HISTORY

• Over 4,000 years ago

• Hammurabi, King of ancient
Babylon.
• The Romans.
• The Greeks
• Risk and uncertainty are incidental to
life. Man may meet untimely death.

• He may suffer from accident, destruction

of property, fire, floods, earthquakes and
other natural calamities.

• Whenever there is uncertainty, there is

risk as well as insecurity. It is to
provide against risk and insecurity that
insurance came in to being.
 INSURANCE
Insurance is a contract to pay
compensation in certain eventualities
(e.g., death, fire, theft, motor
accident) in return for a premium.
The premiums are so calculated that
on average, in total, they are
sufficient to pay compensation for
policy holders who will make a claim,
together with a margin to cover
administration costs and profit.
- ECONOMIST” DICTIONARY OF BUSINESS
i n s u r a n c e ...
• The main principle underlying
insurance is the pooling of risks.
It is thus a co-operative devise to
spread the loss caused by a risk
( which is covered by insurance)
over a large number of persons who
are also exposed to the same risk
and themselves against that risk.
• Insurance history
• What is risk
• What is insurance and some terms used in insurance.
• What is law and need for MBA student to learn law
• Insurance Law
• History of insurance law.
• Insurance as a contract
• Elements of insurance with case sudies.
• Types of insurance
• Kinds of insurance.
History Of Insurance Sector
• Open competitive market
• Nationalization
• Liberalized market
• 360-degree turn
• Oriental life Insurance Company in Kolkata
in 1818
CONTRACT……OF I N S U RANCE
• CONTRACT OF INSURANCE:

A contract of insurance is a contract by

which a person, in consideration of a
sum of money , undertakes to make
good the loss of another against a
specific risk, e.g., fire, or to compensate
him or his estate on happening of a
specified event, e.g., accident or death.
 INSURER & INSURED

• The person undertakes the risk is called

the insurer , assuror or underwriter.

• The person whose loss is to be made

good is called the insured or assured.
 PREMIUM

• The consideration for which

the
insurer undertakes to
indemnify
the assured against the risk
is
called the premium.
 POLICY

• The instrument in which the

contract of insurance is generally
embodied is called the ‘policy’.

• The policy is not the

contract;
..it is the evidence of the
contract.
Subject matter of insurance and
insurable interest
• The thing or property insured is
called the ‘subject matter of
insurance ’, and the interest of the
assured in the subject-matter is
called his ‘insurable interest’.
PERILS INSURED AGAINST

• That which insured against is the

loss arising from uncertain events
or casualties, i.e., destruction of or
damage to the property or the death
or disablement of a person, and
these are called ‘perils insured
against.’
 Insurance as a contract
• It is governed by the same general principles of law as other contracts.
• It comes in to existence by the process of OFFER in the form of
proposal and it’s ACCEPTANCE (by the issue of a policy).
• The proposal is made by one party (assured or insured)
to the other party (insurer ,assuror or underwriter) for insurance against
some loss should it occur on the happening of an uncertain event,
within a limited time.
The object of contract must be lawful.
The Kinds of Insurance
• 1.Life Insurance:
In this case certain fixed amount becomes
payable on the death of the assured or on
the expiry of a certain fixed period,
whichever is earlier.
• 2.Fire Insurance:
It covers the losses caused by fire.
………..The Kinds of Insurance
• 3.Marine Insurance:
It covers all marine losses, that is to say, the
losses incidental to marine adventure.
• 4.Personal Accident Insurance:
In this case, the amount payable is a
compensation for any personal injury
caused to the assured.
………..The Kinds of Insurance
• 5.Health Insurance:
Health insurance is becoming an important
form of insurance. It provides benefit for
medical expenses.
• 6.Property Insurance:
Property insurance takes various forms like
theft or burglary insurance, fire insurance,
liability insurance etc.
Nature of Contract of Insurance
• Insurance is the law’s attempt to socialize
responsibility.
• Lord Mansfield described it as a ‘contract on
speculation”, which in legal sense means a
wagering agreement.
• Wagering agreement is one in which a person
promises to pay money or transfer property upon
the happening or non happening of an uncertain
event.
Difference Between-
Insurance and Wager
• 1.Contract of insurance( except • 1.In case of wagering
life, accident and sickness agreement, however, there is no
insurances) is a contract of question of indemnify as the
indemnity. parties do not intend to cover
It seeks to indemnify the any risk.
assured for the loss suffered by
him on the happening of an
uncertain event.
In life insurance , the amount
payable in case of death of the
assured is ascertained and fixed
in advance.
Difference Between-
Insurance and
• 3.A contract of insurance
is a contract requiring
utmost good faith by the
parties of the contract.
• 4.A contract of insurance
is legally enforceable and
is encouraged as it
benefits the community as
a whole.
Wager
• 3.In the wagering
agreement good faith
need not be observed.
• 4.A wagering
agreement is void
ab initio because it is
against the public
policy.
…………….Difference Between-
Insurance and Wager
• 5.The object of • 5.Where as, the object
contract of insurance of wagering agreement
is to protect the is to earn speculative
assured against the gains.
losses on the
happening of some
uncertain events.
 FUNDAMENTAL ELEMENTS OF INSURANCE
OR PRINCIPLES OF INSURANCE
1.UTMOST GOOD FAITH: [UBERRIMAE FEDEI]
Insurance is a contract of uberrimae fidei.
The assured must disclose to the insurer all material
facts known to him. A mis-statement or withholding of
any material information is fatal to the contract of
insurance. Both the parties are under obligation for the
full disclosure of material information. The rule
‘ caveat emptor ’ does not apply to them.
[Cont’d]……. 1. UTMOST GOOD FAITH:
[ UBERRIMAE FEDEI ]

