Insurance Loans

FUNDAMENTAL PRINCIPLES OF FIRE INSURANCE

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 All the essential elements of a valid
contract  are applicable to fire  insurance contract., but following are the
main principles  of fire insurance
contract. (1). INSURABLE INTEREST:   The
insured should have insurable interest 
in the subject  matter of the
insurance, . Such an interest may arise legally by various of legal
ownership  or equitably ( by virtue  of some other pecuniary  relationship 
following short or ownership) . In fire insurance the insurable interest
must be present both at the time of insurance and at the time of loss. In case
of goods,  insurable interest arises on
the  account of  (Ownership: (b) Possessions:  ( C ). Contract:. Generally the  following persons have  insurable  
interest in the subject matter of 
insurance  in case of  of fire policy:   (a) A person has insurable interest in the
property he owns.  (b) A businessman has
insurable interest  in his stock, plant
and a machinery  and building.  ( C ) . Agent the has insurable interest in
the property of his principle.  (d).
Partner has insurable interest  in the
property of partnership fi8rm., (e) 
Mortgages  has insurable interest
in the property , which is mortgaged.,<br />
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(2). UTMOST GOOD FAITH: According to this principle both insured and
insurer are supposed to disclose all material facts relating  to subject matter or of insurance to each
other. In the case of ordinary  risks,
all the statement made by the insured in the proposal  form are quite sufficient for a  correct 
estimation of the risk. But in complicated  cases, the insurer surveyor makes an
estimation of the property. Any facts open to his observations  are presumed to have been disclosed.  The observance of good faith is
necessary  throughout  the term of insurance. Any contrary behaviour
by either  of the parties will become a
breach of good faith. (3).INDEMNITY: According to this principle  the insurer agrees to make good the loss suffered
by the insured.  The insurer will
indemnify  the actual loss suffered by
the insured  and not more than that.
Under any circumstance., the insured will not be allowed to make profit out of
the  loss. Hence, the insured  shall not be paid anything in excess of loss
or the amount of the policy.<br />
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  (4).  SUBROGATION:’ 
The doctrine of subrogation is a corollary to the principles of
indemnity  . The term subrogation means
the  right of the one person to stand in
place of another . Under the this principles 
the insurer after paying compensations 
has got right to take away the damaged property which  has some value from the insured  as the latter should not be compensated  twice (I , E, 
by selling the damaged property and receiving  compensations 
from the insurer)., for the same loss, . Similarly the insurers, after
settlement of claims, stands in the place of the insured  with all the rights and remedies against the
third parties. For examples, X suffers a lost or Rs. 20,000 by fire, Y the
insurer indemnifies  X up to Rs. 20,000,
X has another alternative to seek compensations . He may claim damage for the
person for those  negligence the fire
occurred. If X prefers to take compensations 
from insurers,  he cannot ask
third  party for compensation . But
the  insurer can recover damage from the
third party because the gets the rights of X after paying  him compensations.  (5). 
CONTRIBUTIONS:  The principles of
contributions applies when there is more 
than only policy covering the same subject matter against  the same peril for the same period  and for the same insured . In such as
cases  the insurer  for the 
after the payment of claims the has the right to recover a
