Nsurance Law In India - Notes

Posted By: SOUMYA LAHA April 22, 2017 23

Comments
There are several insurances such as life insurance, fire
insurance etc. in India and each insurance have their own
provisions. Insurance law is included in the syllabus of
some law colleges. In this article I've tried to gather some
basic information about some common insurance policies.
I've taken help from wikipedia and other websites to gather
these information. Hope this article will help both students
and others. Let's read:

1) What do you understand by the term ‘insurance’ ?

Insurance means an arrangement by which a company or

the state undertakes to provide a guarantee of compensation
for specified loss, damage, illness, or death in return for
payment of a specified premium.

Insurance is a means of protection from financial loss. It is

a form of risk management primarily used to hedge against
the risk of a contingent, uncertain loss.

An entity which provides insurance is known as an insurer,

insurance company, or insurance carrier. A person or entity
who buys insurance is known as an insured or policyholder.
The insurance transaction involves the insured assuming a
guaranteed and known relatively small loss in the form of
payment to the insurer in exchange for the insurer's promise
to compensate the insured in the event of a covered loss.
The loss may or may not be financial, but it must be
reducible to financial terms, and must involve something in
which the insured has an insurable interest established by
ownership, possession, or preexisting relationship.

The insured receives a contract, called the insurance policy,

which details the conditions and circumstances under which
the insured will be financially compensated. The amount of
money charged by the insurer to the insured for the
coverage set forth in the insurance

policy is called the premium. If the insured experiences a

loss which is potentially covered by the insurance policy,
the insured submits a claim to the insurer for processing by
a claims adjuster.

2) Discuss the essential features of contract of

insurance ?

The contract of insurance is very useful to indemnify any

loss. In this light, contract of insurance is also called as
contract of indemnity in which insurer indemnifies the loss
incurred due to the happening or non-happening of any
event depending upon contingency.

To make contract of insurance valid in the eye of law, some

essential elements must be considered in its process of
validity. The insurance contract, like any other contracts
must satisfy the usual conditions of a contract. The
essentials of insurance contracts are as follows:

i. Agreement

Agreement means communication by the parties to one

another of their intentions to create legal relationship. For a
valid contract of insurance, there must be an agreement
between the parties, i.e. one making offer or proposal and
another accepting the proposal or signifying his acceptance
upon proposal.

ii. Free consent

There must be free consent between the parties to contract.

Consent means that parties to an agreement must agree on a
specific thing in the same sense or their understanding
should be the same. Consent must be given by the parties
thereto in a contract, freely, independently, without any fear
and favor. The consent is known to be free when it is not
caused by, fraud, misrepresentation, mistakes and other
undue influences .

iii. Components to contract

The parties in an agreement must be legally competent to

enter into the contract. It means both parties in the
insurance contract must be age of majority, posses sound
mind and not disqualified by any ;aw of the country. It
clears that a person who is minor, lunatics, idiot and alike
cannot enter into a insurance contract. The contract entered
into by these will be declared as void.

iv. Lawful object

In insurance contract, the object of the contract must be

lawful as in other types of contracts. The agreement must
not relate to a thing which is contrary to the provision of
any law or has expressly been forbidden by any law. It must
not be of such nature that if permitted, it implies injury to
the person or property of other or immoral or opposed to
public policy.

v. Lawful consideration

There must be due and lawful consideration in the

insurance contract. The consideration, for which the
contract is entered and created by the parties, must be
lawful. To establish legal relationship, to create obligation
between them and to make it enforceable by law there must
be lawful consideration.

vi. Compliance with legal formalities

To make an agreement valid, prescribed legal formalities of

writing, registration, etc. must have been observed. In the
contract of insurance, the agreement between parties must
be in written form and dully signed by both parties,
properly attested by witness and registered otherwise, it
may not be enforced by the court.

3) What is meant by the term Risk ?

A risk that is specified in an insurance policy is a

contingency which might or might not occur. The policy
promises to reimburse the person who suffers a loss
resulting from the risk for the amount of damage done up to
the financial limits of the policy.

4) Discuss the various types of Risk ?

There are different types of risks — only some are

preventable, and only certain types of risk are insurable
Risk can be categorized as to what causes the risk, and to
whom it affects.