• Where the assured does not make a complete disclosure of

everything which it was material for the insurer to know in
order to judge, (a) whether he should accept the risk, and
(b) what premium he should charge,
the insurer can avoid the contract.
Any fact is material if it has a bearing on the risk and would materially
affect the insurer in deciding to make the contract or not.
• If the assured has knowledge of a fact which the
insurer cannot ordinarily have, then he should not indulge
himself in suppressio veri (suppression of truth) by making
a suggestion which is false or suppressing a matter which
is true [Srinivasa Pillai vs.L.I.C. of India,1977]. [Example…..
Example…1.Utmost good faith
[London Insurance Co. vs. Mansel (1879)]
• In making a proposal for insurance, M, in reply to
a question asking whether previous proposals on
his life had been made to any other office, and if
so whether they had been accepted at the ordinary
rates. He omitted to disclose that his proposal for
life insurance had been declined by several other
offices. Held, this was a material failure to
disclose and the policy could be set aside.
A proposer should disclose all material facts at the time of making the
proposal for insurance and must continue to do so till the negotiations
are completed. [Looker vs.Law Union &Rock Insurance Co. Ltd.(1928)].

• L made a proposal to an insurance company for an insurance

on his life for.50,000 sterling pounds.He trustworthily answered
various questions on the proposal form and disclosed all
relevant facts. A few days later but before the proposal was
accepted by the insurance company, L was taken ill with
pneumonia.Two days later, he died of pneumonia and the
company learned about his illness for first time.Held, the
company was not liable to pay the claim, as the notice of
illness which amounted to material alteration in the risk between
the date of the proposal and it’s acceptance was not given.
[Looker vs.Law Union &Rock Insurance Co. Ltd.(1928)].
2.Indemnity

• A contract of insurance (except life, personal accident

and sickness insurances) is a contract of indemnity.In case
of loss the assured is paid the actual amount of loss not
exceeding the amount of the policy.
• Indemnity is the controlling principle in contracts of fire,
marine, and burglary insurances.
[Cont’d]………2.Indemnity

• The object of every contract of insurance is to place the

assured in the same financial position, as nearly as
possible, after the loss as if the loss had not taken place at
all.
• It would be against he public policy to allow an assured
to make a profit out of the happening of the loss or
damage insured against. This is because, if that were so,
the assured might be tempted to bring about the event
insured against in order to get the money.
• Moreover, in the absence of principle of indemnity, there
might be a tendency in the direction of over insurance.
Example…2.Indemnity
[ Castellion vs. Preston(1883) ]
• P insured his house against fire.Subsequently he
agreed to sell his house to R for 3,100 sterling
pounds. Before the sale could be completed the
house was destroyed by fire and P received his
value from the insurance company.P then
received the price from R as per the contract of
sale. Held, the insurance company could
recover from P the money they had paid.
[Castellion vs.Preston(1883)].
3.Insurable interest:
• Insurable interest is necessary to support every
contract of insurance. It is the legal right of a
person to insure.
• It means that the assured must be so situated with
regard to the thing insured that he would benefit
from it’s existence and suffer loss from it’s
destruction.
• It means that, the assured must be in a legally recognized
to relationship so that he will suffer a direct financial loss
on the happening of the event insured.
…..3.Insurable interest:

• It is the existence of insurable interest in a contract of

insurance which distinguishes it from a wagering
agreement.
• In life insurance, insurable interest must be present at the
time when the insurance is effected.
• In fire insurance, it must be present at the time of
insurance and at the time of loss.
• In marine insurance, it must be present at the time of loss
of the subject matter.
Cont’d………..[3.Insurable interest:]

• It is not the owner alone, to take the case of fire or marine

insurance, but every person who would suffer direct
financial loss if the property or goods were damaged or
destroyed, who has insurable interest.Thus A has no
insurable interest in the house belonging to B and as such
cannot insure it.
• But if the house is mortgaged with A, he can insure it, if
he desires, in order to protect his interest.
• Like wise, A cannot insure the life of B .But if he has
some pecuniary interest in the life of B , he can insure
B’ s life.
4.Causa Proxima:

• The assured can recover the loss only if it is

proximately caused by any of the perils insured
against. This is called the rule of “causa
proxima”.
• The rule is causa proxima non remota
spectatur, i.e., the proximate or immediate and
not the remote cause is to looked to and if the
proximate cause of the loss from the
insurer.Every loss that clearly and proximately
results, whether directly or indirectly, from the
event insured against is within the policy.
Example… [4.Causa Proxima: ]

• The cargo of rice in a ship was destroyed by sea-water

flowing in the ship through a hole made by rats in
bathroom lead pipe.Held, the underwriter was liable as
the damage was due to a peril of the sea.The proximae
causa of the damage in this case is sea water.If however
,
the loss is caused directly by rats or vermin, the
underwriter will not be liable.
[Hamilton Fraser & Co. vs.Pandroff(1887)]
Another Example… [4.Causa
Proxima: ]
• A ship carrying meat was delayed
by a storm in consequence of
which it became decomposed and
had to be thrown overboard.Held,
the loss of meat was not a loss by
perils of the sea.
[Taylor VS.Dunbar(1869)]
5.Risk must attach:

• The insurer receives the premium

in a contract of insurance for
running a certain risk.If for any
reason the risk is not run, the
consideration fails, and the insurer
must return the premium.
6.Mitigation of loss:

• In the event of some mishap to the

insured property , if the assured does not
take all necessary steps to mitigate the
loss , the insurer can avoid the payment
of loss which is attributable to the
assured’ s negligence.
He must act as an uninsured prudent
person would act under similar
circumstances in his own case.
[British & Foreign Marine Insurance Co. vs. Grant(1921)]
7.Contribution:

• Where there are two or more insurances on one

risk, the principle of contribution applies as
between different insurers.
The aim of contribution is to distribute the actual
amount of loss among the different insurers who
are liable under different policies in respect of the
same subject-matter.
The contribution arises when (1) there are different policies which
relate to the same subject-matter,(2)the policies cover the
same peril which caused the loss,(3) all the policies are in
force at the same time of the loss;and (4) one of the insurer
has paid to the assured more than his share of loss.
Example…………………....[7.Contribution]

EXAMPLE: A insures his house against fire for

Rs.10,000 with insurer X, and for
Rs.20,000 with insurer Y .
A loss of Rs 12,000 occurs. X is liable for
Rs.4,000 and Y for Rs.8,000.
If the whole amount of the loss is paid by Y,
he can recover Rs.4,000 from X.
8.Subrogation:

• The doctrine of subrogation is a corollary

to the principle of indemnity. According to
it, the insurer who has agreed to
indemnify the assured on making
good the loss, is entitled to succeed
to all the ways and means by which
the assured might have protected
himself against the loss.
Example…………………….[8.Subrogation]

