natural calamities, etc.
3. Increases Efficiency: Insurance helps to increase the efficiency and productivity of the business by reducing the fear and anxiety of losses and damages. Insurance encourages the business to adopt preventive and safety measures to reduce the frequency and severity of losses. Insurance also provides incentives for innovation and improvement of the quality and standards of the products and services.
4. Loan Facility: Insurance provides loan facility to the insured parties by using the insurance policy as a collateral security. Insurance enables the insured parties to obtain loans from banks and financial institutions at lower interest rates and easier terms. Insurance also helps the insured parties to repay the loans in case of any loss or damage to the insured property.
5. Promotion of Trade and Commerce: Insurance promotes trade and commerce activities by providing protection and security to the traders and businessmen who are involved in domestic and international trade. Insurance covers the risks and losses that may occur during the transportation and storage of goods and commodities. Insurance also facilitates the smooth and uninterrupted flow of trade and commerce by providing credit and guarantee facilities.
6. Capital Formation: Insurance contributes to the capital formation of the society and the economy by collecting and investing the premiums paid by the insured parties. Insurance provides a source of funds for productive and profitable ventures that generate income and employment. Insurance also helps to prevent the loss of capital due to unforeseen events.
7. Employee Welfare: Insurance provides employee welfare by providing various benefits and facilities to the employees and their dependents. Insurance covers the risks and losses that may arise from the death, disability, illness, or injury of the employees. Insurance also provides pension, gratuity, medical, and other benefits to the employees and their dependents. Insurance also helps to improve the morale and motivation of the employees and to retain them in the organization.
Essentials of Insurance Contract
a. Large number of Exposure Units: This means that the insurer must have a large number of similar or homogeneous units that are exposed to the same or similar risks. This helps the insurer to predict the frequency and severity of losses, and to pool the risks and spread the losses over a large number of insured parties.b. Accidental and Unintentional Loss: This means that the loss or damage that the insured party suffers must be accidental and unintentional, and not deliberate or intentional. This helps the insurer to avoid moral hazard, which is the tendency of the insured party to act recklessly or dishonestly because of the insurance coverage.
c. Determinable and Measurable Loss: This means that the loss or damage that the insured party suffers must be determinable and measurable, in terms of the cause, the time, the place, and the amount of the loss. This helps the insurer to verify and assess the validity and value of the claim, and to provide the appropriate compensation to the insured party.
d. No Catastrophic Loss: This means that the loss or damage that the insured party suffers must not be catastrophic, or of such a magnitude and extent that it affects a large number of insured parties at the same time. This helps the insurer to avoid the risk of insolvency, which is the inability of the insurer to pay the claims of the insured parties due to insufficient funds.
e. Calculable Chance of Loss: This means that the probability or likelihood of the loss or damage that the insured party suffers must be calculable, based on the past data and the statistical analysis. This helps the insurer to estimate the expected losses, and to determine the appropriate premium and policy limit for the insurance coverage.
f. Economically Feasible Premiums: This means that the premium or the amount of money that the insured party pays to the insurer for the insurance coverage must be economically feasible, or affordable and reasonable for the insured party. This helps the insurer to attract and retain the insured parties, and to generate sufficient revenue to cover the claims and the expenses.
General Principles of Insurance
1. Principle of Insurable Interest: This principle states that the insured party must have a legitimate interest in the preservation of the subject matter of the insurance. The insured party must stand to lose financially or otherwise in the event of loss or damage to the subject matter. The insurable interest must exist at the time of the contract and at the time of the loss.2. Principle of Utmost Good Faith: This principle requires both the insurer and the insured to act in good faith and disclose all material facts that could influence the decision to insure or the terms of the insurance policy. Material facts are those that could affect the risk assessment, the premium calculation, or the policy coverage. If either party conceals or misrepresents material facts, the contract may be void or voidable.
3. Principle of Indemnity: This principle states that the insurer agrees to indemnify or compensate the insured for the actual loss or damage suffered by the insured, subject to the policy limit. The insurer does not pay more than the actual loss or the insured amount, whichever is lower. The purpose of this principle is to restore the insured to the same financial position as before the loss, and to prevent the insured from making a profit out of the insurance contract.
4. Principle of Subrogation: This principle states that after the insurer pays the claim to the insured, the insurer acquires the right to sue the third party who is responsible for the loss or damage to the insured. The insurer steps into the shoes of the insured and exercises the legal rights of the insured against the third party. The purpose of this principle is to prevent the insured from recovering twice for the same loss, and to enable the insurer to recover the claim amount from the third party.
5. Principle of Proximate Cause: This principle states that the insurer is liable to pay the claim only if the proximate cause or the nearest cause of the loss or damage is covered by the policy. The proximate cause is the most dominant and effective cause that leads to the loss or damage, irrespective of other causes that may have contributed to the loss or damage. The insurer is not liable to pay the claim if the proximate cause is excluded by the policy.
6. Principle of Contribution: This principle applies when the insured has more than one insurance policy covering the same subject matter and the same risk. In the event of a loss, the insured can claim from any of the insurers, but not more than the actual loss. The insurer who pays the claim can then claim a proportionate share of the claim amount from the other insurers, based on the ratio of their respective policy limits. The purpose of this principle is to prevent the insured from making a profit out of the insurance contract, and to distribute the loss among the insurers.
7. Principle of Mitigation of Loss: This principle states that the insured has a duty to take reasonable steps to minimize or mitigate the loss or damage to the subject matter of the insurance. The insured must act as if the subject matter is not insured and try to reduce the extent and impact of the loss or damage. The insurer can reduce the claim amount if the insured fails to perform this duty and aggravates the loss or damage. The purpose of this principle is to discourage negligence and carelessness on the part of the insured, and to reduce the liability of the insurer.
