Insurance : Definition, meaning, Reinsurance, Double insurance, types of policies and many more...

INSURANCE INDUSTRY

| Definition of Insurance |

The Insurance Act, 1938 defines life insurance business as the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any event insured by the contract.

Under a whole-life assurance, the policy money is payable at the death of the assured

Under an endowment policy, the money is payable on the maturity of the policy or on his death, in case, if that occurs earlier.

| Classification of Insurance |

1) Life Insurance: the Insurance company pays to the insured either on death or expiry of a specified period (annuity)

2) Non-Life Insurance: Insurance company indemnifies for the specific loss.

| Purpose of Insurance |

To transfer risk and provide economic protection against the losses that may be incurred due to uncertain predicaments caused by a disability, death of an earning family member or economic losses.

| Benefits of Insurance |

A shift of specific risk to insurance company.
Provides a sense of security to individuals and businessmen
Promotes social welfare for young as well as old
Businessmen feel motivated and encouraged to take risks to enhance efficiency and profit-earning.
Enjoy normally expected profits in business
Safeguarding interests of consumers
Insured encouraged to adopt loss prevention measures. No claims/fewer claims reduce future premiums
Better credit standing for businessmen as risks are insured
Opportunity to save, insure and invest
Capital formation as insurance the company mobilizes the savings and invests it in productive channels
More employment opportunities
Controls inflation as excess savings are channelized to insurance

| Reinsurance |

Sometimes, the amount of total insurance is so high that it is extremely difficult for the insurer to bear the liability. In such a case, the insurance company may arrange with another insurer to insure a portion of the insured risk.
This arrangement is known as reinsurance.
Also referred to as insurance of insurance
The purpose of reinsurance is to spread or share out the loss.

| Double Insurance |

When the subject matter of insurance insured with two or more insurers and the total sum exceeds the actual value of the subject matter, it is called Double Insurance
Assured can recover only up to the amount of the actual loss. If a loss occurs, the assured may claim payment from the insurer in the order he selects.

| Claims settlement |

The life insurance claims can be classified into two categories:

(i) Death claims, and

(ii) Maturity claims.

(i) Death claims

Death claim arises in cases where the insured dies before the expiry of the term of the policy.
The insurer has to be informed about the death of the life assured in writing by the nominee or representative.
The insurer may even get the necessary information from other sources like an obituary columns, or newspaper reports in case of accidents or air crashes.
The action towards the settlement of the claim can be initiated as soon as the information reaches the insurance office without waiting for the intimation of the claim to be received.
However, the identity of the deceased assured must, of course, be established.

(ii) Maturity claims

Payment of maturity claims is made in accordance with the terms and conditions of the policy e.g. endowment policy, money back policy.
The amount payable at the time of maturity includes sum assured and bonuses payable on the policy.