LAW OF INSURANCE

S.Naresh Jain AGBS, CHENNAI

INTRODUCTION
Risk and uncertainty are incidental to life. It is to provide against risk and insecurity that insurance came to being; it only spreads the loss over a large number of people who insure themselves against the risk The main principle underlying insurance is the pooling of risks

CONTRACT OF INSURANCE
It is a contract by which a person, in consideration of a sum of money, undertakes to make good the loss of another against a specified risk, e.g., fire, or to compensate him or his estate on happening of a specified event, e.g., accident or death The person undertaking the risk is called the insurer and the person whose loss is to be made is good is called the insured

FUNDAMENTAL ELEMENTS OF INSURANCE

1. 2. 3. 4. 5. 6. 7. 8. 9. Uberrimae fidei (Utmost good faith) Contract of Indemnity Insurable Interest Causa Proxima Risk must attach Mitigation of Loss Contribution Subrogation Period of Insurance

KINDS OF INSURANCE
There are many kinds of insurance, but the following kinds stand out as being of special importance: 1. Life insurance (assurance) 2. Fire insurance 3. Marine insurance 4. Personal accident insurance

IMPORTANT TERMS
Premium: Consideration Policy: Instrument (evidence of the contract) Cover note: It covers the risk between the date of the contract of insurance and actual issue of the policy of insurance (the liability of insurer ceases when he intimates to the assured the rejected of the proposal Surrender Value

RE-INSURANCE
Every insurer has a limit to the risk that he can undertake. If at any time a profitable venture comes his way, he may insure if even if the risk involved is beyond his capacity Then in order to safeguard his own interest, he may insure the same risk either wholly or partially with other insurers. This is called Re-insurance

DOUBLE INSURANCE
Where the assured insures the same risk with two or more independent insurers, and the total sum insured exceeds the value of the subjectmatter, the assured is said to be over-insured by double insurance Double insurance and over insurance are perfectly lawful

RULES RELATING TO DOUBLE INSURANCE

Recovery of actual loss only (Contract of Indemnity) Excess amount recovered to be held in trust Liability of insurers Contribution No limit on life insurances

LIFE INSURANCE
INSURANCE VS ASSURANCE
1. 2. 3. 4. 5. Certainty of event Indemnity Valuation of insurable interest Time of insurable interest Duration

TYPES OF LIFE POLICIES

1. 2. 3. 4. 5. 6. 7. 8. 9. Endowment policy Whole-life policy Limited-payment life policy {1 + 2} Joint life policy {survivor} Convertible whole life policy {2 1} Anticipated policy {Money-back} Annuity policy {Pension policy} Sinking fund policy {Company} Jantha policy {Death by accident}

ASSIGNMENT AND NOMINATION

Assignment: It has the effect of transferring the rights of the transferor in respect of the policy to the assignee

Nomination: The holder of a policy of life insurance on his own life may nominate the person to whom the money secured by the policy is to be paid in the event of his death. The person so nominated in the policy is called the Nominee

FIRE INSURANCE
A contract whereby the insurer undertakes, in consideration of the premium paid, to make good any loss or damage caused by fire during a specified period 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 loss that clearly and proximately results, whether directly or indirectly, from fire is within the policy and is recoverable The duration of Fire insurance policy is one year

AVERAGE CLAUSE
The effect of this clause is that the assured can only recover such proportion of the actual loss suffered as the sum insured bears to the total value of the insured property Formula: Sum to be recovered = Value of policy / Full value of subject matter x Actual Loss

FIRE AND LOSS BY FIRE

Fire means the production of light and heat by combustion (burning) Light and Heat alone is not fire Sugar spoilt by excessive heat Contraction of Timber due to heat Lightning is not fire (However, if it ignites something, the loss is covered by fire policy (same for electricity)

MAIN TYPES OF FIRE POLICIES

1. Specific policy {Specific amount irrespective of the value of the asset i.e., under insurance} Comprehensive policy {All-in-one policy}

2.

3.

Valued policy {Amount payable is fixed in case of loss (contract of indemnity?) }

Floating policy {property at different places is covered under one policy} Replacement or Reinstatement policy {no cash}

4.

5.

MARINE INSURANCE
A contract whereby an insurer undertakes to indemnify the assured against marine losses, i.e., the losses incidental to marine adventure Maritime perils: This includes damage caused by violence of the winds or waves, storms, fog, rough weather, lightning, stranding, icebergs, rocks, collision, jettison, etc.

MAIN TYPES OF MARINE POLICIES

1. 2. 3. 4. 5. 6. 7. Voyage policy Time policy Mixed policy Valued policy Open or unvalued policy Floating policy {Blank} Wagering policy {Insurable interest is not to be proved at the time of loss Honour policy}