Types of Insurance Policies
Insurance is a contract, represented by a policy, in which a policyholder receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured. There are many types of insurance policies available, and virtually any individual or business can find an insurance company willing to insure them—for a price.A. Life Insurance
Life insurance is a type of insurance that pays a sum of money to the beneficiaries of the policyholder when they die. The main purpose of life insurance is to provide financial security and support to the dependents of the policyholder, such as spouse, children, parents, etc. Life insurance can also be used for other purposes, such as paying off debts, covering funeral expenses, creating an inheritance, or donating to charity.There are different types of life insurance policies, each with its own features, benefits, and drawbacks. The most basic distinction is between term life insurance and permanent life insurance. Term life insurance provides coverage for a fixed period of time, usually ranging from 10 to 30 years, while permanent life insurance provides coverage for the entire life of the policyholder, as long as the premiums are paid. Permanent life insurance also has a cash value component, which is a savings account that accumulates over time and can be accessed by the policyholder.
Types of Life Insurance Policies
a. Whole Life Policy
A whole life policy is a type of permanent life insurance that provides coverage for the entire life of the policyholder, as well as a guaranteed cash value that grows at a fixed rate. The premiums of a whole life policy are usually level, meaning they do not change throughout the life of the policy. The death benefit of a whole life policy is also fixed and guaranteed, regardless of the performance of the cash value.There are different types of whole life policies, such as:
1. Ordinary whole life policy: This is the most basic and common type of whole life policy, which provides level premiums, fixed death benefit, and guaranteed cash value growth.
2. Limited payment whole life policy: This is a type of whole life policy that allows the policyholder to pay the premiums for a shorter period of time, such as 10, 20, or 30 years, or until a certain age, such as 65 or 70. The policy remains in force for the entire life of the policyholder, but the premiums are higher than an ordinary whole life policy.
3. Convertible whole life policy: This is a type of whole life policy that gives the policyholder the option to convert the policy into another type of permanent life insurance, such as universal or variable life, without having to undergo a medical exam or provide evidence of insurability. The conversion option is usually available for a limited period of time, such as before the policyholder reaches a certain age or before the policy reaches a certain duration.
b. Endowment Policy
An endowment policy is a type of life insurance that combines protection and savings. An endowment policy pays a lump sum to the policyholder or the beneficiaries at the end of a specified term, or upon the death of the policyholder, whichever occurs first.The term of an endowment policy is usually shorter than a whole life policy, ranging from 5 to 30 years. The premiums of an endowment policy are usually higher than a term or a whole life policy, as they include both the cost of insurance and the savings component.
There are different types of endowment policies, such as:
1. Ordinary endowment policy: This is the most basic and common type of endowment policy, which provides level premiums, fixed death benefit, and guaranteed maturity value.
2. Pure endowment policy: This is a type of endowment policy that only pays a lump sum to the policyholder at the end of the term, if they are still alive. There is no death benefit in this type of policy, and the premiums are lower than an ordinary endowment policy.
3. Double endowment policy: This is a type of endowment policy that pays twice the amount of the death benefit or the maturity value, whichever occurs first. The premiums of this type of policy are higher than an ordinary endowment policy, as they provide a higher payout.
4. Joint life endowment policy: This is a type of endowment policy that covers two or more lives, such as spouses, partners, or siblings. The policy pays a lump sum to the surviving policyholder or the beneficiaries at the end of the term, or upon the death of the first policyholder, whichever occurs first.
5. Anticipated endowment policy: This is a type of endowment policy that pays a portion of the maturity value to the policyholder at regular intervals during the term, such as every 5 or 10 years. The remaining maturity value is paid at the end of the term, or upon the death of the policyholder, whichever occurs first. The premiums of this type of policy are higher than an ordinary endowment policy, as they provide periodic payouts.
6. Deferred endowment policy: This is a type of endowment policy that pays a lump sum to the policyholder or the beneficiaries after a certain period of time, such as 10 or 20 years, from the date of commencement of the policy, or upon the death of the policyholder, whichever occurs first. The premiums of this type of policy are lower than an ordinary endowment policy, as they provide a delayed payout.
There are different types of endowment policies, such as:
1. Ordinary endowment policy: This is the most basic and common type of endowment policy, which provides level premiums, fixed death benefit, and guaranteed maturity value.
2. Pure endowment policy: This is a type of endowment policy that only pays a lump sum to the policyholder at the end of the term, if they are still alive. There is no death benefit in this type of policy, and the premiums are lower than an ordinary endowment policy.
3. Double endowment policy: This is a type of endowment policy that pays twice the amount of the death benefit or the maturity value, whichever occurs first. The premiums of this type of policy are higher than an ordinary endowment policy, as they provide a higher payout.
4. Joint life endowment policy: This is a type of endowment policy that covers two or more lives, such as spouses, partners, or siblings. The policy pays a lump sum to the surviving policyholder or the beneficiaries at the end of the term, or upon the death of the first policyholder, whichever occurs first.
5. Anticipated endowment policy: This is a type of endowment policy that pays a portion of the maturity value to the policyholder at regular intervals during the term, such as every 5 or 10 years. The remaining maturity value is paid at the end of the term, or upon the death of the policyholder, whichever occurs first. The premiums of this type of policy are higher than an ordinary endowment policy, as they provide periodic payouts.
