Page 55 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Insurance Laws and Practices

Notes Self Assessment

Fill in the blanks:
1. The term ……………………………. describes any measure taken for protection against
risks.

2. The insurer agrees to compensate the …………………….. for specific future losses.
3. The business of insurance is sustained by a complex system of ……………………….
4. A contract is considered to be insurance if it distributes risk among a large number of
persons through an enterprise that is engaged primarily in the business of
…………………………

4.2 Types of Insurance Contract

Let’s discuss about the various types of insurance contract. Insurance contracts can be broadly
classified into life insurance contract and non-life insurance contracts:

4.2.1 Life Insurance

You must be aware that life insurance is insurance of human life and is a long-term business
while general insurance is an annual business with some exceptions. General insurance covers
all other categories of insurance other than life. In some cases like engineering (general insurance),
the policy period for dwellings and contents is more than one year.

!
Caution Under the IRDA Act, 1999, life and non-life business have to be done under separate
companies. A company is not allowed to do both businesses simultaneously.

Types of Life Insurance

Life insurance includes ordinary life, annuities and pensions. The risks of death due to any
reason both natural and unnatural are covered during the policy period. There are two main life
insurance products namely, term insurance and pure endowment. All other policies are variations
of these two basic policies. Term insurance is insurance taken for a particular period. If death
takes place during the term, the claim is paid. If death does not take place, nothing is paid to the
insured.

In India, most of the products are endowment-type where the savings component is predominant.
Under this, every policy will result in a claim either by maturity or by death claims. If death
does not occur, the policy expires on a specified date, i.e., date of maturity. Premium, rates are
based on three variables – mortality rate, interest rate and expenses. Interest earned on premiums
help to reduce the periodical premium, which is normally the same during the insurance period
and is known as level premium.
Since these policies are long-term; as long as for 15, 20 or 25 years, the premium amounts are
invested by the insurance company in the long-term income yielding securities as per the IRDA
regulations. Claims settlement is easy in case of these policies since they are only benefit
policies and not indemnity policies. In case of maturity and instalment claims, the person
insured collects the claim. Otherwise if he/she is no more, the assignees/nominees collect the
claim amount.

50 LOVELY PROFESSIONAL UNIVERSITY