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FY2 [ISB] – U1 – Insurance Skills For Beginners

11th 12th (Commerce)
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 [Topic – 1] Definition of Insurance

:- There is no single definition of insurance.
:- Insurance can be defined from the viewpoint of several disciplines, including, law, economics, history,
actuarial science, risk theory, and sociology.
:- But each possible definition will not be examined at this point.
:- Instead, we will examine the common elements that are typically present in any insurance plan.
:- However, before proceeding, a working, definition of insurance-one that captures the essential
characteristics of a true insurance plan-must be established.
:- After careful study, the Commission on Insurance Terminology of the American Risk and Insurance
Association has defined insurance as follows.
:- Insurance is the pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify
insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services
connected with the risk.
:- Although this lengthy definition may not be acceptable to all insurance scholars, it is useful for analyzing
the common elements of a true insurance plan.
i. Generel or Social Definitions.
ii. Functional/Economic/Business Definitions.
iii. Contractual/Legal Definitions.
I. General/Social Definitions:
:- The general definitions are given by the social scientists and they consider insurance as a device to
protection against risks, or a provision against inevitable contingencies or a cooperative device of
spreading risks.
:- Some of such definitions are given below:
1. In the words of John Magee, "Insurance is a plan by which large number of people associate themselves
and transfer to the shoulders of all, risks that attach to individuals."
2. In the words of Sir William Bevridges, "The collective bearing of risks is insurance."
3. In the words of Boon and Kurtz, "Insurance is a substitution for a small known loss (the insurance
prem.um) for a large unknown loss which may or may not occur.”
4. In the words of Thomas, "Insurance is a provision which a prudent man makes against for the loss or
inevitable contingencies, loss or misfortune."
5. In the words of Allen Z. Mayerson, "Insurance is a device for the transfer to an insurer of certain risks of
economic loss that would otherwise come by the insured.
6. In the words of Ghosh and Agarwal, "Insurance is a cooperative form of distributing a certain nsk over a
group of persons who are exposed to it."
II. Fundamental/Economic/Business Definitions:
:- These definitions are based on economic or business oriented since it is a device providing financial
compensation against risk or misfortune.