6. Deferred endowment policy: This is a type of endowment policy that pays a lump sum to the policyholder or the beneficiaries after a certain period of time, such as 10 or 20 years, from the date of commencement of the policy, or upon the death of the policyholder, whichever occurs first. The premiums of this type of policy are lower than an ordinary endowment policy, as they provide a delayed payout.
c. Term Policy
A term policy is a type of life insurance that provides coverage for a fixed period of time, such as 10, 20, or 30 years. If the policyholder dies during the term, the beneficiaries receive the death benefit. If the policyholder survives the term, there is no payout.A term policy does not have a cash value component, and the premiums are usually lower than a permanent life insurance policy. A term policy is suitable for people who need temporary and affordable protection, such as young families, homeowners, or business owners.
There are different types of term policies, such as:
1. Straight term policy: This is the most basic and common type of term policy, which provides level premiums and fixed death benefit for the duration of the term.
2. Renewable term policy: This is a type of term policy that allows the policyholder to renew the policy for another term, without having to undergo a medical exam or provide evidence of insurability. The renewal option is usually available for a limited number of times, such as up to a certain age or for a maximum term. The premiums of the renewed policy are based on the age of the policyholder at the time of renewal, and are usually higher than the original policy.
3. Convertible term policy: This is a type of term policy that gives the policyholder the option to convert the policy into a permanent life insurance policy, such as whole or universal life, without having to undergo a medical exam or provide evidence of insurability. The conversion option is usually available for a limited period of time, such as before the policyholder reaches a certain age or before the policy reaches a certain duration. The premiums of the converted policy are based on the age of the policyholder at the time of conversion, and are usually higher than the term policy.
4. Decreasing term policy: This is a type of term policy that provides a death benefit that decreases over the term, usually in proportion to a mortgage or a loan. The premiums of this type of policy are usually level, and are lower than a straight term policy. This type of policy is suitable for people who want to cover a decreasing liability, such as a mortgage or a loan.
1. Submission of Proposal Form: The first step is to fill out and submit a proposal form, which is a document that contains the personal and financial details of the prospective policyholder, such as name, age, occupation, income, health, family history, etc. The proposal form also specifies the type and amount of insurance coverage desired, the mode and frequency of premium payment, and the nomination of beneficiaries. The proposal form is the basis of the contract and must be filled in accurately and honestly.
2. Submission of Medical Examination: The second step is to undergo a medical examination by a doctor appointed by the insurance company. The medical examination is to assess the physical condition and health status of the prospective policyholder, and to determine the risk and premium involved. The medical examination may include tests such as blood pressure, blood sugar, urine analysis, ECG, etc. The medical examination report is submitted to the insurance company along with the proposal form.
3. Submission of Agent Report: The third step is to submit an agent report, which is a document that contains the information and opinion of the insurance agent who solicited the proposal. The agent report may include the personal and professional details of the agent, the relationship and acquaintance with the prospective policyholder, the purpose and suitability of the insurance plan, the verification and recommendation of the proposal, etc. The agent report is to assist the insurance company in evaluating the proposal and the credibility of the prospective policyholder.
4. Submission of Age Verification Certificate: The fourth step is to submit an age verification certificate, which is a document that proves the date of birth of the prospective policyholder. The age verification certificate may be any official document that contains the date of birth, such as birth certificate, school certificate, passport, driving license, etc. The age verification certificate is to confirm the age of the prospective policyholder, which affects the premium and policy term.
5. Acceptance of Proposal: The fifth step is to receive the acceptance of the proposal from the insurance company. The acceptance of the proposal means that the insurance company has agreed to issue the policy to the prospective policyholder, based on the information and documents submitted. The acceptance of the proposal may be subject to certain terms and conditions, such as payment of premium, submission of additional documents, etc. The acceptance of the proposal may be communicated by a letter, an email, a phone call, or an online notification.
6. Payment of First Premium: The sixth step is to pay the first premium to the insurance company. The first premium is the amount of money that the prospective policyholder has to pay to the insurance company to initiate the policy. The first premium may be paid by cash, cheque, draft, online transfer, etc. The payment of the first premium is to confirm the contract and to activate the policy.
7. Issue of Insurance Policy: The seventh and final step is to receive the insurance policy from the insurance company. The insurance policy is the document that contains the terms and conditions of the contract, such as the policy number, the policy owner, the insured person, the beneficiaries, the policy limit, the premium amount, the premium frequency, the policy term, the policy benefits, the policy exclusions, the policy clauses, etc. The insurance policy is the evidence and the legal proof of the contract and must be kept safely and securely.
There are different types of term policies, such as:
1. Straight term policy: This is the most basic and common type of term policy, which provides level premiums and fixed death benefit for the duration of the term.
2. Renewable term policy: This is a type of term policy that allows the policyholder to renew the policy for another term, without having to undergo a medical exam or provide evidence of insurability. The renewal option is usually available for a limited number of times, such as up to a certain age or for a maximum term. The premiums of the renewed policy are based on the age of the policyholder at the time of renewal, and are usually higher than the original policy.
3. Convertible term policy: This is a type of term policy that gives the policyholder the option to convert the policy into a permanent life insurance policy, such as whole or universal life, without having to undergo a medical exam or provide evidence of insurability. The conversion option is usually available for a limited period of time, such as before the policyholder reaches a certain age or before the policy reaches a certain duration. The premiums of the converted policy are based on the age of the policyholder at the time of conversion, and are usually higher than the term policy.
4. Decreasing term policy: This is a type of term policy that provides a death benefit that decreases over the term, usually in proportion to a mortgage or a loan. The premiums of this type of policy are usually level, and are lower than a straight term policy. This type of policy is suitable for people who want to cover a decreasing liability, such as a mortgage or a loan.
