Page 253 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes Similarly, in certain types of life policies, payment is not certain due to uncertainty of a
particular contingency within a particular period. For example, in term-insurance the
payment is made only when death of the assured occurs within the specified term, may be
one or two years. Similarly, in pure endowment payment is made only at the survival of
the insured at the expiry of the period.
5. Amount of payment: The amount of payment depends upon the value of loss suffered due
to the happening of particular insured risk provided insurance is there up to that amount.

In life insurance, the purpose is not to make good the financial loss suffered. Moreover
one cannot estimate the value of a human being. A person is no doubt precious to his/her
family. The insurer promises to pay a fixed sum on the happening of an event i.e. death or
permanent disability.
It is immaterial in life insurance what was the amount of loss at the time of contingency.
But in the property and general insurances, the amount of loss, as well as the happening of
loss, are required to be proved.

6. Larger Number of insured persons: The price of insurance is basically linked to the cost of
claims, which is only known subsequently. In the beginning, it is an unknown factor and
an estimate is made on the basis of past claims experience or empirical data about the
longevity of human beings, accidents and their financial consequences.
Generally, the past claims experience is repeated with minor variations if a large number
of risks are collected. This once again operates by the law of large numbers and is one
reason why insurance companies want to do as much business as possible. The ultimate
objective is to keep the insurance cost as low as possible.
7. Insurance must not be confused with charity or gambling: The uncertainty is changed into
certainty by insuring property and life because the insurer promises to pay a definite sum
at damage or death. In the absence of insurance, the property owners could at the best
practice only some form of self-insurance, which may not give him absolute certainty.
A family is protected against losses on death and damage with the help of insurance. From
the point of view of an insurance company, the insurance contract is essentially non-
speculative. In fact, no other business operates with greater certainties. From the insured's
point of view, too, insurance is also not gambling. Failure to take insurance amounts to
gambling because the uncertainty of loss is always looming on the head.
One could also say, the insurance is just the opposite of gambling. In gambling, by bidding the
person exposes himself to risk of loosing, but the insured safeguards himself through insurance,
and may suffer loss only if he is not insured.

12.11 Salient features of IRDA Act

The IRDA Authority has the duty to promote, regulate and ensure orderly growth of the insurance
and reinsurance businesses across India, subject to the provisions of this Act and any other
additional law that is being enforced.

Without prejudice to the generality of the provisions contained in sub-section (1) of IRDA Act,
the powers and functions of the Authority shall include:

Issuing a certificate of registration to the applicant as well as modify, renew, withdraw,
suspend or cancel any such registration that is deemed unfit.
Protecting the interests of the policyholders in matters concerning assigning of insurance
policy, nomination by policyholders, settlement of insurance claim, insurable interest,
surrender value of policy and other terms and conditions based on contracts of insurance.

248 LOVELY PROFESSIONAL UNIVERSITY