1. Insurance
Presented by Prajitha Ammattil

2. Concept of Insurance
The business of Insurance is related to the protection of the
Economic Value of Assets.
An Insurance Company( referred to, usually, as the Insurer) promises
to pay, to the insured, a certain Sum of Money, if a Loss occurs, so
that they may try to ensure Continuous of the financial benefits. The
insured pays a certain amount(Consideration), to the Insurance
company, for bearing the risk, which is known as Premium.

3. Why Insurance?
• To provide Security
• Old age pensions
• As an investment/saving mechanism
• As a collateral for loans
• For tax benefits

4. Functions of Insurance
• PRIMARY FUNCTIONS OF INSURANCE
• Providing protection – The elementary purpose of insurance is to allow security
against future risk, accidents and uncertainty. Insurance cannot arrest the risk from
taking place, but can for sure allow for the losses arising with the risk. Insurance is
in reality a protective cover against economic loss, by apportioning the risk with
others.
• Collective risk bearing – Insurance is an instrument to share the financial loss. It is a
medium through which few losses are divided among larger number of people. All
the insured add the premiums towards a fund and out of which the persons facing a
specific risk is paid.

5. Functions of Insurance
• Evaluating risk – Insurance fixes the likely volume of risk by assessing diverse factors that
give rise to risk. Risk is the basis for ascertaining the premium rate as well.
• Provide Certainty – Insurance is a device, which assists in changing uncertainty to certainty.
SECONDARY FUNCTIONS OF INSURANCE
• Preventing losses – Insurance warns individuals and businessmen to embrace appropriate
device to prevent unfortunate aftermaths of risk by observing safety instructions;
installation of automatic sparkler or alarm systems, etc.
• Covering larger risks with small capital – Insurance assuages the businessmen from security
investments. This is done by paying small amount of premium against larger risks and
dubiety.
• Helps in the development of larger industries – Insurance provides an opportunity to
develop to those larger industries which have more risks in their setting up.

6. Functions of Insurance
OTHER FUNCTIONS OF INSURANCE
• Is a savings and investment tool – Insurance is the best savings and investment option,
restricting unnecessary expenses by the insured. Also to take the benefit of income tax
exemptions, people take up insurance as a good investment option.
• Medium of earning foreign exchange – Being an international business, any country can
earn foreign exchange by way of issue of marine insurance policies and a different other
ways.
• Risk Free trade – Insurance boosts exports insurance, making foreign trade risk free with the
help of different types of policies under marine insurance cover.
• Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or
disaster. There are different types of insurance policies under the sun cover almost anything
that one might think of. There are loads of companies who are providing 7 such customized
insurance policies.

7. How Insurance Evolved
 Over 5000 years back Chinese Traders used insurance as a
preventive Measure against piracy.
The First Written Insurance policy was on Babylonian Obelisk
Monument, with the Code of King Hammurabi.
 In 1666, the Great Fire of London destroyed more than 13000
houses. To counter such events in future, the First Fire
insurance Company was started, 1680.
Traders in London used to gather at Lloyd’s Coffee House, and
agree to share the Losses of Goods, due to piracy, or the Ship-
sinking due to Bad Weather, or other reasons.

8. History of Insurance in India
In India Insurance began formally in the 18th century.
Year Event
1818
1st Life Assurance Company, Oriental Life Insurance Company,
was established in Kolkata
1829
Madras Equitable was established in Madras (Chennai)
Presidency.
1850
1st Non-Life Insurance Company, Triton Insurance Company
limited.
1870 Bombay Mutual was started in Mumbai
1874 Oriental was started in Mumbai
1896 Bharat Insurance Company Limited was started in Delhi
1897 Empire of India was started in Mumbai

9. History of Insurance in India
• Life Insurance Corporation (LIC) of India: In 1956, Life Assurance business
in India was nationalized, and LIC of India was formed on 1st September
1956
• General Insurance Corporation (GIC) of India: In 1973, General Insurance
Business was nationalised in India, and General Insurance
Corporation(G.I.C) of India and 4 Subsidiaries; National Insurance
Company Ltd, The New India Assurance Company Ltd, The Oriental
Insurance Company and United India Insurance Company Ltd, were
formed.

10. Classes of Insurance

11. Principles of Insurance
• Insurable Interest:
• Insurable interest means that the person opting for insurance must have
pecuniary interest in the property he is going to get insured and will suffer
financial loss on the occurrence of the insured event.
• This is one of the essential requirements of any insurance contract.
Therefore , a person can go for insurance of only those properties where he
stands to benefit by the safety of the property, and will suffer loss, damage,
injury if any harm takes place to such property.