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1. In the words od D.S. Hansell, "Insurance may be defined as a social device providing financial
compensation for the effects of misfortune, the payments being made from the accumulated
contributions of all parties in the scheme.
2. In the words of Robert I. Mehr and Emerson Cammack, "Insurance may be defined as a device for
reducing risk by combining a sufficient number of exposure units to make their individual losses
collectively predictable. The predictable loss then shared proportionately by all units in the
combinations.
3. In the words of Ricgel and Miller, "Insurance is a social device whereby the uncertain reisks of individuals
may be combined in a group and thus made more certain, small- periodic contributions by the
individuals providing a fund, out of which, those who suffer losses may be reimbursed."
4. According to Federation of Insurance Institutes, Mumbai, "Insurance is a method in which a large
number of people exposed to similar risks make contribution to a common fund out of which, the
losses suffered by the unfortunate few, due to accidental events, are made good."
5. In the words of Roseblantt, Bennington and others, "Insurance is a system of protection against financial
loss in which risk is shifted to a professional risk bearer, an insurance company in exchange for a
certain sum of money (the insurance premium), the insurer agrees to pay the insured if losses occur."
III. Contractual/Legal Definitions:
:- These definitions consider insurance as a contract to indemnity the lesses on happening of certain
contingency in future.
:- It is a contractual relationship to secure against risks.
:- Some of such definitions are:
1. In the words of Justice Tindall, "Insurance is a contract in which a sum of money is paid to the assured as
consideration of insurer's incurring the risk of paying a large sum upon a given contingency."
2. In the words of E.W. Patterson, "Insurance is a contract by which one party, for a compensation called
the premium, assumes particularly risks of the other party and promises to pay him or his nominee a
certain or ascertainable sum of money on a specified contingency."
3. In the words of Justice Channel, "Insurance is a contract whereby one person, called the insurer,
undertakes in return for the agreed consideration called premium, to pay to another person called the
insured a sum of money or its equivalent on specified event."
4. In the words of Reigel and Miller, "In its legal aspect it is a contract, the insurer agreeing to make good
any financial loss the insured may suffer within the scope of the contract."
Purpose and Functions of Insurance
FUNCTIONS OF INSURANCE
:- The functions of insurance can be studied into two parts (1) Primary Functions, and (ii) Secondary
Functions.
Primary Functions
(i) Insurance provides certainty. Insurance provides certainty of payment at the uncertainty of loss. The
uncertainty of loss can be reduced by better planning and administration. But, the insurance relieves
the person from such difficult task. Moreover, if the subject matters are not adequate, the self-
provision may prove costlier. There are different types of uncertainty in a risk. The risk will occur or
not, when will occur, how much loss will be there? In other words, there are uncertainty of happening
of time and amount of loss. Insurance removes all these uncertainty and the assured is given certainty
of payment of loss. The insurer charges premium for providing the said certainty.
(ii) Insurance provides protection. The main function of the insurance is to provide protection against the
probable chances of loss. The time and amount of loss are uncertain and at the happening of risk, the
person will suffer loss in absence of insurance. The insurance guarantees the payment of loss and thus
protects the assured from sufferings. The insurance cannot check the happening of risk but can
provide for losses at the happening of the risk.
(iii) Risk-Sharing. The risk is uncertain, and therefore, the lens arising from the risk is also uncertain. When
risk takes place, the loss is shared by all the persons who are exposed to the risk. The risk-sharing in
ancient time was done only at time of damage or death; but today, on the basis of probability of risk,
the share is obtained from each and every insured in the shape of premium without which protection
is not guaranteed by the insurer.
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SECONDARY FUNCTIONS
Besides the above primary functions, the insurance works for the following functions:
(i) Prevention of Loss. :-
The insurance joins hands with those institutions which are engaged in preventing the losses of the
society because the reduction in loss causes lesser payment to the assured and so more saving is possible
which will assist in reducing the premium. Lesser premium invites which will stimulate more business and
more protection to the masses. Therefore, the insurance assist more business and more business causes
lesser share to the assured. So again premium is reduced to, financially to the health organization, fire
brigade, educational institutions and other organizations which are engaged in preventing the losses of
the masses from death or damage.
(ii) It Provides Capital:
The insurance provides capital to the society. The accumulated funds are invested in productive
channel. The dearth of capital of the society is minimised to a greater extent with the help of investment
of insurance. The industry, the business and the individual are benefited by the investment and loans of
the insurers.
(iii) It Improves Efficiency:-
The insurance eliminates worries and miseries of losses at death and destruction of property. The
carefree person can devote his body and soul together for better achievement. It improves not only his
efficiency, but the efficiencies of the masses are also advanced.
(iv) It helps Economic Progress:-
The insurance by protecting the society from huge losses of damage, destruction and death,
provides an initiative to work hard for the betterment of the masses. The next factor of economic progress,
the capital, is also immensely provided by the masses. The property, the valuable assets, the man, the
machine and the society cannot lose much at the disaster
Topic- 2 Types of Insurance: Life, Health, Property and Liability.

TYPES OF INSURANCE
:- Insurance can be classified as either private or government insurance.
:- Private insurance includes life and health insurance as well as property and liability insurance.
:- Government insurance includes social insurance programs and other government insurance plans.
Private Insurance
Life Insurance At the end of 2013, 850 life insurers were doing business in the United States, from a
peak of 2,343 in 1988. The decline is the result of mergers and consolidations to reduce operating and
general overhead costs and to efficiency.
Life insurance pays death benefits to designated beneficiaries when the insured dies. The benefits pay
for funeral expenses, uninsured medical bills, estate taxes, and other expenses. The death proceeds can
also provide periodic income payments deceased's beneficiary. Life insurers also sell annuities, individual
retirement account (IRA) plans, 401(k) plans, and individual and group retirement plans. Some life insurers
also sell (1) individual and group health insurance plans that cover medical expenses because of sickness or
injury, (2) disability income plans that replace income lost during a period of disability, and (3) long-term
care policies that cover nursing facilities.
Health Insurance Although many life insurers we described also sell some type of individual or group
health insurance plan, the health insurance industry overall is highly specialized and controlled by a
relatively small number of insurers. These companies include Blue Cross Blue Shield Association, AETNA,
United Health Group, and Well Point. Medical expense plans pay for hospital and surgical expenses.
physician fees, prescription drugs, and a wide variety of additional medical costs. Health insurance plans
are covered in greater detail in Chapters 15-16.
Property and Liability Insurance In 2012, there were 2.660 property and liability insurers In the United
States. Property insurance indemnifies property owners against the loss or damage of real or sonal
property caused by various perils, such as fire, hghening, windstorm, or tornado. Liability insurance covers
the insured's legal liability arising out of properry damage or bodily injury to others; legal defense costs are
also paid.