• A insures his goods with B for

Rs 1,000. The goods are damaged by fire
caused by C , a miscreant . A recovers the
loss from B and subsequently he succeeds
in recovering this loss from C also. He must
hold the amount recovered from C in trust
for B.
The Principle of Subrogation is subject to the following three
limitations…………………

• 1.The insurer is subrogated to only the rights and

remedies available to the assured in respect of the thing to
which the contract of insurance relates.
example: (a) M owned two vessels, R and S, which were insured with
different insurers.The two vessels collided due to the fault of the
vessel R.The insurer of vessel S indemnified the owner,M, under the
Policy, and then proceeded against M as the owner of vessel R by
virtue of doctrine of subrogation for claiming the amount paid in
respect of ship R .Held, he could not recover as the insurer is
subrogated to only the rights of M, the insured, and as no person will
succeed against himself , the insurer of vessel S did not get any right
as both the ships were owned by M. [Simpson vs.Thomson(1887)].
The Principle of Subrogation is subject to the following three
limitations…………………

• 2. The insurer’s right of subrogation arises

only when he pays the loss for which he is
liable under the policy.
• 3.The insurer is not entitled to benefit of
which is recovered until the assured has
recovered a full indemnity.
9.Period of Insurance:

• A contract of life insurance is a continuing

contract with a condition that the premium is
to be paid at regular intervals. If the premium is
not paid regularly, the contract lapses and can
be revived subject to the fulfillment of certain
conditions.
• An insurance policy specifies the terms or
period of time it covers, often the nature of risk
against which insurance is sought determines
the period or life of the policy.
10.Nature of contract :

• A contract of insurance like all other valid contracts , must

have all the essential elements of contracts.
1.Offer and Acceptance
2.Intention to create legal relationship
3.Lawful Consideration
4.Lawful object
5.Free and Genuine Consent
6.Certainty and possibility of performance
7.Competency of the parties
8.Agreement not declared to be void
9.Legal Formalities
RE-INSURANCE

• If an insurer has has insured a venture in which

the risk involved is beyond his capacity, he may
insure the same risk either wholly or partially
with other insurers.This is called re-insurance.
• Re-insurance can be resorted to in all kinds of
insurance.The insurer has an insurable interest in
the subject-matter insured to the extent of the
amount insured by him because a contract of re-
insurance is also a contract of indemnity.
DOUBLE INSURANCE

• Where the assured insures the risk with two or

more independent insurers and the total sum
insured exceeds the actual value of the subject-
matter, the assured is said to be over-insured by
double insurance.
• But in case of loss the assured cannot recover
more than the actual amount of loss.This is
because a contract of insurance( other than life and
personal accident insurance) is a contract of
indemnity.
PRACTICAL PROBLEMS: CASE.1

• A ship insured against marine losses is

sunk.The insurer pays the value in full.The
ship is subsequently salvaged.
Who is entitled to the sale proceeds of
the salvaged ship.?
Solution to Case.1

• The insurer is entitled to the sale proceeds

of the salvaged ship.[Subrogation]
PRACTICAL PROBLEMS: CASE.2

• A house is insured against fire for

Rs.50,000.It is burnt down but it is
estimated that Rs.30,000 will restore it to
the original condition.
How much is the insurer is liable to pay ?
Solution to Case.2

• Insurer is liable to pay Rs.30,000 only.

(Indemnity)
PRACTICAL PROBLEMS: CASE.3

• A insures his house against fire for

Rs.40,000 with B and for Rs.60,000 with
C.A fire occurs and a loss is estimated at
Rs. 14,000.A recovers Rs.14,000 from B.
What are the rights of B against C ?
Solution to Case.3

• B can claim Rs. 8,400 from C as the loss

of Rs.14,000 will be borne by B and C in
the ratio of 40,000: 60,000 [Contribution].
PRACTICAL PROBLEMS: CASE.4

• A, to meet the claims of his creditors,

borrows Rs.10,000 from B.To protect his
interest, B takes out an insurance policy on
the life of A.A pays the entire amount to B
and then dies.
Can B recover on the policy ?
Solution to Case.4

• B can recover on the policy.

[Insurable interest].
PRACTICAL PROBLEMS: CASE.5

• A contracted to build a house for B for

which he was to be paid Rs.2,00,000.All the
materials were to be supplied by B.
Can A insure the materials for the period
during which the building is being
constructed.?
Solution to Case.5

• A can insure the materials .

