Page 163 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes 8.9 Summary

The mechanism of insurance is very simple. People who are exposed to the same kind of
risks come together and agree that, if any one of them suffers a loss, the others will share
the loss and make good to the person who lost. All people who send goods by ship are
exposed to the same risks, which are related to water damage, ship sinking, and piracy etc.
Those owning factories are not exposed to these risks, but they are exposed to different
kinds of risks like fire, hailstorms, earthquakes, lightning, burglary, etc.

Likewise, different kinds of risks can be identified and separate groups made. By insurance,
the heavy loss that anyone or few of them may suffer is divided into bearable small losses
by all. In other words, the risk is spread among the community and the likely big impact
on one or few is reduced to smaller manageable impacts on all.

Life Insurance is a contract for payment of a sum of money to the person assured or his/
her nominee on the happening of the event insured against. As per the contract, the
payment of the specified amount will be made on the date of maturity or on the specified
dates at periodic intervals or on death if it happens earlier. The Life Insurance Policies can
be divided on the basis of:
1. Duration of Policy.
2. Methods of Premium Payments.
3. Participation in Profit.
4. Number of Lives Covered.

5. Method of Payment of Sum Assured.
Fire insurance contracts cover the risks of damage by fire. They insure the risk of loss
caused whether by fire or incidental to fire. Thus, fire insurance policies cover the insurance
business in which the risk to the asset is from fire or incidental to fire. A fire insurance
policy covers the fire and other occurrences as stated in the policy. The inclusion of various
clauses to cover matters related to fire in the policy is essential to cover the loss caused due
to various reasons.

Marine insurance basically covers two types of business, i.e., cargo insurance and hull
insurance. The cargo insurance includes the goods in transit from the place insured to the
sea and from sea to the exporter. The hull insurance is concerned with body, the machinery
and technical know-how, stores tools, etc. of the ship. Marine insurance has been made
mandatory in export-import business.

8.10 Keywords

Cover Note: A cover note is a document issued in advance before the issue of the policy, and is
normally required if the policy cannot for some reason or the other, be issued straight away.

Declaration Policies: Declaration Policies are useful to businesses, which face frequent fluctuations
in stock quantity or value.
Floating Policy: A floating policy describes the insurance in general terms, leaving the names of
the ship or ships to be defined by subsequent declaration.
IDV: Insured’s Declared Value
Insurance Policy: An Insurance policy, like all other contracts, creates rights and corresponding
duties for the parties to the contract.

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