Procedures of Effecting Life Insurance
Life insurance is a contract between a life insurance company and a policy owner. A life insurance policy guarantees the insurer pays a sum of money to one or more named beneficiaries when the insured person dies in exchange for premiums paid by the policyholder during their lifetime. To enter into a life insurance contract, the following procedures are usually followed:1. Submission of Proposal Form: The first step is to fill out and submit a proposal form, which is a document that contains the personal and financial details of the prospective policyholder, such as name, age, occupation, income, health, family history, etc. The proposal form also specifies the type and amount of insurance coverage desired, the mode and frequency of premium payment, and the nomination of beneficiaries. The proposal form is the basis of the contract and must be filled in accurately and honestly.
2. Submission of Medical Examination: The second step is to undergo a medical examination by a doctor appointed by the insurance company. The medical examination is to assess the physical condition and health status of the prospective policyholder, and to determine the risk and premium involved. The medical examination may include tests such as blood pressure, blood sugar, urine analysis, ECG, etc. The medical examination report is submitted to the insurance company along with the proposal form.
3. Submission of Agent Report: The third step is to submit an agent report, which is a document that contains the information and opinion of the insurance agent who solicited the proposal. The agent report may include the personal and professional details of the agent, the relationship and acquaintance with the prospective policyholder, the purpose and suitability of the insurance plan, the verification and recommendation of the proposal, etc. The agent report is to assist the insurance company in evaluating the proposal and the credibility of the prospective policyholder.
4. Submission of Age Verification Certificate: The fourth step is to submit an age verification certificate, which is a document that proves the date of birth of the prospective policyholder. The age verification certificate may be any official document that contains the date of birth, such as birth certificate, school certificate, passport, driving license, etc. The age verification certificate is to confirm the age of the prospective policyholder, which affects the premium and policy term.
5. Acceptance of Proposal: The fifth step is to receive the acceptance of the proposal from the insurance company. The acceptance of the proposal means that the insurance company has agreed to issue the policy to the prospective policyholder, based on the information and documents submitted. The acceptance of the proposal may be subject to certain terms and conditions, such as payment of premium, submission of additional documents, etc. The acceptance of the proposal may be communicated by a letter, an email, a phone call, or an online notification.
6. Payment of First Premium: The sixth step is to pay the first premium to the insurance company. The first premium is the amount of money that the prospective policyholder has to pay to the insurance company to initiate the policy. The first premium may be paid by cash, cheque, draft, online transfer, etc. The payment of the first premium is to confirm the contract and to activate the policy.
7. Issue of Insurance Policy: The seventh and final step is to receive the insurance policy from the insurance company. The insurance policy is the document that contains the terms and conditions of the contract, such as the policy number, the policy owner, the insured person, the beneficiaries, the policy limit, the premium amount, the premium frequency, the policy term, the policy benefits, the policy exclusions, the policy clauses, etc. The insurance policy is the evidence and the legal proof of the contract and must be kept safely and securely.
B. Fire Insurance
Fire insurance is a type of property insurance that covers damage and losses caused by fire. Fire insurance can be included in your homeowners insurance policy or purchased as a separate policy.Fire insurance pays for the cost of repairing or replacing your home, personal possessions, and some other aspects of your property, as well as costs of living if you have to move out while your home is unusable. Fire insurance is subject to the same deductible and coverage limits as the rest of your policy.
2. Blanket Policy: This is a type of fire insurance policy that covers more than one property or location under a single policy and a single sum insured. This policy allows the policyholder to adjust the sum insured according to the value of the property at each location. This policy is suitable for businesses that have multiple branches or warehouses.
3. Consequential Policy: This is a type of fire insurance policy that covers the loss of income or profit due to the interruption or cessation of business operations caused by fire. This policy also covers the increased cost of working, such as the cost of renting a temporary premises, hiring additional staff, etc. This policy is also known as a business interruption policy or a loss of profit policy.
4. Sprinkle leakage Policy: This is a type of fire insurance policy that covers the damage caused by the accidental leakage or bursting of sprinklers or water pipes installed for fire protection. This policy also covers the damage caused by the water used to extinguish the fire. This policy is usually taken as an extension or an add-on to the basic fire insurance policy.
2. Average Policy: This is a type of fire insurance policy that pays a proportionate amount of money to the policyholder in case of a loss or damage caused by fire, based on the ratio of the sum insured to the actual value of the property. This policy is usually taken for the property that has a fluctuating or variable value, such as stock, inventory, etc. The formula for calculating the claim amount under this policy is:
Claim Amount = (Actual Loss x Amount Insured) / Actual Value of Property
For example, if the actual value of the property is $100,000, the amount insured is $80,000, and the actual loss is $50,000, then the claim amount is:
Claim Amount = ($50,000 x $80,000) / $100,000
Claim Amount = $40,000
3. Specific Policy: This is a type of fire insurance policy that pays the actual amount of money to the policyholder in case of a loss or damage caused by fire, up to the limit of the sum insured. This policy is usually taken for the property that has a fixed or stable value, such as buildings, furniture, machinery, etc.
4. Reinstatement Policy: This is a type of fire insurance policy that pays the cost of repairing or replacing the property damaged or destroyed by fire, without any deduction for depreciation or wear and tear. This policy is also known as a replacement policy or a new for old policy.
2. Declaration Policy: This is a type of fire insurance policy that covers the stock goods of the policyholder that are stored or transported in different locations or vehicles under a single policy and a provisional sum insured. This policy requires the policyholder to declare the value of the stock goods at each location or vehicle at the beginning of each day. The premium of this policy is calculated based on the average value of the stock goods during the policy period. This policy is suitable for traders or manufacturers who deal with variable quantities of stock goods.