(Insurable interest).
PRACTICAL PROBLEMS: CASE.6

• A’s goods in a warehouse are insured.B is

the insurer.The goods are burnt.A recovers
their full value of Rs.1,000 from B.Then A
sues the warehouse keeper and recovers
Rs.1,000 from him.B claims this amount
from A but A refuses to make over the
amount to B. How would you decide the
dispute between A and B ?
Solution to Case.6

• A is bound to pay Rs.1,000 to B.

(Castellain vs.Preston)
PRACTICAL PROBLEMS: CASE.7

• A firm of contractors assured a lorry against

fire.In reply to a question in the proposal form, “
state the address at which the lorry will be usually
garaged” a wrong address was given.The policy
contained a clause that answers to the queries in
the proposal form were the basis of the
contract.The risk of fire was the same as the
address given and at the correct address.
If the lorry is damaged by fire, are the insurers liable ?
Solution to Case.7

• The insurers are not liable.

[ Dawsons Ltd. Vs.Bonnin (1922) ]
LIFE INSURANCE

 The contracts of life insurance in India are

governed by the Insurance Act,1938 and Life
Insurance Corporation Act,1956.
 The life insurance business was nationalized on
January 19, 1956. And on Sept 1st, same year,
under Sec.3 of the Life Insurance Corporation
Act, 1956, the LIC came in to being as an
important step towards mobilizing savings.
 LIFE INSURANCE CONTRACT

A contract of life insurance is a contract by which

the insurer, in consideration of the payment of
certain sums,called premiums, undertakes to pay
a certain sum of money on the death of a person
whose life is insured, or on the expiry of a
certain period, whichever is earlier.
The premium may be paid in a lump sum or by
periodical installments.
Distinction Between Fire & Marine Insurance on
the one hand, and Life Insurance on the other.

Fire Insurance and

Marine Insurance
1.Certainty of event:
* In case of Fire and Marine
Insurance the event insured
may or may not happen at all
Life Insurance
1.Certainty of event:
* The event (death) is
bound to happen sooner or
later.

2.Indemnity:
* The contract of fire and
marine insurance are
contracts of indemnity.
2.Indemnity:
* The sum assured is payable
irrespective of any proof of loss
and to the full extent of the
amount assured in the event of
death of the assured.
 Distinction Between Fire & Marine Insurance on
the one hand, and Life Insurance on the other.

3.Valuation of Insurable interest: 3.Valuation of Insurable

*In fire and marine insurance, the interest:
insurable interest of the assured
must be capable of valuation in *In case of Life insurance,this
terms of money is not just possible

4.Time of Insurable Interest: 4.Time of Insurable Interest:

*In fire insurance, the insurable
interest must be present both at
the time of insurance and at the
time of loss.
In marine insurance, it must be
present at the time of loss.
*In Life insurance, it must exist at the
time of the contract.It need not be
present at the time when the policy
falls due.
Distinction Between Fire & Marine Insurance on
the one hand, and Life Insurance on the other.

5.Duration of Contract of Insurance: 5. Duration of Contract of

*A contract of fire insurance is a Insurance:
contract from year to year.It comes *A contract of life insurance is a
to an end after the expiry of the continuing contract.It lapses if
year.Though it can be renewed if the premium is not paid regularly at
insured expresses his willingness to the specified times.
do so and pays the premium.
*A contract of marine insurance is
for a particular voyage.
INSURABLE INTEREST

In life insurance, the assured must have

insurable interest in the life insured,
otherwise the contract of insurance is void.
A person has insurable interest in the life of
another if he will sustain some pecuniary
loss on the death of the person whose life is
insured.
The insurable interest must exist at the time
of contract of insurance.
Cont’d……………..[INSURABLE INTEREST]

 In life insurance, there are three cases in which

insurable interest is presumed.
 Every person is presumed to have insurable
interest in his own life up to any amount.
 Likewise, a husband is presumed to have
insurable interest in the life of his wife and vice
versa.
 A person is deemed to have an insurable interest
in the lives of those who are dependent upon him.
The following persons have been held
to have insurable interest :