proportionate  amount from other
co-insurer  who are a liable for the
same. In other words each co-insurer has to contributes  the loss rateably to the  insured. (6). CAUSA PROXIMA:  The maxim “causa proximate  not remote 
spectature means  that proximate  nearest cause and not the remote one is to be
taken notice of at the time of the determining 
the liability of the insurer.  The
insurer should try to ascertain the nearest cause of the damage to the property
which is subject matter of insurance, while paying the claim. If the property
insured is burnt is by the fire was preceded and brought  in to the operations by the an expected
peril, the legal position  depends upon
whether excepted  peril was the
proximate  cause of fire or not.<br />
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  PROCEDURE OF TAKING A FIRE INSURANCE
POLICY:  If an individual/ businessman
wants to go get his property insured he has to adopt the following procedure.
(1) PROPOSAL FORM:  First of all the
proposal will have to fill up the proposal from which is collected  from any one of the public sector general
insurance companies such as a New India Assurance Ltd.,  Oriental Fire and General insurance Co. Ltd.,
United India Fire and General insurance Co Ltd., and National Insurance Co
Ltd.,   or from any one of the private
companies.   The proposal form requires
him to give detail such as a name address and occupations of the propose
value  and nature of the property to be
insured, type of the policy required amount of assured sum etc.,  After furnishing these details,. the proposal
will have to put his signature in the proposal 
form and send the same to same to the respective company for acceptance.
(2). EVIDENCE OF RESPECTABILITY: Before 
assuming the risk, the insurer has to ascertain whether the proposer is
a  respectable and person and is taking
policy in utmost goods faith. This precautions is mandatory as the fire
insurance involves a high degree of moral hazard which arises from the
behaviour  of the human beings connected
with subject matter of insurance.  If a
policy is taken with an intention to set fire to the property the insured might
set a  get a lump sum  and make a quick buck out of  it. If the proposer  is a well known person. risk can be  assumed without any enquiry. In case of
the  proposer is a stranger, the insurer
will insist  him to get a certificate
from some known person to prove his 
credibility.<br />
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(3). EVALUATING THE  PROPOSAL:  On receipt of the
proposal  form, the insurers evaluates  the possible loss involved  in the proposal . In case of the subject
matter is of very  high value of the a
surveyor  may be sent to evaluations  the proposal. In this case, the
surveyor’s  report is taken as the basis
for determining  the nature  of risk and a this is a premium. (4).
ACCEPTANCE:  If the insurer is
satisfied  with the proposal  and interested in taking up such risk, it
will send a letter fo the acceptance 
of proposal to the proposer. By this the contract  comes into the existence. The amount of
premium, to be paid to the   is also
mentioned in the letter of acceptance. (5). 
COVER NOTE: After assuming the risk, the insurer will have to send a
fire policy to the insured  . As the
preparation of fire policy  takes
sometimes, the insurer  will issue a
provisional document  known as cover
note.  The cover note is effectively till
the fire policy is issued.  (6).  INSURANCE POLICY:  Later on,. the insurer prepares the fire
policy (to replace the cover note), and sends it to the insured. The policy is
a documents  in which  all terms and condition  regarding 
insurance, are mentioned . Generally 
this policy is issued for one year.<br />
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FUNDAMENTAL PRINCIPLES OF FIRE INSURANCE