3. Adjustable Policy: This is a type of fire insurance policy that covers the stock goods of the policyholder that are stored or transported in different locations or vehicles under a single policy and a maximum sum insured. This policy allows the policyholder to adjust the sum insured according to the value of the stock goods at each location or vehicle at the end of the policy period. The premium of this policy is adjusted based on the actual value of the stock goods during the policy period. This policy is suitable for traders or manufacturers who deal with seasonal or cyclical variations of stock goods.
4. Excess Policy: This is a type of fire insurance policy that covers the excess or surplus value of the stock goods of the policyholder that are stored or transported in different locations or vehicles, over and above the sum insured under the basic fire insurance policy. This policy provides additional coverage for the policyholder in case of a large or total loss of stock goods due to fire. This policy is suitable for traders or manufacturers who deal with high-value or high-risk stock goods.
5. Maximum Value with discount Policy: This is a type of fire insurance policy that covers the maximum value of the stock goods of the policyholder that are stored or transported in different locations or vehicles under a single policy and a single sum insured. This policy offers a discount or a rebate on the premium of the policy, if the actual value of the stock goods at the end of the policy period is less than the sum insured. This policy is suitable for traders or manufacturers who deal with low-value or low-risk stock goods.
1. Selection of Insurance Company: The first step is to select an insurance company that offers fire insurance coverage, based on various factors, such as the reputation, reliability, and financial strength of the company, the premium rates, the policy terms and conditions, the claim settlement process, the customer service, etc. The policyholder can compare different insurance companies and their policies, and consult a professional insurance agent or broker, before making a decision.
2. Submission of Proposal Form: The second step is to fill out and submit a proposal form, which is a document that contains the details of the property to be insured, such as the location, size, construction, occupancy, use, value, etc. The proposal form also specifies the type and amount of insurance coverage desired, the mode and frequency of premium payment, and the nomination of beneficiaries. The proposal form is the basis of the contract and must be filled in accurately and honestly.
3. Evidence of Respectability (Status): The third step is to provide evidence of respectability or status, which is a document that proves the identity, address, and financial position of the policyholder, such as a passport, driving license, bank statement, income tax return, etc. The evidence of respectability or status is to verify the credibility and solvency of the policyholder, and to prevent fraud and misrepresentation.
4. Survey of Property: The fourth step is to undergo a survey of the property by a surveyor appointed by the insurance company. The survey is to assess the physical condition and risk exposure of the property, and to determine the premium and policy limit. The survey may include inspection, measurement, valuation, photographing, etc. The survey report is submitted to the insurance company along with the proposal form and the evidence of respectability or status.
5. Acceptance of Proposal: The fifth step is to receive the acceptance of the proposal from the insurance company. The acceptance of the proposal means that the insurance company has agreed to issue the policy to the policyholder, based on the information and documents submitted. The acceptance of the proposal may be subject to certain terms and conditions, such as payment of premium, submission of additional documents, etc. The acceptance of the proposal may be communicated by a letter, an email, a phone call, or an online notification.
6. Issue of Cover note: The sixth step is to receive a cover note from the insurance company. A cover note is a temporary document that provides provisional insurance coverage to the policyholder until the policy is issued. A cover note usually contains the name and address of the policyholder, the description and value of the property, the type and amount of insurance coverage, the premium amount, the policy period, etc. A cover note is valid for a limited period of time, such as 15 or 30 days, and expires when the policy is issued or the proposal is rejected.
7. Issue of Fire Insurance Policy: The seventh and final step is to receive the fire insurance policy from the insurance company. The fire insurance policy is the document that contains the terms and conditions of the contract, such as the policy number, the policy owner, the insured property, the beneficiaries, the policy limit, the premium amount, the premium frequency, the policy term, the policy benefits, the policy exclusions, the policy clauses, etc. The fire insurance policy is the evidence and the legal proof of the contract and must be kept safely and securely.
Types of Fire Insurance Policies
There are different types of fire insurance policies, based on various criteria, such as the risk covered, the indemnity, and the stock goods. Some of the common types of fire insurance policies are:a. On the basis of Risk Covered
1. Comprehensive Policy: This is a type of fire insurance policy that covers all kinds of risks and losses caused by fire, such as fire, lightning, explosion, riot, strike, malicious damage, storm, flood, earthquake, etc. This policy also covers the loss of profit, rent, and other consequential losses due to fire. This policy is also known as an all-risk policy or a package policy.2. Blanket Policy: This is a type of fire insurance policy that covers more than one property or location under a single policy and a single sum insured. This policy allows the policyholder to adjust the sum insured according to the value of the property at each location. This policy is suitable for businesses that have multiple branches or warehouses.
3. Consequential Policy: This is a type of fire insurance policy that covers the loss of income or profit due to the interruption or cessation of business operations caused by fire. This policy also covers the increased cost of working, such as the cost of renting a temporary premises, hiring additional staff, etc. This policy is also known as a business interruption policy or a loss of profit policy.
4. Sprinkle leakage Policy: This is a type of fire insurance policy that covers the damage caused by the accidental leakage or bursting of sprinklers or water pipes installed for fire protection. This policy also covers the damage caused by the water used to extinguish the fire. This policy is usually taken as an extension or an add-on to the basic fire insurance policy.
b. On the basis of Indemnity
1. Valued Policy: This is a type of fire insurance policy that pays a fixed and agreed amount of money to the policyholder in case of a loss or damage caused by fire, regardless of the actual value of the property. This policy is usually taken for the property that has a sentimental or artistic value, such as paintings, antiques, jewelry, etc.2. Average Policy: This is a type of fire insurance policy that pays a proportionate amount of money to the policyholder in case of a loss or damage caused by fire, based on the ratio of the sum insured to the actual value of the property. This policy is usually taken for the property that has a fluctuating or variable value, such as stock, inventory, etc. The formula for calculating the claim amount under this policy is:
Claim Amount = (Actual Loss x Amount Insured) / Actual Value of Property
For example, if the actual value of the property is $100,000, the amount insured is $80,000, and the actual loss is $50,000, then the claim amount is:
Claim Amount = ($50,000 x $80,000) / $100,000
Claim Amount = $40,000
3. Specific Policy: This is a type of fire insurance policy that pays the actual amount of money to the policyholder in case of a loss or damage caused by fire, up to the limit of the sum insured. This policy is usually taken for the property that has a fixed or stable value, such as buildings, furniture, machinery, etc.