 1.A person has an insurable interest in the life of

a relative by whom he is supported.
 It is interesting to note that although a son has an
insurable interest in the life of his supporting
father a father does not have insurable interest in
the life of his son unless he is dependent on the
son.
 Similarly, an elder brother does not have any
insurable interest in the life of his younger
brother.
The following persons have been held
to have insurable interest :

2.A proprietor of a dramatic company

has insurable interest in the lives of
actors and actresses engaged by him.
Likewise, a servant engaged for a
term of years has insurable interest in
the life of his employer to the extent
of salary for the term of service.
The following persons have been held
to have insurable interest :

3.A creditor has insurable interest

in the life of his debtor up to the
amount of the debt at the time of
the issue of policy.He has also
insurable interest in the life of the
surety, to the extent of the amount
guaranteed.
The following persons have been held
to have insurable interest :

4.A surety has an insurable

interest in the life of his co-surety
and principal debtor .
5.A partner has insurable interest
in the life of other partners.
Right of Insurer…..
to Avoid Insurance Policy
Contract of life insurance, like other
contracts of insurance, is a contract of
Uberrmae fedei, and therefore full
disclosure must be made to the insurer of
every material circumstance which is
known to the assured and which would
influence the judgment of a prudent
insurer in fixing the premium, or
determining whether to take risk.
….Right of Insurer…..
to Avoid Insurance Policy

 In the event of failure to disclose any such circumstance, the insurer

can avoid the policy [Mithoolal Nayak vs. L.I.C of India(1962)].
“The deceased knowing that he had suffered from heart
suffered, had stated in the proposal that he did not suffer
from any ailment.Held, this was a statement on a material
matter and that he had fraudulently suppressed the fact
which was material be disclosed and the insured knew the
statement to be false when he made it.Held, the
insurer(Life Insurance Corporation of India) were entitled
to avoid the claim on the policy on the grounds available
to them under Section 45.
[Krishnawanti vs L.I.C.of India(1975)]
Surrender Value

 Surrender value is the amount which insurer is

prepared to pay to the assured in case he does not
continue a policy for the agreed period of time
and surrenders his right, title and interest under
the policy to the insurer.Before the policy
acquires any surrender value it should have run
for a certain number of years.The surrender value
of the policy goes on increasing as more and
more premiums are paid.
Loan on Policies

 The insurers usually offer the assured a facility of

loan on the life policies on which a certain
number of premiums have been paid.
 The loan is granted on the security of the policy,
and is limited by the amount of surrender value.It
may be paid back within a certain period.
 If it is not paid during the term of the assurance,
it is recovered from the payment due at the time
of the maturity of the policy.
Proof of Age and Death

 The rates of premium for most life policies depend upon

the age of the life assured at the time of effecting the
policy.
 It is, therefore, essential that the correct age should be
stated in the proposal form. Proof of age may be given at
the time of the proposal or subsequent to the issue of the
policy.When it is given, the insurer writes the words “age
admitted” on the policy.
 Age can be proved by production of a certified copy of an
entry in the Register of Births kept by the local bodies or
other available evidences.
SUICIDE

 The life policies usually contain a clause that no

payment shall be made in case the assured commits
suicide.If such a clause is there in the policy and the
assured commits suicide, the insurer is not liable to
pay.The onus of providing suicide is upon the
insurer.
In India, suicide in itself is not a crime but an attempt
at suicide is.A policy in India cannot be avoided on
the ground of suicide unless there is a specific clause
to that effect in the policy.
[Northern India Assurance Company Ltd vs Kanhaya Lal(1938) Lah.]
SUICIDE

All life policies issued by the

Life Insurance Corporation contain
‘suicide clause’.According to this clause, if
the assured commits suicide within one
year of the commencement of the risk
under the policy, no liability shall attach to
the LIC.
Assignment & Nomination:
Distinction

 ASSIGNMENT:  NOMINATION:
1.Nomination may be made
1.Assignment may be by mentioning the name
made by an of the nominee in the
endorsement on the policy or endorsement
thereon.
policy itself or by a
separate instrument. 2.In case of nomination,
the policy continues to
2.On assignment, the be at the disposal of
property in the policy the assured during his
passes to the assignee. lifetime.
Assignment & Nomination:
Distinction