Pure risk is a risk in which there is only a possibility of

loss or no loss—there is no possibility of gain. Pure risk can
be categorized as personal, property, or legal risk. Pure risk
is insurable, because the law of large numbers can be
applied to estimate future losses, which allows insurance
companies to calculate what premium to be charged based
on expected losses.

static risks are more predictable, and, therefore, more

insurable. Dynamic risks change with time, making them
less predictable and less insurable.

Personal risks are risks that affect someone directly, such

as illness, disability, or death. Property risk affects either
personal or real property. Thus, a house fire or car theft are
examples of property risk.

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 Open

Legal risk (aka liability risk) is a particular type of

personal risk that you will be sued because of neglect,
malpractice, or causing willful injury either to another
person or to someone else's property.

Speculative risk differs from pure risk because there is the

possibility of profit or loss, such as investing in financial
markets. Most speculative risks are uninsurable, because
they are undertaken willingly for the hope of profit.

Fundamental risk is a risk, such as an earthquake or

terrorism, that can affect many people at once. Economic
risks, such as unemployment, are also fundamental risks
because they affect many people. Particular risk is a risk
that affects particular individuals, such as robbery or
vandalism. Insurance companies generally insure some
fundamental risks, such as hurricane or wind damage, and
most particular risks. In the case of fundamental risks that
are insured, insurance companies help to reduce their risk
of great financial loss by limiting coverage in a specific
geographic area and by the use of reinsurance, which is the
purchase of insurance from other companies to cover their

potential losses. However, private insurers do not insure

many fundamental risks, such as unemployment.

5) How it is related to insurance policy ?

An insurable risk is a risk that meets the ideal criteria for

efficient insurance. The concept of insurable risk underlies
nearly all insurance decisions.

For a risk to be insurable, several things need to be true:

• The insurer must be able to charge a premium high

enough to cover not only claims expenses, but also to
cover the insurer's expenses. In other words, the risk
cannot be catastrophic, or so large that no insurer could
hope to pay for the loss.
• The nature of the loss must be definite and financially
measurable. That is, there should not be room for
argument as to whether or not payment is due, nor as to
what amount the payment should be.
• The loss should be random in nature, else the insured
may engage in adverse selection (antiselection).

Insurance is not effective for risks that are not insurable

risks. For example, risks that are too large cannot be
insured, or the premiums would be so high as to make
purchasing the insurance infeasible. Also, risks that are not
measurable, if insured, will be difficult if not impossible for
the insurer to quantify, and thus they cannot charge the
correct premium. They will need to charge a conservatively

high premium in order to mitigate the risk of paying too

large a claim. The premium will thus be higher than ideal,
and inefficient. Passing of risk involves both party to the
contract. The general rule is that unless otherwise agreed,
risk passes with title. An agreement to the contrary may be
either expressed or implied.

EXCEPTIONS TO THE GENERAL RULE: (A) RISK

INCIDENTAL TO TRANSIT: The law provided that where
the seller undertakes to make delivery of the goods to the
buyer, risk attendant to the system of transportation or
voyage contemplated will be borne by the buyer unless the
parties agreed to the contrary. This is referred to as
insurable risk. (B) RISK ATTRIBUTABLE TO FAULT OF
EITHER PARTY: Any damage or loss which arises as a
result of the fault or neglect of the seller or the buyer or
their respective agents as the case may be shall be borne by
that party at fault. (C) GOODS PERISHING: Goods perish
not only when they cease to exist physically but also when
they cease to exist in a commercial sense, e.g. fresh milk
gone sour.

6) Nature and Scope of Marine Insurance

The nature and scope of marine insurance is determined by

reference to s. 6 of the Marine

Insurance Act and by the definitions of “marine adventure”

and “maritime perils”.

 It is a contract of indemnity but the extent of the indemnity

is determined by the contract.

It relates to losses incidental to a marine adventure or to the

building, repairing or launching of a

ship.

A marine adventure is any situation where the insured

property is exposed to maritime perils.

Maritime perils are perils consequent on or incidental to

navigation.

S.6 MIA

6. (1) A contract of marine insurance is a contract whereby

the insurer undertakes

to indemnify the insured, in the manner and to the extent

agreed in the contract,

against

(a) losses that are incidental to a marine adventure or an

adventure analogous to a

marine adventure, including losses arising from a land or

air peril incidental to

 such an adventure if they are provided for in the contract or

by usage of the trade;

or

(b) losses that are incidental to the building, repair or

launch of a ship.