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Property and liability insurance is also called property and casualty insurance. In practice, nonlife
insurers typically use the term property and casualty insurance (rather than property and liability
insurance) to describe the venous coverages and operating results. Casualty insurance is a broad field of
insurance that Cover whatever is not covered by fire marine, and life insurance: casualty lines include auto.
liability, burglary and theft, workers compensation and health insurance.
Topic-3 Importance of Insurance
The process of insurance has been evolved to safeguard the interests of people from uncertainty by
providing certainty of payment at a given contingency. The insurance principle comes to be more and more
used and useful in modern affairs. Not only does it serve the ends of individuals, or of special groups of
individuals, it tends to pervade and to transform our modern social order, too. The role and importance of
insurance, here, has been discussed in three phases: (/) uses to individual. (ii) uses to a special group of
individuals, viz., to business or industry, and (iii) uses to the society.
USES TO AN INDIVIDUAL
1. Insurance provides Security and Safety
The insurance provides safety and security against the loss on a particular event. In case of life
insurance payment is made when death occurs or the term of insurance is expired. The loss to the family at
a premature death and payment in old age are adequately provided by insurance. In other words, security
against premature death and old age sufferings are provided by life insurance. Similarly, the property of
insured is secured against loss on a fire in fire insurance. In other insurance, too, this security is provided
against the loss at a given contingency. The insurance provides safety and security against the loss of
earning at death or in olden age, against the loss at fire, against the loss at damage destruction or
disappearance of property, goods, furniture and machines, etc.
2. Insurance affords Peace of Mind
The security wish is the prime motivating factor. This is the wish which tends to stimulate to more
work, if this wish is unsatisfied, it will create a tension which manifests itself to the individual in the form of
an unpleasant reaction causing reduction in work. The security banishes fear and uncertainty, fire,
windstorm, auto-mobile accident, damage and death are almost beyond the control human agency and in
occurrence of any of these events may frustrate or weaken the human mind. By means of insurance,
however, much of the uncertainty that centres about the wish for security and its attainment may be
eliminated.
3. Insurance protects Mortgaged Property
At the death of the owner of the mortgaged property, the property is taken over by the lender of
money and the family will be deprived of the uses of the property. On the other hand, the mortgagee
wishes to get the property insured because at the damage or destruction of the property he will lose his
right to get the loan repayed. The insurance will provide adequate amount to the dependents at the early
death of the property-owner to pay off the unpaid loans. Similarly, the mortgagee gets adequate amount
at the destruction of the property.
4. Insurance eliminates dependency
At the death of the husband or father, the destruction of family need no elaboration. Similarly, at
destruction of property and goods, the family would suffer a lot. It brings reduced standards of living and
the suffering may go to any extent of begging from the relatives, neighbours or friends. The economic
independence of the family is reduced or, sometimes, lost totally. What can be more pitiable condition
than this that the wife and children are looking others more benevolent than the husband and father, in
absence of protection against such dependency. The insurance is here to assist them and provides
adequate amount at the time of sufferings.
5. Life Insurance encourages saving
The elements of protection and investment are present only in case of life insurance. In property
insurance, only protection element exists. In most of the life policies elements of saving predominates.
These policies combine the programs of insurance and savings. The saving with insurance has certain extra
advantages (i) Systematic saving is possible because regular premiums are required to be compulsorily
paid. The saving with a bank is voluntary and one can easily omit a month or two and then abandon the
program entirely. (ii) In insurance the deposited premium cannot be withdrawn easily before the expiry of
the term of the policy. As contrast to this, the saving which can be withdrawn at any moment will finish