 3.An assignee gets the  3.A nominee gets only

right of the owner of beneficial interest in
the policy and he may the policy. He gets a
deal with the policy in right in the policy only
any manner he likes. on the death of the
 4.In case of assured.
 4.In case of nomination,
assignment, the
money is to be paid to the
money is to be paid to nominee , if he survives
the assignee. the assured.
Assignment & Nomination:
Distinction

 5.An assignment is  5.A nomination is made

so that the beneficiary
made for the purpose may recover the amount
of transferring the when the policy matures
rights, etc. under the after the death of the
policy to the assignee. assured.
 6.Nomination can be
 6.Assignment is revoked at any time
irrevocable. before the maturity of the
policy by giving a notice
to the insurer.
Types of Policies:

 The two basic elements in a life insurance cover

are (a) death cover and (b) risk cover.
The insurance plans that provide only the death
covers i.e., the benefits are paid on the death of
the insured person are called as Term Assurance
Plans, else, the plans under which the benefits are
paid on the survival of the insured within a
specified period are called as Pure Endowment
Plans. All insurance covers are a mix of these
basic elementary plans. …….. [Cont’d]
Types of Policies:

 1.Classification based on time:

a.Whole life: Whole term,Limited Term, Convertible
b.Limited, Convertible,Renewable
 2.Classification based on investment objective:
a.Endowment Plans: Pure, Joint, Double, Anticipated
b.Participating plans: Money back policies
 3.Classification based on premium payment:
a.Single premium policies
b.Level premium policies
Types of Policies:

 4.Classification based on claim payment:

a. Fixed Sum Policies
b. Annuity Policies
 5.Classification based on number of persons assured:
a.Single life
b.Multiple Life
c.Last survivorship policy
Issue of Duplicate Policy

A duplicate policy confers on it’s owner

the same rights and privileges as the
original policy.
 GENERAL INSURANCE:
• Introduction: The object of all laws is to
protect the person and property of all
individuals in any society. Risk is inherent in
various facets of human life and there is an
incessant urge among human beings to lead
a protected and secured life.
– According to Abraham Maslow, a famous psychologist,
next to survival comes ‘safety and security’ in the hierarchy
of needs of any human being.
 GENERAL INSURANCE:
• One of the ideal devices for avoiding such
exigencies of insecurity is the concept of insurance.
• Whereas, life insurance takes care about the
contingencies that affect life, general insurance
embraces a wide range of risks pertaining to
subject matters other than life.
• General Insurance embraces within it’s fold
insurance of different kinds of property, which
include fire, marine, contingency, liability, motor
and accident insurances etc.
 FIRE INSURANCE
• There are specific enactments dealing with life and
marine insurance.No such enactment is passed in India in
respect of fire insurance.
• The Insurance Act,1938 enunciates general principles and
legal requirements in all insurance contracts including
fire insurance.
• Whenever there is any gap in Indian law and practice,
Indian courts generally follow precedents of Common
Law courts in England.
• This module covers definitions, nature and scope,
characteristics and formation of fire insurance contracts.
 DEFINITION OF
FIRE INSURANCE BUSINESS

• ‘Fire Insurance’ has not been defined in the

Insurance Act,1938 instead, fire insurance
business is defined, as “the business effecting,
otherwise than incidentally to some other class
of insurance business, contracts of insurance
against the risks insured against in fire
insurance policies”
Insurance Act,1938[Sec.2(6)(a)].
 History of Fire Insurance
• Disastrous fire accidents rendering incalculable losses of
life and wealth occurred in various parts of the globe
prompted people to seriously ponder the possible remedy
for evading such losses.
• ENGLAND:Historically speaking, as early as 1666, an
oven in the King’s bakeshop became overheated resulting
in a massive destruction of the whole city of London
rendering a spectacular number of people shelter-less in a
short span of five days and causing an extensive loss of
life and property.Another landmark incident is Tooley
Street fire,1861.The unimaginable losses of great
magnitude paved path for the proposition of insurance.
 History of Fire Insurance
• Nicholas Barbon could be considered as as the
founder of this concept of fire insurance.He
offered fire insurance against loss to dwellings
and business buildings.The concept of corporate
insurance emerged in the year 1720.
• The Royal Charter restricted the recognition to
only two companies, London Assurance
Corporation and the Royal Exchange
Corporation.Today the number of fire insurance
companies have increased.
 History of Fire Insurance in U.S.A