All the essential elements of a valid contract are applicable to fire insurance contract., but following are the main principles of fi...

DIFFERENCE BETWEEN DOUBLE INSURANCE AND REINSURANCE

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 The concept  of
double insurance differs from the concept of reinsurance the following
respects:.  (a) MEANING:  The reinsurance business is entered into by the original
insurer  with the order insurers.  But in double insurance, but the insured gets
the same subject  matter insured  with more than one insurer or under more than
one policy  with the same insurer.  (b).: FILLING 
CLAIM:  In reinsurance , the
insured cannot be claim any part of the his loss from the insurer.  But in the double insurance the  insured can claims only his  actual loss from  each of the insurers  up to the amount insured with them.  ( C) . CONTRIBUTION:  In reinsurance , the reinsured will claim a
part of the loss proportionate to the risk reinsured by the him with the
reinsurers  . But in double insurance,  each 
insurer is liable to contributions 
on pro-rata basis towards the loss suffered by the insured.  (13). 
UNDER INSURANCE:  When an
insurance is taken by the for less than the actual value of the subject  matter under one or more policies  it amounts 
to under insurance. This practice is deliberately  followed to avoid  the payments 
of fair premium. By inserting an average clauses in the policy the under
insurance is a penalized  in such a way
that the actual  loss is payable in
proportion to the policy value of the subject matter:  The claim payable under average clauses is
calculated as given below:  </div>
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(14).  ASSURANCE AND INSURANCE:  Both the these two terms are used
synonymously in the context while the term insurance is a used in other types
if insurance  like fire or marine.  Assurance refers to a contract in which  the sum assured is bound to be payable  sooner of later. But a contract of insurance
is a contract  for compensation  of damage or loss and the question of claim
does not arise in the cases there is no loss. Thus the term insurance is used
when the risk is undertaken  and I  such cases the policy  does not become a claim. But in case of  assurance, the policy is bound to become a
claim in the stipulated  manner e.
g.  the insured may die in the course of
the term of the policy or else  he is
bound to attain a particular age. In common usage, the terms are very widely
used to mean one and the same thing.<br />
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DIFFERENCE BETWEEN INSURANCE AND WAGERING
AGREEMENTS=Insurance contracts are not wagering  or gambling 
contracts, such as a betting on the turn 
of a  card or on horse  racing etc., In a wagering  contract, both parties, create a risk and
want to make money the happening  or
otherwise of an event, while in the case of insurance, risk already exists and
the purpose of contract is only the transfer 
the risk, . Though  there is
a  uncertainty and payments  is made on the happening  of the event in both the cases. , really is
it not so. the following are the differences between these two contracts.  (1). PURPOSE: 
The object of insurance is to protect the insured against loses on the
happening  of some uncertain future
events. the object  of a wager is a to
make profit by winning.  (2). RISK:.
Insurance is meant  for protection , if
the risk, which is already  there,
materializes, . But the risk is oriented in wagering  contracts.<br />
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INSURABLE INTEREST:  The
existence  of insurable interest is
necessary  in a contract of insurance as
against a  wagering contract, where
neither party has any pecuniary  interest
a except  that a created by the contract
itself.  (4).  UTMOST GAITH FAITH:  In an insurance contract the observance of
good faith is a essential but good faith need not be observed in  a wagering 
contract.  (5).
CONSIDERATION:  There is a no
consideration  in a wagering contract
whereas in case of insurance, the presents of consideration is a must.  (6). 
PUBLIC INTEREST: insurance contract are in a public interest and are a
encouraged by the government  but
wagering contract  are against public
interest.  (7)ENFORCEABLE:  insurance contract  are valid and legally  enforceable 
but wagering  agreements are void
and are a not legally enforceable.   (8).  HAPPENING OF EVENT: An event (except death),
against the risk of which the insurance is taken by the may or may not take
place at all. The wagering  event is bound
to happen.  (9). INDEMNITY : The
principles of indemnity  applied  to all insurance contract except  those of the personal insurance. No such
principle applies to a  wagering
contract.  (10).  AMOUNT: 
The wagering amount is paid immediately 
on the occurrence of the event . Only if there is a loss owing a to the
occurrence of the event the money  will
be paid subject to a maximum  limit
specified in insurance contract.</div>
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DIFFERENCE BETWEEN DOUBLE INSURANCE AND REINSURANCE

The concept of double insurance differs from the concept of reinsurance the following respects:. (a) MEANING: The reinsurance business...