4. Reinstatement Policy: This is a type of fire insurance policy that pays the cost of repairing or replacing the property damaged or destroyed by fire, without any deduction for depreciation or wear and tear. This policy is also known as a replacement policy or a new for old policy.
c. On the basis of Stock Goods
1. Floating Policy: This is a type of fire insurance policy that covers the stock goods of the policyholder that are stored or transported in different locations or vehicles under a single policy and a single sum insured. This policy allows the policyholder to declare the value of the stock goods at each location or vehicle at the end of a specified period, such as a month or a quarter. This policy is suitable for traders or manufacturers who deal with large quantities of stock goods.2. Declaration Policy: This is a type of fire insurance policy that covers the stock goods of the policyholder that are stored or transported in different locations or vehicles under a single policy and a provisional sum insured. This policy requires the policyholder to declare the value of the stock goods at each location or vehicle at the beginning of each day. The premium of this policy is calculated based on the average value of the stock goods during the policy period. This policy is suitable for traders or manufacturers who deal with variable quantities of stock goods.
3. Adjustable Policy: This is a type of fire insurance policy that covers the stock goods of the policyholder that are stored or transported in different locations or vehicles under a single policy and a maximum sum insured. This policy allows the policyholder to adjust the sum insured according to the value of the stock goods at each location or vehicle at the end of the policy period. The premium of this policy is adjusted based on the actual value of the stock goods during the policy period. This policy is suitable for traders or manufacturers who deal with seasonal or cyclical variations of stock goods.
4. Excess Policy: This is a type of fire insurance policy that covers the excess or surplus value of the stock goods of the policyholder that are stored or transported in different locations or vehicles, over and above the sum insured under the basic fire insurance policy. This policy provides additional coverage for the policyholder in case of a large or total loss of stock goods due to fire. This policy is suitable for traders or manufacturers who deal with high-value or high-risk stock goods.
5. Maximum Value with discount Policy: This is a type of fire insurance policy that covers the maximum value of the stock goods of the policyholder that are stored or transported in different locations or vehicles under a single policy and a single sum insured. This policy offers a discount or a rebate on the premium of the policy, if the actual value of the stock goods at the end of the policy period is less than the sum insured. This policy is suitable for traders or manufacturers who deal with low-value or low-risk stock goods.
Procedures of Effecting Fire Insurance
Fire insurance is a type of property insurance that covers damage and losses caused by fire. Fire insurance can be included in your homeowner's insurance policy or purchased as a separate policy. To enter into a fire insurance contract, the following procedures are usually followed:1. Selection of Insurance Company: The first step is to select an insurance company that offers fire insurance coverage, based on various factors, such as the reputation, reliability, and financial strength of the company, the premium rates, the policy terms and conditions, the claim settlement process, the customer service, etc. The policyholder can compare different insurance companies and their policies, and consult a professional insurance agent or broker, before making a decision.
2. Submission of Proposal Form: The second step is to fill out and submit a proposal form, which is a document that contains the details of the property to be insured, such as the location, size, construction, occupancy, use, value, etc. The proposal form also specifies the type and amount of insurance coverage desired, the mode and frequency of premium payment, and the nomination of beneficiaries. The proposal form is the basis of the contract and must be filled in accurately and honestly.
3. Evidence of Respectability (Status): The third step is to provide evidence of respectability or status, which is a document that proves the identity, address, and financial position of the policyholder, such as a passport, driving license, bank statement, income tax return, etc. The evidence of respectability or status is to verify the credibility and solvency of the policyholder, and to prevent fraud and misrepresentation.
4. Survey of Property: The fourth step is to undergo a survey of the property by a surveyor appointed by the insurance company. The survey is to assess the physical condition and risk exposure of the property, and to determine the premium and policy limit. The survey may include inspection, measurement, valuation, photographing, etc. The survey report is submitted to the insurance company along with the proposal form and the evidence of respectability or status.
5. Acceptance of Proposal: The fifth step is to receive the acceptance of the proposal from the insurance company. The acceptance of the proposal means that the insurance company has agreed to issue the policy to the policyholder, based on the information and documents submitted. The acceptance of the proposal may be subject to certain terms and conditions, such as payment of premium, submission of additional documents, etc. The acceptance of the proposal may be communicated by a letter, an email, a phone call, or an online notification.
6. Issue of Cover note: The sixth step is to receive a cover note from the insurance company. A cover note is a temporary document that provides provisional insurance coverage to the policyholder until the policy is issued. A cover note usually contains the name and address of the policyholder, the description and value of the property, the type and amount of insurance coverage, the premium amount, the policy period, etc. A cover note is valid for a limited period of time, such as 15 or 30 days, and expires when the policy is issued or the proposal is rejected.
7. Issue of Fire Insurance Policy: The seventh and final step is to receive the fire insurance policy from the insurance company. The fire insurance policy is the document that contains the terms and conditions of the contract, such as the policy number, the policy owner, the insured property, the beneficiaries, the policy limit, the premium amount, the premium frequency, the policy term, the policy benefits, the policy exclusions, the policy clauses, etc. The fire insurance policy is the evidence and the legal proof of the contract and must be kept safely and securely.