(2) Subject to this Act, any lawful marine adventure may be

the subject of a

contract.

S.2(1) “Marine Adventure”

"marine adventure" means any situation where insurable

property is exposed to

maritime perils, and includes any situation where

(a) the earning or acquisition of any freight, commission,

profit or other pecuniary

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benefit, or the security for any advance, loan or

disbursement, is endangered by

the exposure of insurable property to maritime perils, and

(b) any liability to a third party may be incurred by the

owner of, or other person

interested in or responsible for, insurable property, by

reason of maritime perils;

S.2(1) “Maritime Perils”

"maritime perils" means the perils consequent on or

incidental to navigation,

including perils of the seas, fire, war perils, acts of pirates

or thieves, captures,

seizures, restraints, detainments of princes and peoples,

jettisons, barratry and all

other perils of a like kind and, in respect of a marine policy,

any peril designated

7) Essentials of Life insurance contract ?

Like any other contract, a contract of life insurance must

satisfy the essentials of a valid contract. All the agreements
are contracts if they are made by the free consent of the
parties competent to contract, for a lawful consideration and

with a lawful object, and are not hereby expressly declared

to be void.56

(a) Offer and Acceptance

The intimation of the proposer's intention to buy insurance

is the 'offer', while the insurer's willingness to undertake the
risk, is the acceptance. The insurer may also propose
tomake the contract. From whichever side the offer may be,
the main fact is acceptance.

The offer in life insurance is usually made by the assured in

the printed form of the proposal supplied by the insurer. In
life insurance the proposal is contained in four parts,
namely, (i) proposal form, (ii) medical report (iii) agent's
report, and friend's report.57 Generally, the acceptance of
proposal is to be made by the insurer. The insurer receiving
the papers containing the proposal scrutinizes them and
when they are found in order he signifies his assent thereto
by a letter of acceptance. Until this is sent there is no
acceptance, though a cheque for the premium is sent and
the money is received and retained till after the death of the
insured.

(b) Consideration

The law of life insurance also requires a lawful

consideration for its validity as it is essential to a legal

contract.58 Consideration is the price for which the promise

of the insurer is purchased. The payment of first premium is
the consideration for the insurer and the insurer’s promise
to indemnify the assured from the stipulated risk in the
policy is the consideration to the assured.

In case of Raj Narain Das Mahapatra,59 it was settled that

cashing of the cheque was an acceptance of the risk
whether policy was issued or not.

(c) Competence of Parties

The parties must be competent to enter into a contract, the

parties must be of the age of majority,60 of sound mind and
not disqualified from contracting by any law to which any
of them is subject.

Regarding the insurance contracts only those insurers can

grant insurance policies who have been issued license under
the Insurance Regulatory and Development Authority.62

(d) Legality of Object

A contract will be invalid if the object is illegal or against

public policy. The object of life insurance contract will be
legal if it is made for one's own protection or for the
protection of the family against financial losses. In brief,
the person desiring policy must have insurable interest in
the life proposed for insurance.63

The object of an agreement is lawful unless64:

(i) it is forbidden by law, or

(ii) it is of such a nature, that if permitted would defeat the

provisions of any law, or

(iii) it is fraudulent

(iv) it involves injury to person or property of another

(v) the court regards it immoral or opposed to public policy.

In Northern India Insurance Company v. Kanhaya lal,65

the policy became void because the insured caused his own
death before the policy has been in existence for one year.

(e) Free Consent of Parties

When parties to a contract agree on the terms and

conditions of the contract in the same sense and spirit, they
are said to have free consent. The consent is said to be free
when it is not caused by coercion, or undue influence or
fraud or misrepresentation or mistake.66

In a contract of insurance the insurer and the insured must

be in genuine agreement as to the subject matter of
insurance, that is, life to be insured, sum assured and term

of the insurance and every other particular relating to the

contract. When a person signs a proposal for insurance, he
gives his free consent to the contract. The proposer should
understand the

contents of proposal in the same sense and make a written

declaration on the proposal. He is responsible for the
proposal made by him. In Bernarsi Das v. New India
Assurance Co. Ltd,.67 a principle of law has been laid
down. It is well established rule of law that in case of a
person who is illiterate or who is not in a position to
understand the contents of a document, the contract cannot
be imposed upon him simply because he had endorsed his
signature thereon.

