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against a premium. Hence insurance can be defined as pooling of losses by transferable of risk to
insurer, who promises to indemnify insured for losses, which are unforeseen and accidental in
nature. Now a day’s uncertainties and uncalled problem are on rise in this fast moving world.
They put us in a doom and make us wish that there was someone who could protect us during
these un- called problems. Insurance agency acts as a Genie to their uncalled problem and
indemnifies the losses incurred to the insurer. Insurance is a type of indemnity contract whereby
the offer (Insurer) protects the offeree (Insured) against the risk of contingent loss; the offeree
A contract of insurance is a contract by which one party undertakes to make goods the loss of
another, in consideration of a sum of money, on the happening of a specified event, e.g. fire
accident or death. Law recognizes insurance as a system of sharing risk too great to be borne by
one individual.
Definition
Insurance is a contract between two parties whereby one party agrees to undertake the risk of
another in exchange for consideration known as premium and promises to pay a fixed sum of
money to the other party on happening of an uncertain even (death) or after the expiry of a
certain period in case of life insurance or ton indemnity the other party on happening of an
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Related Laws: -
4. Insurance Regulatory and Development Authority (IRDA) Act 1999: - till 1999, there
were not any private insurance sector. The Govt. of India then introduced the Insurance
Regulatory and Development Authority act in 1999, thereby de-regulating the insurance
sector and allowing private companies into the insurance. Further, foreign investment
was also allowed and capped at 26% holding in the Indian insurance companies. In recent
Types of Insurance: -
1. Life Insurance: - Life insurance may be defined as a contract in which the Insurer in
consideration of a certain premium, either in a lump sum or by other periodical payments, agrees
to pay the assured, or to the person for whose benefit the policy is taken, the assured sum of
money, on the happening of a specified event contingent on the human life or on the expiry of
certain period. Thus the insurance company undertakes to insure in exchange for a sum of money
called premium.
2. General Insurance: - Any other insurance except life insurance comes under this head
like:
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It is a contract whereby the insurer, in consideration of the premium paid, undertakes to make
good any loss or damage caused by fire during a specified period up to the amount specified in
the policy. Normally it is for a period of one year after, and which is renewed from time to time.
A claim for loss by Fire must be satisfying the two following conditions: -
A Marine insurance contract is an agreement whereby the insurer undertakes to indemnify the
insured in the manner and to the extent thereby agreed against marine losses. Marine insurance
protection against loss by marine perils or perils of the sex. There are three types of marine
insurance: -
2. Cargo insurance
3. Freight insurance
Characteristics of Insurance: -
1. Transfer of Risk: - The risk is transferred from the Insured Party to the Insurer Party.
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3. Payment of Unforeseen and unexpected and accidental loss. Insurance does not cover
intentional loss.
4. Pooling of losses: - this means sharing of losses incurred by few over the entire group, so
business: -
1. Principle of Indemnity
5. Principle of Subrogation
6. Principle of Contribution
Principle of Indemnity: - This means in case of loss against which the policy has been issued,
shall be paid the actual amount of loss not exceeding the amount of the policy, i.e. he shall be
fully indemnified. The object of every contract of insurance is to place the insured in the same
financial position, as nearly as possible, as nearly as possible, after the loss, as if loss had not
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taken place at all. It would be against public policy to allow an insured to make a profit out of his
loss or damage.
Utmost Good Faith: - Since insurance shifts risk from one party to another, it is essential that
there must be utmost good faith and mutual confidence between the insured and the insurer. In a
contract of insurance the insured known more about the subject matter of the contract than the
insurer. Consequently, he is duty bound to disclose accurately all material facts and nothing
should be withheld or concealed. Any fact is material, which goes to the root of the contract of
Causa Proxima: - the rule of causa proxima means that the cause of the loss must be proximate
or immediate and not remote. If the proximate cause of the loss is a peril insured against, the
insured can recover. When a loss has been brought about by two or more causes, the question
arises as to which is the causa proxima, although the result could not have happened without the
remote cause, but if the loss is brought about by any cause attributable to the misconduct of the
Mitigation of Loss: - In the event of some mishap to the insured property, the insured must take
all necessary steps to mitigate or minimize the loss; just as any prudent person would do in those
circumstances. If he does not do some the insurer can avoid the payment of loss attributable to
his negligence. But is must be remembered that through the insured is bound to do his best for
his insurer; he is not bound to do so at the risk of his life. So in nutshell the insured should not
become negligent or inactive in the event of the occurrence merely because the property which is
being damaged is insured. Example: - Mr. A has got his Activa insured. Alter it caught fire fie
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some uncontrollable cause. But here if Nr, A does not make any effort to save Activa or to
minimize its loss then he cannot claim the insurance money later on.
applies only to fire and marine insurance. According to it, when an insured has received full
indemnity in respect of his loss, all rights and remedies which he has against third person will
pass on to the insurer and will be exercised for his benefit until he (the insurer) recoups the
amount he has paid under the policy. It must be clarified here that the insurer’s right of
subrogation arises only when he as paid for loss for which he is liable under the policy and this
right extend only to the right and remedies available to the insured in respect of the thin to which
Contribution: - where are two or more insurance on one risk, the principle of contribution
comes into play. The aim of contribution is to distribute the actual amount of loss among the
different insurers who are liable for the same risk under different policies in respect of the same
subject matter.
1. Primary Function: -
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(D) Provide certainty
2. Secondary Functions: -
3. Other Functions: -
Importance of Insurance: -
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3. Eliminates dependency
7. Protection of wealth
Short notes: -
person to insurer against loss or liability by reason of an original insurance contract made
by the insurer. Here the motive is spreading of risk. Sometimes an insurance company
may get a profitable opportunity to insure a huge property. In the process it can be a
major risk, which it may not be in a position to bear. In that case it can resort to
reinsurance with other companies. Thus a part of the risk gets transferred to other
companies.
2. Double Insurance: - A double insurance exists when the same person is insured by
several insurers’ separately in respect to the same subject matter or it may happen that the
insurer has purchased more than one policy from the same insurer.
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Difference between Insurance and Assurance: -
1. Term of Insurance is used for General Insurance business or for Contract of Indemnity.
2. Insurance means indemnity, on the other side Assurance means loss cannot be estimated
4. In case of Insurance claim is uncertain, but in the case of Assurance always claim is
certain.