C. Marine Insurance
Marine insurance is a type of insurance that covers the loss or damage of ships, cargo, or freight due to sea perils, such as collision, sinking, fire, piracy, etc. Marine insurance is one of the oldest forms of insurance, dating back to ancient times when merchants and traders used to transport goods by sea.Marine insurance is essential for the protection and security of the maritime industry, which plays a vital role in the global trade and commerce.
1. Hull Insurance: This is a type of marine insurance policy that covers the loss or damage of the ship or vessel due to sea perils. Hull insurance also covers the liability of the shipowner or the operator for any damage caused to the third party or the environment by the ship. Hull insurance is usually taken by the shipowner or the operator for the protection of their investment and income.
2. Blanket Policy: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, regardless of the type, quantity, or value of the cargo or the freight. Blanket policy also covers the liability of the cargo owner or the consignee for any damage caused to the third party or the environment by the cargo or the freight. Blanket policy is usually taken by the cargo owner or the consignee for the protection of their interest and profit.
3. Block Policy: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, as well as the loss or damage of the cargo or the freight during the land transportation, such as by rail, road, or air. Block policy also covers the liability of the cargo owner or the consignee for any damage caused to the third party or the environment by the cargo or the freight during the land transportation. Block policy is usually taken by the cargo owner or the consignee for the protection of their interest and profit throughout the entire journey of the cargo or the freight.
4. Port Policy: This is a type of marine insurance policy that covers the loss or damage of the ship or the cargo or the freight due to sea perils, as well as the loss or damage of the ship or the cargo or the freight during the port stay, such as loading, unloading, storage, etc. Port policy also covers the liability of the shipowner or the operator or the cargo owner or the consignee for any damage caused to the third party or the environment by the ship or the cargo or the freight during the port stay. Port policy is usually taken by the shipowner or the operator or the cargo owner or the consignee for the protection of their interest and profit during the port stay.
5. Cargo Insurance: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, as well as the loss or damage of the cargo or the freight due to other perils, such as theft, pilferage, breakage, leakage, etc. Cargo insurance also covers the liability of the cargo owner or the consignee for any damage caused to the third party or the environment by the cargo or the freight due to other perils. Cargo insurance is usually taken by the cargo owner or the consignee for the protection of their interest and profit from the various risks involved in the transportation of the cargo or the freight.
6. P.P.I (Policy Proof of Interest) Policy: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, without requiring the proof of interest or the ownership of the cargo or the freight by the insured. P.P.I policy is usually taken by the middlemen or the agents who are involved in the trade or the transportation of the cargo or the freight, but do not have the legal title or the possession of the cargo or the freight. P.P.I policy is also known as an open or a floating policy.
7. Currency Policy: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, as well as the loss or damage of the cargo or the freight due to the fluctuation of the exchange rate or the currency value. Currency policy is usually taken by the exporters or the importers who deal with foreign currency or goods, and who want to hedge against the risk of currency depreciation or appreciation. Currency policy is also known as an exchange rate or a foreign currency policy.
1. Selection of Insurance Company: The first step is to select an insurance company that offers marine insurance coverage, based on various factors, such as the reputation, reliability, and financial strength of the company, the premium rates, the policy terms and conditions, the claim settlement process, the customer service, etc. The policyholder can compare different insurance companies and their policies, and consult a professional insurance agent or broker, before making a decision.
2. Submission of Marine Declaration Form: The second step is to fill out and submit a marine declaration form, which is a document that contains the details of the ship, the cargo, or the freight to be insured, such as the name, description, value, destination, etc. The marine declaration form also specifies the type and amount of insurance coverage desired, the mode and frequency of premium payment, and the nomination of beneficiaries. The marine declaration form is the basis of the contract and must be filled in accurately and honestly.
3. Acceptance of Proposal: The third step is to receive the acceptance of the proposal from the insurance company. The acceptance of the proposal means that the insurance company has agreed to issue the policy to the policyholder, based on the information and documents submitted. The acceptance of the proposal may be subject to certain terms and conditions, such as payment of premium, submission of additional documents, etc. The acceptance of the proposal may be communicated by a letter, an email, a phone call, or an online notification.
4. Issue of Cover note: The fourth step is to receive a cover note from the insurance company. A cover note is a temporary document that provides provisional insurance coverage to the policyholder until the policy is issued. A cover note usually contains the name and address of the policyholder, the description and value of the ship, the cargo, or the freight, the type and amount of insurance coverage, the premium amount, the policy period, etc. A cover note is valid for a limited period of time, such as 15 or 30 days, and expires when the policy is issued or the proposal is rejected.
5. Issue of Marine Insurance Policy: The fifth and final step is to receive the marine insurance policy from the insurance company. The marine insurance policy is the document that contains the terms and conditions of the contract, such as the policy number, the policy owner, the insured ship, the cargo, or the freight, the beneficiaries, the policy limit, the premium amount, the premium frequency, the policy term, the policy benefits, the policy exclusions, the policy clauses, etc. The marine insurance policy is the evidence and the legal proof of the contract and must be kept safely and securely.
Types of Marine Insurance Policies
There are different types of marine insurance policies, based on various criteria, such as the subject matter, the risk covered, the interest of the insured, etc. Some of the common types of marine insurance policies are:1. Hull Insurance: This is a type of marine insurance policy that covers the loss or damage of the ship or vessel due to sea perils. Hull insurance also covers the liability of the shipowner or the operator for any damage caused to the third party or the environment by the ship. Hull insurance is usually taken by the shipowner or the operator for the protection of their investment and income.