12. Principles of Insurance
Principle of Indemnity
• The insurance contract should always be a contract of indemnity only and nothing
more.
• Insured can’t make any profit from the insurance contract. Insurance contract
means for coverage of losses only.
• Indemnity means a guarantee to put the insured in the position as he was before
accident.
• This principle does not apply to life insurance contracts.
• The main object of this principle is to ensure that the insured is not able to use this
contract for speculation or gambling.

13. Principles of Insurance
• Principle of Subrogation:
• Subrogation is defined as a legal right that allows one party (e g, your
insurance company) to make a payment that is actually owed by another
party (e g, the other driver’s insurance company) and then collect the money
from the party that owes the debt after the fact.
• Principle of Contribution:
• In case the insured took more than one insurance policy for same subject
matter, he/she can’t make profit by making claim for same loss more than
once.

14. Principles of Insurance
• Principle of Utmost Good Faith
• The insurance contract must be based on good faith.
• If the insurance contract is obtained by way of fraud or misrepresentation it
is void.
• When an individual apply for life insurance, it is important to answer all
questions truthfully and to volunteer any information even if not asked, if in
doubt, just disclose it. Failure to disclose material facts could render the
entire contract void.

15. Principles of Insurance
• Concept of Proximate Cause
• An accident may be caused by more than one cause.
• In case property insured for only one cause. In such case nearest cause of
the accident is found out.
• Insurer pays the claim money only if the nearest cause is insured.

16. Life Assurance Products
• Life Assurance products are usually referred to as ‘plans’ of Insurance. These plans
have, either or both of, the 2 basic Elements.
1. Death Benefit
2. Survival Benefit
Plans
Term Assurance Plan: Provide only Death Cover
Pure Endowment Assurance Plan: Provide Only Survival Benefit
Endowment Assurance Plan: Combination of above two
Whole Life Assurance Policy: Term insurance plan, with an un-specified period.

17. Unit Linked Insurance Plans (ULIP)
• A Unit linked insurance plan(U.L.I.P) is an insurance plan, which is, a
combination of insurance-protection and investment.
• Benefits:
• 1. Insurance Protection
• 2. Investment
• 3. Income-tax benefits

18. Unit Linked Insurance Plans (ULIP)
• The premium paid by the insured, in a ULIP is divided in to three parts.
• Expenses: A portion of the premium, goes towards meeting the expenses of issuing
the policy, like, agent’s commission, policy set-up costs, Administrative costs and
statutory levies. This amount is called as Policy Allocation charge (P.A.C)
• Mortality: A portion of the Premium, goes towards covering the Risk or providing
the Life-Cover to the Life- Assured.
• Investment: After deducting the above two amounts, the remaining premium goes
towards investment, on behalf of the Life-Assured. The Individual is given a choice
of funds to select from, and decide, where He or She wants His or her premium to
be invested.

19. Choice of Funds

20. Choice of Funds
Equity Fund Debt Fund Balanced Fund Money-Market Fund
This fund invests Major Portion
of the Money in Equity and
Equity-Related instruments
This fund invests Major portion
of the Money in fixed-Income
Securities, For example
Government Bonds, Corporate
Bonds, Fixed Deposits etc.
This fund invests a Major portion
of the Money in a mix of Equity
and Debt-instruments
This fund invests a major portion
of the Money in instruments,
such as Treasury bills, Certificate
of Deposit, Commercial paper
etc.
The fund may invest 65% or
more in Equity and some portion
in Debt, Money Market, or hold
cash
The Fund may invest 75% to
100% in Debt-instruments and
some portion in the Money
Market, or hold cash
The Equity to Debt Mix may be
in the ratio of 50:50 or 60:40 or
40:60. The Fund may invest
some portion in the Money-
Market or hold cash
The Fund may invest 75% to
100% in Money-Market
Instruments and hold some
portion of the Money in Cash
This fund is for those investors,
who are willing to take HighRisk,
and are looking for high returns.
This fund is for those investors,
who don't want to take High
Risk, and are satisfied with Low
returns.
This fund is for those investors,
who are willing to take
Moderate risk, and are looking
for moderate returns.
This fund is for those investors,
who want to preserve their
capital, and are satisfied with
Low returns.