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within no time. (iii) The insurance will pay the policy money irrespective of the premium deposited while in
case of bank-deposit, only the deposited amount along with the interest is paid. The insurance, thus,
provides the wished amount of insurance and the bank provides only the deposited amount. (iv) The
compulsion or force to premium in insurance is so high that if the policy-holder fails to pay premiums
within the days of grace, he subjects his policy to lapsation and may get back only a very nominal portion
of the total premiums paid on the policy. For the preservation of the policy, he has to try his level best to
pay the premium. After a certain period, it would be a part of necessary expenditure of the insured. In
absence of such forceful compulsion elsewhere life insurance is the best media of saving.
6. Life Insurance provides profitable Investment
Individuals unwilling or unable to handle their own funds have been pleased to find an outlet for
their investment in life insurance policies. Endowment policies, multipurpose policies, deferred annuities
are certain better form of investment. The elements of investment i.e.. regular saving, capital formation.
and return of the capital alongwith certain additional retum are perfectly observed, in life insurance. In
India the insurance policies carry a special exemption from income-tax, wealth tax, gift tax and estate duty.
An individual from his own capacity cannot invest regularly with enough of security and profitability. The
life insurance fulfils all these requirements with a lower cost. The beneficiary of the policy-holder can get a
regular income from the life-insurer, if the insured amount is left with him.
7. Life Insurance fulfils the needs of a person
The needs of a person are divided into (f) Family needs, (B) Old-age needs, (C) Re-adjustment
needs. (D) Special needs, (E) The clean-up needs.
(A) Family Needs
Death is certain, but the time is uncertain. So, there is uncertainty of the time when the sufferings
and financial stringencies may be fall on the family. Moreover, every person is responsible to provide for
the family. It would be a more pathetic sight in the world to see the wife and children of a man looking for
some one more considerate arid benevolent than the husband or the father, who left them unprovided.
Therefore, the provision for children up to their reaching earning period and for widow up to long life
should he made. Any other provision except life insurance will not adequately meet this financial
requirement of the family. Whole life policies are the better means of meeting such requirements.
(B) Old-age heeds
The provision for old-age is required where the person is surviving more than his carning period.
The reduction of income in old-age is serious to the person and his family. If no other family member starts
earning, they will be left with nothing and if there is no property, it would be more piteous state. The life
insurance provides old age funds alongwith the protection of the family by issuing various policies.
(C) Re-adjustment Needs
At the time of reduction in income whether by loss of unemployment, disability, or death,
adjustment in the standard of living of family is required. The family members will have to be satisfied with
meagre income and they have to settle down to lower income and social obligations. Before coming down
to the lower standard and to be satisfied with that, they require certain adjustment income so that the
primary obstacles may be reduced to minimum. The life insurance helps to accumulate adequate funds.
Endowment policy, anticipated endowment policy and guaranteed triple benefit policies are eemed to be a
good substitute for old age needs.
(D) Special Needs
There are certain special requirement of the family which is fulfilled by the earning member of the
family. If the member becomes disable to earn the income due to old age or death, those needs may
remain unfulfilled and the family will suffer.
(i) Need for Education. There are certain insurance policies, and annuities which are useful for education of
the children irrespective of the death or survival of the father or guardian.
(ii) Marriage. The daughter may remain unmarried in case of father's death or in case of madequate
provision for meeting the expenses of marriage. The insurance can provide funds for the marriage if policy
is taken for the purpose.
(ii) Insurance needs for settlement of children. After education, settlement of children takes time and in
absence of adequate funds, the children cannot be well placed and all the education go to waste.
(E) Clean-up funds

