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Insurance
Basics of insurance
CONTENT
This part contains the following sections. The meaning of Insurance Insurance & Assurance Insurance & Development of businesses & economy Insurable risks Insurance policy Insurance principles Types of insurance policies Important concepts of Insurance Sri Lankan insurance industry Different insurance policies in detail
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Business Studies with Dulip Luckshan Fernando Everything Is Explained! The meaning of Insurance
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 event (death) or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance. The party bearing the risk is known as the 'insurer' or 'assurer' and the party whose risk is covered is known as the 'insured' or 'assured'. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract between the insured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company. A pool is created through contributions made by persons seeking to protect themselves from common risk. Premium is collected by insurance companies which also act as trustee to the pool. Any loss to the insured in case of happening of an uncertain event is paid out of this pool. Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type.
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Insurable risks
Characteristics of Insurable risks Predictability ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________ Casualty ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________ Unconnectedness ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________ Verifiability ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________ Insurable risks _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Therefore Insurance is a process by which losses of a fewIs a Risk Transfer mechanism Insurance is a contractare meted out by a fund created by many between one party called the Insured and another party called the Insurer whereby in consideration of payment of premium by the Insured the Insurer agrees to make good any financial loss the insured may suffer due to operation of an Insured peril
Insurance policy
The insurance policy is a contract (generally a standard form contract) between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. Insurance Policy is a well defined contract document which clearly illustrates the terms and conditions, premium, extent of coverage, deductions under different heads, etc. of an insurance contract. It is completely a legal paperwork in which all possible details are mentioned. The policies are the basic framework of an insurance contract, the entire contract between the client and the insurance company is based on this policy. It is the backbone of the whole contract. In case of default by any one of the party, he would be subjected to legal consequences. Major aspects covered under Insurance Policy Type of Insurance (Life, Auto, Fire,) Purpose of the Insurance Premium Amount Assured amount of money to be reimbursed by the insurance company at the time of maturity or in case of certain loss. Parameters issued by the specific applications Coverage limit of the plan/scheme
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Conditions to be fulfilled for an Insurance policy A suggestion/ resolution An acceptance A value The ability to create a relationship The legality
Insurance principles
_______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ ________________________________________________________________________________ Insurable interest Utmost good faith Indemnity Contribution Subrogation Proximate cause
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Description Insurable Interest is one of the basic principles of insurance. It states that the Insured must have a financial interest in the property insured such that he benefits from its continued existence and will be prejudiced by its loss or damage. This basically differentiates insurance from gambling. The insurance policy insures the interest of the policyholder in the property. If there is no insurable interest, the policy will not respond.
Insurable interest
Indemnity
Indemnity is one of the basic principles of insurance and has been legally defined on several occasions. It states that the Insured should not profit by any claim, but should be returned to as near as possible the same financial position as he would have been had the loss not occurred. Certain policies are not subject to the principle of indemnity, notably Personal Accident and Life policies with fixed sums insured.
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Contribution
Where someone is holding two or more insurance policies covering the same interest in the same property for the same peril, and if the policies are contracts of indemnity, then the law does not allow the insured to recover a loss under both policies and so make a profit out of the misfortune he has insured against. Instead, the insurers concerned share in the loss proportionately. This is known as contribution.
Subrogation
Proximate cause
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Underwriting _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ Grace period A specified period after a premium payment is due, in which the policyholder may make such payment, and during which the protection of the policy continues. Policyholders are expected to pay premium on due dates. A period is 15-30 days is allowed as grace to make payment of premium; such period is known as days of grace. Beneficiaries The person or entity named in the policy as the recipient of insurance proceeds on the event of death of the insured or due to the occurrence of the covered loss. _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ ________________________________________________________________________________ Riders Riders are additional benefits that you can buy with your insurance policy. The benefits are incredible compared to the minimum costs at which it is offered. Simply put, it is one size fits all that suits the needs and approach of everyone. Riders were created to customize your policy and moreover it comes with great deal of flexibility. However, it qualifies for separate terms and conditions and it comes with additional exclusion clauses. Critical illness rider Medical expenses Major surgical assistance rider Disability insurance rider
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Over insurance _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _____________________________________________________________ Under insurance _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _____________________________________________________________ No claim bonus
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Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Buyers of insurance policies General public Business entities Government entities Recent developments of the Sri Lankan insurance market/industry The overall insurance industry of Sri Lanka owns 3.2% of total financial assets of the economy where as the banking sector enjoys 69%. Sri Lankan Insurance Corporation possesses the highest capital base (around 38%) & Ceylinco Insurance PLC has the second highest market share (around 24%) 10% of the population of Sri Lanka has obtained a life insurance policy. Ceylinco insurance PLC receives the highest share of premium income (of 33%) & Sri Lanka Insurance Corporation Ltd has a premium income of 26%. General insurance composition Motor insurance :54% Fire insurance :19% Marine insurance :6% Insurance Board of Sri Lanka (IBSL) The IBSL safeguards policy holders through supervisory control of Insurance Companies. Constitution of the Board Deputy Secretary to the Treasury Deputy Governor of the Central Bank of Sri Lanka nominated by the Monetary Board The Director General of the Securities and Exchange Commission of Sri Lanka Four members appointed by the Minister from among persons who have had academic or professional qualifications and experience in the field of insurance, commerce, financial management, business management, economics, law or any other related field (in this Act referred to as "appointed members'' Powers, Duties and Functions of the Board Register as insurers persons carrying on insurance business in Sri Lanka. Register persons as insurance brokers. Advise the Government on the development and regulation of the insurance industry. Implement the policies and programs of the Government with respect to the insurance industry.
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Regulation of Insurance Industry Act No.43 of 2000 This act was certified on 9th August 2000 for the repeal of THE CONTROL OF INSURANCE ACT, NO. 25 OF 1962 This is the act that introduced the IBSL. This act classifies insurance into general insurance business or for long term insurance business. Other Statutory Institutions in Sri Lanka for Insurance Agricultural and Agrarian Insurance Board established by the Agricultural and Agrarian Insurance Act No.20 of 1999, Sri Lanka Export Credit Insurance Corporation established by the Sri Lanka Export Credit Insurance Corporation Act, No. 15 of 1978. Social Security Board established by the Social Security Board Act, No.17 of 1996.
Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________ _______________________________________________________________________________________
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Type
Description
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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BODILY INJURY LIABILITY COVERAGE This policy protects the insured as the owner or driver of a vehicle for all sums which the insured becomes legally obligated to pay because of bodily injury to an injured third party. This coverage also pays defense costs against legal actions. COLLISION COVERAGE Collision Coverage protects your vehicle against direct and accidental loss by collision with another vehicle or fixed object. COMPREHENSIVE COVERAGE Comprehensive Coverage (also known as Other than Collision coverage) is sometimes referred to as fire and theft. A more accurate description is loss to your vehicle caused by other than collision. This includes coverage against perils such as hitting an animal, vandalism, riot, floods, wind and hail, as well as fire and theft. EXTENDED TRANSPORTATION EXPENSE COVERAGE If your vehicle should be temporarily disabled for more than a day, due to a covered auto accident, this coverage will pay a certain amount of money per day for up to 30 days, or a maximum of a specific value toward the cost of a replacement rental car. FULL GLASS COVERAGE If chosen, your Comprehensive Coverage deductible may be waived for glass claims.
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Floating policy
Valued policy
Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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Unvalued policy
Specific policy
Average policy
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Dulip Luckshan Fernando B.Sc in Business Administration (Business economics) (Special) (USJP) (Second Class)
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