• The history of fire accident and their drastic consequences is not

unknown to America and dates back to as early as 1630 when a
major fire broke in Boston.Boston tried to combat the same with
muncipal fire fighting equipment.A ghastly fire in Philadelphia,
prompted the formation of the Union Fire Company.
• Benjamin Franklin who was the founder of that company was
Instrumental in the formation of the Philadelphia Contributionship
for the Insurance Houses from loss by fire.Subsequently in 1794, the
Board of the Insurance Company of North America started insuring
contents as well as buildings, thus becoming the first in America to
insure contents.Later, the Insurance Company of North
America(INA) made it available on properties anywhere in the
United States.That marked the beginning of fire insurance business
in America.
 Fire Insurance
• The law relating to fire insurance in India is
contained in the Insurance Act,1938 and the
General Insurance Business Nationalization Act,
1972.This is subject to the provisions of the
Indian Contract Act,1872 and the Indian Stamp
Act,1899.Wherever the law is silent the English
Law and the principles established by Indian
decisions apply.The general insurance business
was nationalized on 13 th May, 1971.
 FIRE INSURANCE CONTRACT

• A contract of fire insurance is a

contract whereby the insurer
undertakes, in consideration of the
premium paid to make good of any
loss or damage caused by fire during a
specified period.
 Characteristics of
Fire Insurance Contract
• 1.It is a contract of indemnity:The assured can
in the event of loss recover the actual amount of
loss from the insurer.This is subject to the
maximum amount for which the subject matter is
insured.
• 2.It is a contract of uberrimae fedei: The
assured and the insurer have to disclose
everything which is in their knowledge and
which will affect the contract of insurance.
 Characteristics of
Fire Insurance Contract
• 3.The assured must have insurable interest in
the subject matter both at the time of
insurance and at the time of loss.This insurable
interest must be capable of valuation in terms of
money.
• 4.The risk covered by fire insurance contract
is the loss resulting from fire or some cause
which is the proximate cause of loss.
 Characteristics of
Fire Insurance Contract
• 5.It is subject to the principles of
subrogation and contribution.
• 6.It is a contract from year to
year:It can, however, be renewed
if the assured pays the premium
during the days of grace.
 Formation of Contract
• A contract of Insurance is entered in to by the
process of proposal by one party and it’s
acceptance by the insurer.The proposal is made in
writing by filling up a printed form, and paying
the premium or a part of it to the insurer.On the
receipt of the proposal and premium, the insurer
issues a deposit receipt usually called a cover
note.Subsequently if the proposal is accepted, the
insurer issues a regular policy.
 Average Clause in Fire Policy

• The subject mater of fire insurance, I.e., property

or goods, may be over-insured or under-
insured.Over-insurance is automatically checked
in case of loss, the insurer is liable to pay the
actual amount of loss subject to the maximum
amount for which the policy is taken.For
example, where, a building worth Rs.5,00,000 is
insured for Rs.8,00,000 and is completely
destroyed by fire, the insurer is liable to pay only
Rs.5,00,000.
 Average Clause in Fire Policy

• The effect of this clause in a fire policy is

that the subject matter is under-insured, the
assured is considered his own insurer for
the difference in the actual value of the
subject matter and the value for which it is
insured.If in such a case, a part of the
subject matter, is destroyed, the insurer
pays only a rate-able proportion of loss.
 Example:
• Property worth Rs.1,00,000 is insured for Rs.80,000.The
policy contains an average clause.If half the property is burnt
down, the assured can recover only Rs.40,000.This is worked
out as follows;
Value of policy
Sum to be recovered= X Actual Loss
Full value of subject matter

80,000
= …………… x 50,000 = Rs. 40,000
1,00,000
 INSURABLE INTEREST

• In case of fire insurance, the assured must have

insurable interest in the subject matter both at
the time of the contract and at the time of the
loss.Every person has an insurable interest in the
goods or property equal to the pecuniary interest
he has in it.
• In case of goods, pecuniary interest may arise on
account of (a) Ownership,(b) Lawful possession,
and © Contract.