ADVANTAGE OF REINSURANCE

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 The advantage  of
reinsurance can be summarized  as given
below; (1). SPREADS THE RISKS: Reinsurance 
makes the best possible 
distributions of risk among the various insurers.  Concentrations  of larger risks on a particular insurer makes
it is a very hard to unction smoothly 
efficiently  and profitably  Reinsurance 
contributes a lot in the this respect by making best distributions of
risk among many insurers.:  (2). LIMITS
THE LIABILITY : Reinsurance helps is in limiting  the liability of the insurers  to the maximum amount.<br />
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 (3). PROTECTS THE INSURANCE FUNDS: It
protects the insurance funds to of the original insurer and gives additional
security  to the policy holder and a
insuring community. (4). INCREASES 
INSURER’S  GOODWILL: The financial
and risk bearing capacity of the insurer 
increases  with the help of the
reinsurance and with the existence  of
reinsurance facilities  an insurer a\can
accept risk beyond his capacities. This enhances  the goodwill 
of the insurer.  (5). CURBS
COMPETITION AND RIVALRIES: reinsurance reduce inter company business
competitions  as no one works
independent  but in co-operative manner
and the with helping  mind in the area of
the insurance business, thus reinsurance helps in curbing  competitions rivalries in the similar  line of the insurance business.  (6). BRINGS STABILITY:  Reinsurance facilities in bringing stability  in the insurance market. These
facilities  also bring stability  in the value of the shares os such  companies 
on the stock exchange.  (7).
REDUCE PROFIT FLUCTUATIONS:  The
reinsurance schemes reduce to a considerations 
extent the violent  fluctuations
in the profits of the companies . If no 
the other hand, heavy  risks are
retained by the original insurer, in the his profits  are greatly upset due to a heavy  single loss.</div>
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 (8). INCREASES INSURANCE
BUSINESS:  Reinsurance enables every
insurer to accept or underwrite insurance 
business as the total risk will be distributed  among the other reinsurers. Thus,  reinsurance helps  increasing the volume of insurance business,
In its absence, every  insurer will
hesitate to accept huge risks and it would 
be very difficult  for an insurer,
in case the he accept  risk exceeding hi
capacity.  (9). MINIMUM DEALINGS:  Due to the reinsurance schemes  the insured is required  to indulge to 
in the minimum dealings  with only
one insurer . Without reinsurance facility 
, the insurer would have to contact several insurers to enter into
various  individual insurance agreement
on the same property. This involves considerable cost, loss of the
precious  time and slow down the pace of
the protection cover.  (10). PREVENTS
RATE CUTTING: Finally the reinsurance prevent the rate cutting and acceptance
of undesirable risks to a great extent. This is obviously because the actions
of the ceding office are always  subject
to audit and scrutiny  and through
examinations  by the guaranteeing
offer  office for its satisfaction. This
leads to checks  various unhealthy  and undesirable  practice 
and promoters  a healthy spirit of
competition among the insurers.<br />
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METHODS
OF REINSURANCE:  There are two important
of effecting reinsurance cover: 1. Facultative 
Reinsurance:. 2. Treaty Reinsurance. 
1. FACULTATIVE REINSURANCE: It is also known  as specific reinsurance, . Under this method
each risk is offered for reinsurance by the ceding  company and may be accepted or declined at
will be may  the insurer. The procedure  is to submit brief details if the risk to
reach  each reinsurer who will indicate
the proportion that he would accept. When the ceding  company issues the policy, closing
particulars I.e.  a copy of the policy
etc., is sent  to the reinsurer who will
then issue the reinsurance policy. The reinsurance are not obliged to accept
the risk. That is they have the decide. options of facility to reject or
accept  the reinsurance any  amount they decide,. Hence the term
facultative reinsurance., In case of the risk is not  fully accepted the ceding  company may again have to the approach
another insurer for the balance. For example 
a proposal  for Rs. 60 crores come
with the ceding company. The retention 
of the ceding company is 25 crores and for the balance of Rs. 35
crores  he approaches insurer A who  accepts for only Rs. 20 crores. The
ceding  company may again  have to approach insurer B for the balance of
the Rs. 15 cores., Any alterations  in
the terms and conditions The reinsurance are not obliged to accept the risk.
That is they have the decide. options of facility to reject or accept  the reinsurance any  amount they decide,. Hence the term
facultative reinsurance., In case of the risk is not  fully accepted the ceding  company may again have to the approach
another insurer for the balance. For example 
a proposal  for Rs. 60 crores come
with the ceding company. The retention 
of the ceding company is 25 crores and for the balance of  he approaches insurer A who  accepts for only Rs. 20 crores. The
ceding  company may again  have to approach insurer B for the balance of
the Rs. 15 cores., Any alterations  in
the terms and conditions made by the ceding company  are to be informed to reinsurance or
reinsurers  also. This method  is considered 
to be the easiest  method of
reinsurance at each time the ceding company has to make the  a fresh proposal  to the reinsurer and the insurer accepts the
risks after fully examining the individual 
risk, . In the event of the loss, the ceding company is compensated  in proportion 
to the amount of the risk underwritten by each  reinsurers.<br />
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 2. TREATY REINSURANCE:  Under this
method a treaty agreement between the ceding company and various reinsurance is
made  for a fixed period, usually a year.
Accordingly  the ceding  company agrees to provide a certain amount of
business to the reinsurers  for
reinsurance and the reinsurers agree to the accept  all reinsurance business of the  a definite type within the limits laid
down  in the agreement . Whenever the
ceding company accepts the risk  of the
original insured. , he has to retain a pre-determined proportions  of the total risk so accepted and so has to
reinsure the remaining  risk with other
reinsurers., He has to pay the  premiums
to other re insurers  for accepting  the risk. This method, in fact  provides 
an automatics  protections to the
ceding  the  company as the   under the treaty the reinsurer has to
the  accept . This method in fact
provides  an automatic protection to the
ceding company as under this policy the treaty the reinsurer has to the accept
the risk coming with in the  scope of
treaty . </div>
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That it is the why this methods  is called it is a  “Treaty 
reinsurance or Automatic Reinsurance Methods”   TREATY reinsurance is practically applied in
four ways, namely (a). Quota share treaty : (b). Surplus treaty: ( C ) ,. Excess of loss treaty : and the ( D ). Stop loss of
excess of the loss ratio treaty.</div>
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