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After death, ritual ceremonies, payment of wealth taxes and income taxes are certain requirements
which decrease the amount of funds of the family member. Insurance comes to help for meeting these
requirements. Multipurpose policy, education and marriage policies, capital redemption policies are the
better policies for the special needs.
USES TO BUSINESS
the insurance has been useful to the business society also. Some of the uses are discussed below:
1. Uncertainty of business losses is reduced
In world of business, commerce and industry a huge number of properties are employed. With a
slight slackness or negligence, the property may be turned into ashes. The accident may be fatal not only
to the individual or property but to the third party also. New construction and new establishment are
possible only with the help of insurance. In absence of it, uncertainty will be to the maximum level and
nobody would like to invest a huge amount in the business or industry. A person may not be sure of his life
and health and cannot continue the business up to longer period to support his dependents. By purchasing
policy, he can be sure of his earning because the insurer will pay a fed amount at the time of death. Again,
the owner of a business might foresee contingencies that would bring great loss. To meet such situations
they might decide to set aside annually a reserve, but it could not be accumulated due to death. However,
by making an annual payment, to secure immediately, insure policy can be taken.
2. Business-efficiency is increased with insurance
When the owner of a business is free from the botheration of losses, he will certainly devote much
time to the business. The care free owner can work better for the maximization of the profit. The new as
well as old businessmen are guaranteed payment of certain amount with the insurance policies at the
death of the person; at the damage, destruction or disappearance of the property or goods. The
uncertainty of loss may affect the mind of the businessmen adversely. The insurance, removing the
uncertainty, stimulates the businessmen to work hard.
3. Key Man Indemnification
Key man is that particular man whose capital, expertise, experience, energy, ability to control,
goodwill and dutifulness make him the most valuable asset in the business and whose absence will reduce
the income of the employer tremendously and up to that time when such employee is not substituted. The
death or disability of such valuable lives will, in many instances, prove a more serious loss than that by fire
or any hazard. The potential loss to be suffered and the compensation to the dependents of such
employee require an adequate provision which is met by purchasing an adequate life-policies. The amount
of loss may be up to the amount of reduced profit, expenses involved in appointing and training. of such
persons and payment to the dependents of the key man. The Term Insurance Policy or Convertible Term
Insurance Policy is more suitable in this case.
4. Enhancement of Credit
The business can obtain loan by pledging the policy as collateral for the loan. The insured persons
are getting more loan due to certainty of payment at their deaths. The amount of loan that can be
obtained with such pledging of policy, with interest thereon will not exceed the cash value of the policy. In
case of death, this value can be utilised for setting of the loan alongwith the interest. If the borrower is
unwilling to repay the loan and interest, the lender can surrender the policy and get the amount of loan
and interest thereon repaid. The redeemable debentures can be issued on the collateral of capital
redemption policies. The insurance properties are the best collateral and adequate loans are granted by
the lenders.
5. Business Continuation
In any business particularly partnership business may discontinue at the death of any partner
although the surviving partners can restart the business, but in both the cases the business and the
partners will suffer economically. The insurance policies provide adequate funds at the time of death. Each
partner may be insured for the amount of his interest in the partnership and his dependents may get that
amount at the death of the partner.
With the help of property insurance, the property of the business is protected against disasters and
the chance of disclosure of the business due to the tremendous waste or loss.
6. Welfare of Employees

