insurance - bst
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Questions and Answers

The possibility of loss or damage to goods or human beings is known as risk.

True

Change of fashion is a personnel risk.

False

Losses caused by uncertain events of insured goods have to be borne by businessmen themselves.

True

Some risks can be taken care of by precautions such as risk of breakdown of machinery.

<p>True</p> Signup and view all the answers

Insurance is the means of shifting risks of loss to a party willing and qualified to share the loss.

<p>True</p> Signup and view all the answers

The amount paid by the insured to the insurer is known as premium.

<p>True</p> Signup and view all the answers

Insurance is a means of spreading the ________ of a few among many.

<p>loss</p> Signup and view all the answers

The members of the business community feel ________ because of insurance.

<p>secured</p> Signup and view all the answers

Insurance companies invest their funds in corporate and Government ______.

<p>securities</p> Signup and view all the answers

Insurance is an aid to ________ as well as commerce.

<p>industry</p> Signup and view all the answers

Which of the following is NOT a type of risk mentioned?

<p>Logistics Risk</p> Signup and view all the answers

What is the premium in an insurance contract?

<p>The amount paid by the insured</p> Signup and view all the answers

What is marine insurance?

<p>A contract that indemnifies the owner of a ship or cargo against marine risks.</p> Signup and view all the answers

What are the two basic types of life assurance policies?

<p>Whole-life policy and Endowment Policy.</p> Signup and view all the answers

Which of the following statements are true? (Select all that apply)

<p>Marine insurance contracts are ordinary contracts.</p> Signup and view all the answers

Fire insurance covers the risk of loss by fire where the cause of fire is immaterial for making a claim from the insurance company.

<p>True</p> Signup and view all the answers

Fidelity insurance is compulsory for owners of business.

<p>False</p> Signup and view all the answers

What is meant by 'business risk'?

<p>The possibility of loss or damage due to uncertain events.</p> Signup and view all the answers

Define insurance.

<p>A contract where the insurer pays the insured a specified sum on the occurrence of certain events.</p> Signup and view all the answers

What does 'Endowment' life policy mean?

<p>A life insurance policy that pays a lump sum on maturity or death.</p> Signup and view all the answers

What is a 'Voyage Policy'?

<p>A marine insurance policy covering a specific voyage.</p> Signup and view all the answers

What principle is violated if a person suffering from cancer does not disclose this fact while taking a life insurance policy?

<p>Utmost good faith.</p> Signup and view all the answers

The principle of utmost good faith is based on ____________ between insurer and insured.

<p>mutual trust</p> Signup and view all the answers

In life insurance contract the insurer must have insurable interest at the time of ___________.

<p>contract</p> Signup and view all the answers

If there are two or more insurers and the insurance claim is paid by one of them, other insurers have to contribute ________ to the insurer who has paid the claim.

<p>proportionately</p> Signup and view all the answers

Explain the types of risks which are covered by Motor Vehicles insurance.

<p>Damage from accidents and theft, liability for injury or death of third parties.</p> Signup and view all the answers

Explain the types of risks which are covered by Fidelity insurance.

<p>Loss due to employee fraud, dishonesty, or embezzlement.</p> Signup and view all the answers

Study Notes

Nature of Business Risks

  • The primary objective of any business is to generate profit.
  • Risks are the potential for loss or damage due to factors outside of a businessman's control.
  • Uncertainties are events that cannot be predicted.
  • Risks can be anticipated based on past experience.
  • Businessmen can take precautions to avoid some losses but must bear others.
  • Risks can be divided into two categories: uncertainties and risks.
  • Uncertainties are events that cannot be foreseen, but risks can be anticipated based on past experience.
  • Examples of risks in business: declining sales, goods lost in transit, accidental fires, workers' strikes, machine breakdowns, and risks associated with transportation.
  • Business risks can be divided into categories: Speculative risk, Pure risk, Property risk, Personnel risk, Financial risk, Marketing risk.

Meaning of Insurance

  • Insurance is a way to shift the risk of loss or damage to another party, the insurer.
  • The party whose risk is shifted is the insured.
  • The insurer/insurance company is an organization willing and qualified to share the risk.
  • An insurance contract involves the insurer agreeing to pay a specific amount to the insured in exchange for a premium payment.
  • The payment is triggered by a specific event (like death or a certain age) or to compensate for actual loss.
  • Insurance relies on a form of cooperation where all insured parties pay premiums, and only those who experience a loss receive compensation.

Importance of Insurance

  • Insurance provides security by spreading the risk of personal and business losses.
  • Individuals gain security for retirement or their families in case of death.
  • Businesses pay premiums to protect themselves from potential losses.
  • Insurance is particularly important in a large-scale production and distribution market, providing security for companies with significant investments.
  • Insurance companies invest premium funds in corporate and government securities, contributing to national economic growth.
  • Life insurance encourages individuals to save a portion of their income.
  • Insurance creates employment opportunities both directly within insurance companies and indirectly through agents.