In Kulta Ammal v. Oriental Government Security Life

Assurance Co. Ltd,.68 it was held that in case of an
illiterate person it is necessary to prove the fact that he had
knowledge of what was stated in the proposal.

8) Nature of Life insurance contract?

The nature of contract of life insurance may be summarized

under the following heads:

(a) Unilateral Contract

It is that type of contract where only one party to the

contract makes legally enforceable promise.52 Here it is the
insurer who makes an enforceable promise. The insurer can
repudiate the contract of payment of full policy, but he
cannot compel the insured to pay the subsequent premiums.
On the other hand, if the insured continues to pay the
premium, the insurer has to accept them and continue the
contract.53

(b) Contract of Utmost Good Faith

An insurance contract is a contract of utmost good faith and

therefore, the contracting parties are placed under a special
duty towards each other, not merely to refrain from active
misrepresentation but to make full disclosure of all material
facts within their knowledge.54 It has been said that ‘there
is no class of documents to which the strictest good faith is
more rightly required in courts of law than policies of
insurance’.55

(c) Conditional Contract

Life insurance is subject to the conditions and privilege

provided on the back of the policy. The conditions put the
obligation on a party to fulfill certain conditions before the
proof of death or of disability are the parts of the contract.
The conditions whether precedent or subsequent of the
legal rights must be fulfilled in order to complete the
contract.

(d) Aleatory Contract

In such a kind of contract, no mutual exchange of equal

monetary value is done. It is the happening of the
contingency on which the payment is made. If death occurs
only after payment of a few premiums, full policy amount
is paid.

(e) Contract of Adhesion

In such a contract, the terms of the contract are not arrived

at by mutual negotiations. Similarly, in a life insurance
contract, the contract is decided upon by the insurer only.
The party on the other side has to choose between the two
options, i.e. either to accept or reject the policy.

(f) Contract of Certain Amount

 Life insurance contract does not provide an indemnity. It is

in the nature of a contingency contract by providing for the
payment of the agreed amount on the happening of the
event.

(g) Standard Form of Contract

In the life insurance, all the essentials of a general contract

as provided by the Indian Contract Act, 1872, for a valid
contract are present.

9) What are the effects of Suicide in Life insurance

policy?

For every insurance policy, there are two exclusions that

dictate if and when suicide is covered.
i. The Suicide Clause
A life insurance company won't pay death benefits if the
policyholder commits suicide within a specific period of
time after their policy takes effect. In most states, that
period is two years.

However, after those two years are up, the suicide clause
no longer applies. If the policyholder commits suicide after
the clause has expired, their life insurance claim typically

can't be contested. Their beneficiaries will likely receive the

full payout.

ii. The Contestability Clause

Like the suicide clause, the "contestability period" is a two-

year window from the date that a life insurance policy takes
effect. It says that if a policyholder dies within those first
two years, their insurer has the right to investigate their
cause of death. During this time, the insurance company
can obtain an autopsy report, medical reports, and
interviews with family and friends of the deceased.

Suicide Clause Vs. Contestability Clause

The suicide clause deals strictly with what insurers might

call "intentional self-destruction" or "death by one's own
hand." If a policyholder commits suicide within the time
period dictated by the exclusion, the insurer will look for
proof that their death was intentional. If it was,
beneficiaries won't receive a payout.

On the other hand, the contestability clause applies to any

death that happens in the first two years of a policy start
date, whether or not it was intentional. Say, for instance,
that you die of lung cancer. Your insurer will look through
your medical report to see if you have a history of smoking.
If you do, and you didn't disclose that to your insurance
company, they have a right to cancel your death benefits.

Why Exclude Suicide Coverage?

Insurance policies include a suicide provision to protect

insurers. Without the exclusion, a policyholder could buy a
policy with the intention of committing suicide. As soon as
their policy took effect, they could take their own life, and
their beneficiaries would receive the policy's full payout.

That might seem like an outrageous scenario, that someone

could be so desperate to ease their family's financial
struggles that they'd actually take their own life. But it's
happened. Loss of a job, rising debt, a death in the family --
these events might be so devastating, the promise of a life
insurance benefit could be the deciding factor for
committing suicide. The suicide clause tries to curb that
incentive.