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The welfare of employees is the responsibility of the employer. The former are working for the
latter. Therefore, the latter has to look after the welfare of the former which can be provision for early
death. provision for disability and provision for old age. These requirements are easily met by the life
insurance, accident and sickness benefit, and pensions which are generally provided by group insurance.
The premium for group insurance is generally paid by the employer. This plan is the cheapest form of
insurance for employers to fulfill their responsibilities. The employees will devote their maximum
capacities to complete their jobs when they are assured of the above benefits. The struggle and strife
between employees and employer can be minimised easily with the help of such schemes.
USES OF SOCIETY
Some of the uses of insurance to society are discussed in the following sections.
1. Wealth of the society is protected
The loss of a particular wealth can be protected with the insurance. Life insurance provides loss of
human wealth. The human material, if it is strong, educated and care-free, will generate more income.
can be well indemnified by the property insurance; cattle, crop, profit and machines are also protected
against their accidental and economic losses. With the advancement of the society, the wealth or the
property of the society attracts more hazardous and, so new types of insurance are also invented to
protect them against the possible losses. Each and every member will have financial security against old
age, death. damage, destruction and disappearance of his wealth including the life wealth. Through
prevention of economic losses, instance protects the society against degradation. Through stabilization and
expansion of business and industry, the economic security is maximized. The present, future and potential
human and property resources are well-protected. The children are getting expertise education, working
classes are free from botherations and older people are guiding at case. The happiness and prosperity are
observed everywhere with the help of insurance.
2. Economic Growth of the Country
For the economic growth of the country, insurance provides strong hand and mind, protection
against loss of property and adequate capital to produce more wealth. The agriculture will experience
protection against losses of cattle, machines, tools and crop. This sort of protection stimulates more
production in agriculture, in industry, the factory premises, machines, boilers and profit insurances provide
more confidence to start and operate the industry welfare of employees create a conducive atmosphere to
work: Adequate capital from insurers accelerate the production cycle. Similarly in business, too, the
property and human material are protected against certain losses, capital and credit are expanded with the
help of insurance. Thus, the insurance meets all the requirements of the economic growth of a country.
3. Reduction in Inflation
The insurance reduces the inflationary resource in two ways. First, by extracting money in supply to
the amount of premium collected and secondly, by providing sufficient funds for production narrow down
the inflationary gap. With reference to Indian context it has been observed that about 5.0 per cent of the
money in supply was collected in form of premium. The share of premium contributed to the total
investment of the country was about 10.0 per cent. The two main causes of inflation, namely, increased
money in supply and decreased production are properly controlled by insurance business. Insurance Need
and Selling.
Topic-4 Reinsurance and its importance
Remsurmocens at Hingement wereby an original insurer who has insured a risk insure of that risk
gain With another insprchy that is to say, reinsures a part of the risks in order diminish his own liability. The
difference between the retention and the total amount acceptance is reinsured. The limiting or retention
and effecting of reinsurance Brings about wider distribution of the risks and secures to the insurer the full
advantages of the law average
Insurance is a contract between the insurer and the original insured: 'Reinsurance is a contra
between the reinsured (the insurer) and the reinsurer.
Therefore, the original insured is not a party to the contract of reinsurance. Now, if insurer ge into
liquidation can the original insured sue the reinsurer for recovery of loss under the policy?
This question involves the protection of the rights of the reinsured's policyholders. In Ameri a
special provision is made in the reinsurance contracts to safeguard the interests of the reinsured
policyholder, that is the original insured. A specific clause called 'loss assumption clause' is incorporated in

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the body of the reinsurance contract whereby the original insured can recover his loss on the policy from
the reinsurers, if the reinsured goes into liquidation.
Limits
It is usual to fix a limit up to which the insurer is prepared to lose on risks in a specified class. The
limit depends upon the following circumstances;
1. The financial status and premium income of the insurer. A new insurer with small premium income
cannot afford to sustain a loss which might be borne with ease by established insures with ample reserve.
2. The experienced in a particular class of risk:
(1) The degree of the fire hazard present.
(ii) The extent of the damage likely to be sustained.
(iii) The fire extinguishing facilities available.
3. The limit will vary according to the nature and size of the concerns proposing for insurance.
4. Location and other factors affecting the risk are also taken into account while calculating the amount of
limit.
Retention
After deciding the limit, retention can be easily fixed. Retention is the amount of maximum liability
which the insurer can assume on a particular risk. The retention is determined according to the class to
which it belongs and to its merit and demerits. The retention is also decided upo the total amount of
insurance in force, the average size of its policies and the amount of surplus find available with it. It also
depends upon the size of company, age of issue, the type of policy and the class of risk.
Reinsurance
Reinsurance is the transfer of insurance business from one insurer to another. The insurer
transferring the business is called the 'principal' or ceding or original office and the office to which the
business is transferred is called for reinsurer or guaranteeing office. It is also a contract of indemnity. The
original company must disclose all the material facts to the reinsurer. At the time of loss the reinsurer
indemnifies the loss up to the amount of reinsurance. The reinsurance amount is obtained by deducting
retention amount from the original policy amount.
Advantages of Reinsurance
1. The original insurer can accept the risk to the extent of his limit. In absence of reinsurance. A person
desiring a large amount of insurance will have to take a number of policies from several insurers. This
reinsurance contract makes it possible to purchase only one policy from an insurer.
2. Reinsurance makes it possible to accept each risk for the very amount desired by the proposer and to
transfer the excess above the 'retention limit' to another insurer.
3. The reinsurance gives the benefit of the greater stability resulting from a widespread of business. By
accepting many risks and scaling down, by reinsurance, all those that are larger than the normal carrying
capacity of the insurer justifies, certainty in business is substituted for uncertainty through the better
application of the law of average.
4. The reinsurance makes stability in underwriting and consistency in underwriting results over a period.
5. It provides a safeguard against serious effects of conflagration.
6. The reinsurance has the effect of stabilizing income and losses over a period of years.
Topic-4 Documents in the Contract of Insurance
INSURANCE DOCUMENTS
:- Policy servicing involves the following documents:

23.1.1 Proposal Forms

:- Proposal form issued by the company is used for making an application for the requisite insurance policy.
:- The proposal form contains queries intended to extract all material information concerning the particular
risk that the insurance policy proposes to cover.
:- The number and nature of queries would depend on the particular class of insurance covered.
:- In marine cargo insurance, proposal forms are not generally required.
:- Instead, a questionnaire or a declaration form, duly completed may be asked for.
:- Proposal forms are used for hull insurance.

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:- In fire insurance, the procedure varies among the companies.

:- Generally, proposal forms are used only in cases involving simple risks and are not required in cases of
large industrial risks.
:- For such cases, inspection of the risk is essentially undertaken before acceptance of the proposal.
:- In miscellaneous insurance, proposal forms are essentially required and they include a declaration, in
accordance with the general principles of good faith.

 Proposal forms generally contain the following items:

(i) Name of the proposer (in full)
(ii) Address of the proposer
(iii) Profession, occupation or business of the proposer
(iv) Particulars of previous and present insurance
(v) Loss experience
(vi) Sum insured
(vii) Other sections-signature, date, place, etc.
:- The proposal form must be accompanied with –
(i) a valid proof of age, and
(ii) medical report. The significance of these documents is discussed hereinafter.
Proof of age:
:- Age is the main basis of calculation of premium on life insurance policies.
:- Since, old age people have high probability of dying than the younger ones, premium is calculated on the
basis of age groups.
:- In other words, the rate of premium varies with the age of the life assured at the time of taking out a
policy.
:- Age is also significant from the point of view of underwriting decision, as the physical health of a person
is generally consistent with his age.
:- It is, therefore, essential that the correct age should be stated in the proposal papers.
:- Currently all policies are issued with the age being duly admitted.
:- Where the age has not been admitted, the policyholders may be advised to furnish the age proof without
any delay.

 Documents that are considered valid proofs of age are:

 Certified extract from municipal or other records made atthe time of birth
 Baptism certificate or certified copy from family Bible, if it contains age or date of birth
 Certified copy of school or college-certificate, if age or date of birth is stated therein
 Certified extract from service register in case of govt. employees and employees of quasi
govt. institutions including public limited companies
 Passport issued by the passport authorities in India
:- Besides this, some other documents like identity cards issued by the election commission, electoral roll
record, etc. may also be accepted as proofs of age.
Medical report:
:- Where the age of the insured is high or the first level examination carries some adverse remarks, the
insurer mayrefer the proposal for a thorough medical examination, particularly when the amount
of insurance is also very high.
:- However, the medical examination may be waived, like in rural areas, with no or little medical facilities.
:- The medical report, where required, along with other documents is delivered to the underwriter who has
the power to accept or reject the proposal or accept the proposal with such conditions, exclusions
or omissions as he may deem fit.
:- He may even recommend a change in the sum assured or the amount of premium to be charged and
manner in which the premium is to be paid.
:- According to section 45 of the Insurance Act, 1938 the policy shall be declared void and all claims in
respect of it shall cease in case of any untrue or incorrect statement contained in the proposal,

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personal statement, declaration and other documents or in the case of concealment of any material
information.

23.1.2. First Premium Receipt

:- The insurance company issues the first premium receipt after the insured has paid the first instalment of
premium.
:- This receipt is an acknowledgement of the proposal and contains all the particulars of the policy.