Types of Insurance

  • Insurance is classified into various types:
    • Life insurance
    • Fire insurance
    • Marine insurance
    • Other types of insurance (burglary, motor vehicle, etc.).
  • Life Insurance Corporation of India (LIC) and General Insurance Corporation with its subsidiaries, traditionally dominated the insurance market.
  • Now, private insurance companies have entered the industry.
  • These insurance types differ in their coverage and purpose.

Life Insurance

  • Life insurance contracts guarantee payment of a specific sum on the insured's death or after a set period.
  • Premiums are paid either in a lump sum or regular installments.
  • Life insurance protects against a guaranteed event (death).
  • The written contract is called a life insurance policy.
  • The sum assured is paid to the insured or their legal heirs on a fixed date or the occurrence of a specific event.
  • Group insurance policies are available for all employees of a business, offering benefits like loyalty and loan security.
  • There are two basic types of life insurance policies: Whole life policy (coverage for the insured's entire life) and Endowment policy (coverage for a limited term or until a certain age).

Fire Insurance

  • Fire insurance contracts offer compensation for losses caused by fire.
  • The insured pays a premium to the insurer.
  • It is a contract of indemnity, meaning the insured can only receive compensation equivalent to the actual loss, up to the policy limit.
  • Claims are subject to conditions - 1 - there must be actual 2 - must be an accidental fire.
  • The insured can't profit from the insurance; they can only be compensated for their actual loss.
  • add an example

Marine Insurance

  • Marine insurance covers risks associated with seafaring activities, including ships, cargo, and freight.
  • It provides indemnification to owners against losses incurred due to various marine risks.
  • Cargo insurance covers losses of goods during maritime transport.
  • Hull insurance insures a ship against loss due to ocean perils.
  • Freight insurance safeguards the shipping company against loss of freight due to cargo damages.
  • Marine insurance contracts are contracts of indemnity.
  • Policies are classified into:
    • A time policy, also known as a term policy, provides coverage for a specific duration, usually one year ( used to insure small quantities of goods
    • Voyage Policy (covers a specific voyage).
    • A mixed policy is an insurance arrangement that provides coverage over a designated time frame, encompassing both marine and non-marine risks during the voyage. This type of policy is particularly beneficial for businesses engaged in international trade, as it ensures protection throughout the entire transit period, enhancing financial security and minimizing potential losses.
    • Floating Policy (allows for cargo insurance in installments).
  • Different aspects of Fire, Marine, and Life Insurance:
    • Compensation:
      • Fire: Amount insured or actual loss (whichever is lower).
      • Marine: Purchase price of goods + 10-15% profit.
      • Life: Specific amount is paid.
    • Insurable Interest:
      • Fire: Must exist both at policy inception and at the time of loss.
      • Marine: Must exist at the time of loss.
      • Life: Must exist at the time of policy inception.
    • Policy Assignment:
      • Fire: No assignment without insurer's permission
      • Marine: No assignment without insurer's permission
      • Life: No assignment
    • Nature of Risk:
      • Fire: Uncertain
      • Marine: Uncertain
      • Life: Certain (death), but the time is uncertain.
    • Period:
      • Fire: Typically one year
      • Marine: Typically one year
      • Life: Taken for a long term.

Insurance

  • Premium varies based on the insured amount, type of perils, insured age and policy term.
  • Object of insurance is to cover risk of fire, perils, and investments.
  • Surrender of a policy is not possible before expiry or maturity.

Other Types of Insurance

  • Motor Vehicles Insurance covers damage due to accidents, theft, and third-party liability for injuries or death. Third-party risk insurance is compulsory under the Motor Vehicles Act.
  • Burglary Insurance indemnifies the insured against losses from robbery and housebreaking.
  • Fidelity Insurance protects against employee embezzlement, misappropriation, and fraud. Employers may require employees to sign a Fidelity Guarantee Bond.
  • Personal Accident and Sickness Insurance covers death or disability during specific circumstances, such as air travel.
  • Liability Insurance covers injury or death for third parties.
    • Employers' Liability covers the employer's legal liability for employee safety.
    • Public Liability covers individual and business liability for the public visiting their premises.
  • Property Insurance covers a wide range of items, from goods in transit or storage to buildings and contents. It applies to both businesses and private households.

Principles of Insurance

  • Utmost Good Faith: Both insurer and insured must disclose all relevant information. Intentional withholding of information invalidates the contract.
  • Insurable Interest: The insured must have a financial or pecuniary interest in the subject matter of the insurance.
    • Life Insurance: Insurable interest must exist at the time of taking out the policy.
    • Marine Insurance: Insurable interest must exist at the time of loss or damage.
    • Fire Insurance: Insurable interest must exist at the time of taking out the policy and at the time of loss or damage.
  • Indemnity: The insurer restores the insured to the pre-loss position. This principle applies to fire and marine insurance, but not to life insurance.
  • Contribution: If the same subject matter is insured with multiple insurers, each insurer contributes proportionally to the claim.
  • Subrogation: After compensating the insured, the insurer acquires the insured's rights to the subject matter.
  • Mitigation: The insured must take reasonable steps to reduce or mitigate the loss.
  • Causa Proxima (Nearest Cause): The insurer is liable only if the loss is caused by the insured risk as the nearest cause.

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