2. Blanket Policy: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, regardless of the type, quantity, or value of the cargo or the freight. Blanket policy also covers the liability of the cargo owner or the consignee for any damage caused to the third party or the environment by the cargo or the freight. Blanket policy is usually taken by the cargo owner or the consignee for the protection of their interest and profit.
3. Block Policy: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, as well as the loss or damage of the cargo or the freight during the land transportation, such as by rail, road, or air. Block policy also covers the liability of the cargo owner or the consignee for any damage caused to the third party or the environment by the cargo or the freight during the land transportation. Block policy is usually taken by the cargo owner or the consignee for the protection of their interest and profit throughout the entire journey of the cargo or the freight.
4. Port Policy: This is a type of marine insurance policy that covers the loss or damage of the ship or the cargo or the freight due to sea perils, as well as the loss or damage of the ship or the cargo or the freight during the port stay, such as loading, unloading, storage, etc. Port policy also covers the liability of the shipowner or the operator or the cargo owner or the consignee for any damage caused to the third party or the environment by the ship or the cargo or the freight during the port stay. Port policy is usually taken by the shipowner or the operator or the cargo owner or the consignee for the protection of their interest and profit during the port stay.
5. Cargo Insurance: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, as well as the loss or damage of the cargo or the freight due to other perils, such as theft, pilferage, breakage, leakage, etc. Cargo insurance also covers the liability of the cargo owner or the consignee for any damage caused to the third party or the environment by the cargo or the freight due to other perils. Cargo insurance is usually taken by the cargo owner or the consignee for the protection of their interest and profit from the various risks involved in the transportation of the cargo or the freight.
6. P.P.I (Policy Proof of Interest) Policy: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, without requiring the proof of interest or the ownership of the cargo or the freight by the insured. P.P.I policy is usually taken by the middlemen or the agents who are involved in the trade or the transportation of the cargo or the freight, but do not have the legal title or the possession of the cargo or the freight. P.P.I policy is also known as an open or a floating policy.
7. Currency Policy: This is a type of marine insurance policy that covers the loss or damage of the cargo or the freight due to sea perils, as well as the loss or damage of the cargo or the freight due to the fluctuation of the exchange rate or the currency value. Currency policy is usually taken by the exporters or the importers who deal with foreign currency or goods, and who want to hedge against the risk of currency depreciation or appreciation. Currency policy is also known as an exchange rate or a foreign currency policy.
Procedures of Effecting Marine Insurance
To enter into a marine insurance contract, the following procedures are usually followed:1. Selection of Insurance Company: The first step is to select an insurance company that offers marine insurance coverage, based on various factors, such as the reputation, reliability, and financial strength of the company, the premium rates, the policy terms and conditions, the claim settlement process, the customer service, etc. The policyholder can compare different insurance companies and their policies, and consult a professional insurance agent or broker, before making a decision.
2. Submission of Marine Declaration Form: The second step is to fill out and submit a marine declaration form, which is a document that contains the details of the ship, the cargo, or the freight to be insured, such as the name, description, value, destination, etc. The marine declaration form also specifies the type and amount of insurance coverage desired, the mode and frequency of premium payment, and the nomination of beneficiaries. The marine declaration form is the basis of the contract and must be filled in accurately and honestly.
3. Acceptance of Proposal: The third step is to receive the acceptance of the proposal from the insurance company. The acceptance of the proposal means that the insurance company has agreed to issue the policy to the policyholder, based on the information and documents submitted. The acceptance of the proposal may be subject to certain terms and conditions, such as payment of premium, submission of additional documents, etc. The acceptance of the proposal may be communicated by a letter, an email, a phone call, or an online notification.
4. Issue of Cover note: The fourth step is to receive a cover note from the insurance company. A cover note is a temporary document that provides provisional insurance coverage to the policyholder until the policy is issued. A cover note usually contains the name and address of the policyholder, the description and value of the ship, the cargo, or the freight, the type and amount of insurance coverage, the premium amount, the policy period, etc. A cover note is valid for a limited period of time, such as 15 or 30 days, and expires when the policy is issued or the proposal is rejected.
5. Issue of Marine Insurance Policy: The fifth and final step is to receive the marine insurance policy from the insurance company. The marine insurance policy is the document that contains the terms and conditions of the contract, such as the policy number, the policy owner, the insured ship, the cargo, or the freight, the beneficiaries, the policy limit, the premium amount, the premium frequency, the policy term, the policy benefits, the policy exclusions, the policy clauses, etc. The marine insurance policy is the evidence and the legal proof of the contract and must be kept safely and securely.
Difference between Life Insurance, Fire Insurance, and Marine Insurance Policy
| Basis of Difference | Life Insurance | Fire Insurance | Marine Insurance |
|---|---|---|---|
| Subject Matter | Human life | Property or asset | Ship, cargo, or freight |
| Risk | Unavoidable | Avoidable | Avoidable |
| Objective | To provide financial security to the dependents of the policyholder | To cover fire risk | To cover sea perils |
| Claim | Lower of sum insured or actual loss | Lower of sum insured or actual loss | Purchase price of the material plus 10-15% profit |
| Moral responsibility of insured | Important condition | Does not exist | Does not exist |
| Policy amount | It can be more than the value of subject matter | It cannot be more than the value of subject matter | It can be the market value of the cargo or ship |
| Insurable interest | Must exist both while taking the policy and on the occurrence of loss | Must exist when the loss takes place | Must exist when the loss takes place |
| Types of policies | Term, whole, endowment, etc. | Comprehensive, blanket, consequential, sprinkle leakage, etc. | Freight, hull, cargo, etc. |
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