23.1.3 Policy Bond/Form

:- A policy form/bond is an evidence of the contract of insurance.
:- Different policy forms are used for different classes of insurance.
:- A policy bond must be duly executed and stamped in compliance with provisions of the Indian Stamp Act,
1899.
:- If the insurance policy belongs to the class of insurance that is governed by a tariff or a market
agreement, it would be mandatory for the insurers to apply the policy wording prescribed therein.
 The following are the common constituents of policy forms:
Recital clause:
:- The opening section of the policy is termed as recital clause as it recites the parties to the contract.
Operative clause:
:- The operative clause defines the conditions under which the insurer agrees to make payment to the
insured.
:- In other words, it spells out the mutual responsibilities and obligations of both parties to the contract of
insurance.
Attestation clause:
:- This clause sets out the rules for the signing of the policy, which depend upon the practice of the insurers
responsible for the execution of documents.
Conditions:
:- All policies of insurance contain conditions. necessary to legalize the contract.
:- The conditions that are printed on the policy form are called express conditions.
:- Certain other conditions like good faith, insurable interest, etc. are implied.
Schedule:
:- The schedule, commonly include details of the policy number, first and annual premiums, renewal date,
name and address of the parties and the period of insurance, with the date of maturity of the
policy.
Endorsement:
:- If it is proposed at the time of issue of the policy to alter the terms and conditions of the policy, it is done
by setting out the alteration in a memorandum, which is attached to the policy and forms part of it.
:- The memorandum is called an endorsement.
:- In fire insurance, the operative clause of a fire cover note is issued in consideration of the proposer
named in the schedule having proposed the outcome of an insurance against fire for the period
mentioned, on the usual terms and conditions of the company's policy.
:- In motor vehicle insurance, motorcover notes are required to be issued in the form prescribed by the
motor tariff.

23.1.4 Certificate of Insurance

:- In motor insurance, in addition to the policy, a certificate of insurance is required by the Motor Vehicle
Act, 1988.
:- This certificate provides evidence of insurance to the police and registration authorities.
:- It contains the essential features of the cover including the terms and conditions.
:- In marine insurance, certificate of insurance is issued toprovide evidence of cover on shipments insured
under cargo open cover or floating policies.

23.1.5 Cover Note

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:- Issue of a document called cover note precedes the policy.

:- It is issued when the policy cannot for some reason or the other, be issued at once.
:- Cover notes are issued when the negotiations for insurance are underway, and it is necessary to provide
cover on a provisional basis.
:- The cover note is issued for a temporary period of time during which the policy is prepared and is an
evidence of protection to prove that cover is in force.
:- It contains a brief detail of a cover In marine insurance, marine cover notes are usually
:- issued when all the details required for the issue of policy such as name of the steamer, number of
packages or exact value, etc. are not known.
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Topic-5 Case Studies
[I] Case related to Reinsurance –
 Caselet 01
:- The Premier InsuranceCompany inAhmedabad, Gujarat deals with property liability insurance.
:- The state remained the biggest liability for public sector non-life insurance companies in the country for
the third consecutive year.
:- The insurance companies in the state are supposed to cough up around Rs.150 crore to settle insurance
claims of the riot-affected business establishments.
:- This follows just after the insurance companies had managed to settle claims worth Rs.600 crore as a
result of the earthquake on January 26, 2001...
[II] Case related to Reinsurance –
 Caselet 02
:- The terrorist attack on WTC has thrown the insurance industry worldwide out of gear.
:- As a majority of the reinsurers refused to cover risks associated with terrorist attacks, insurance players
were clueless regarding how to react to this situation.
:- And, with the liberalization of the Indian insurance sector, new private players had come into the field
with limited capital.
:- As the reinsurers refused to provide cover for terrorist attacks, all the players in the insurance industry
decided to come together to find a solution to the problem...
[III] Case related to Insurance Document Submission –
 A Case Study on Hospitalization and Document Submission Issues
:- Today, we present an intriguing case study that highlights two critical situations.
:- It all started when an insured individual was hospitalized, only to have his claim rejected by the insurance
company on the grounds that hospitalization was no not required.
:- However, the insured firmly contended that the treating doctor had recommended hospitalization.
:- As this argument reached a dead end, the insurance company eventually agreed to settle the claim.
:- However, after a few days, they brought up the matter of a missing breakdown in the final bill.
:- Indicating incomplete documentation.
:- Subsequently, the policyholder provided the required bill, and Insurance Samadhan played a pivotal role
in advocating for the policyholder´s nights, ultimately assisting the family to get their hard-earned
money back.

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