10) Basic characteristics of Fire insurance ?

Fire Insurance Definition

Fire insurance means insurance against any loss caused by

fire. Section 2(61 of the Insurance Act defines fire
insurance as follows: “Fire insurance business means the
business of effecting, otherwise than incidentally to some
other class of business, contracts of insurance against loss
by or incidental to fire or other occurrence customarily

 included among the risks insured against in fire insurance

policies.”

What is ‘Fire’?

The term fire in a Fire Insurance Policy is interpreted in the

literal and popular sense. There is fire when something
burns. In English cases it has been held that there is no fire
unless there is ignition. Stanley v. Western Insurance Co.
Fire produces heat and light but either o them alone is not
fire. Lighting is not fire. But if lighting ignites something,
the damage may be covered by a fire-policy. The same is
the case with electricity.

Characteristics of Fire Insurance

• Fire insurance is a contract of indemnity. The

insurer is liable only to the extent of the actual loss
suffered. If there is no loss there is no liability even if
there is a fire.
• Fire insurance is a contract of good faith. The
policy-holder and the insurer must disclose all the
material facts known to them.
• Fire insurance policy is usually made for one year
only. The policy can be renewed according to the terms
of the policy.
• The contract of insurance is embodied in a policy
called the fire policy. Such policies usually cover
specific properties for a specified period.

 • Insurable Interest: A fire policy is valid only if

the policy-holder has an insurable interest in the
property covered. Such interest must exist at the time
when the loss occurs. In English cases it has been held
that the following persons have insurable interest for
the purposes of fire insurance- owner; tenants, bailees,
including carriers; mortgages and charge-holders.
• In case of several policies for the same property,
each insurer is entitled to contribution from the others.
After a loss occurs and payment is made, the insurer is
subrogated to the rights and interests of the policy-
holder. An insurer can reinsure a part of the risk.
• Fire policies cover losses caused proximately by
fire. The term loss by fire is interpreted liberally.
Example: A women hid her jewellery under the coal in
her fireplace. Later on she forgot about the jewellery
and lit the fire. The jewellery was damaged. Held, she
could recover under the fire policy.
• Nothing can be recovered under a fire policy if the
fire is caused by a deliberate act of policy-holder. In
such cases the policy-holder is liable to criminal
prosecution.
• Fire policies generally contain a condition that the
insurer will not be liable if the fire is caused by riot,
civil disturbances, war and explosions. In the absence
of any specific expectation the insurer is liable for all
losses caused by fire, whatever may be the causes of
the fire.
• Assignment: According to English law a policy of
fire insurance can be assigned only with the consent of
the insurer. In India such consent is not necessary and

 the policy can be assigned as a chose-in-action under

the Transfer of Property Act. The insurer is bound
when notice is given to him. But the assignee cannot be
recovering damages unless he has an insurable interest
in the property at the time when the loss occurs. A
stranger cannot sue on a fire policy.
• Payment of Claims: Fire policies generally
contain a clause providing that upon the occurrence of
fire the insurer shall be immediately notified so that the
insurer can take steps to salvage the remainder of the
property and can also determine the extent of the loss.
Insurance companies keep experts on their staff of
value the loss. If in a policy there is an international
over valuation of the property by the policy-holder, the
policy may be avoided on the ground of fraud.

11) Property insurance

People have an insurable interest in their property up to the

value of the property, but no more. The principle of
indemnity dictates that the insured be compensated for a
loss of property, but not paid more than what the property
was worth. A lender who grants a mortgage on the security
of a house has an insurable interest in that house, but only
up to the amount outstanding on the loan.

12) Discuss the salient features of Public Liability

Insurance Act 1991 ?

Salient Features

It is a modified version of public liability (Industrial)

policy and the term 'handling' is wide enough to include
baileys or any other intermediaries and transport operators.
The transport operators who transport substances like
liquefied petroleum Gas, certain acids, hexane and other
toxic substances are required to compulsorily obtain Public
liability policy.

13) Public Liability Insurance Act,1991

Public Liability Insurance Act,1991 is to provide the

compensation for damages to victims of an accident
of handling any hazardous substance or It is also calls, to
save the owner of production/storage of hazardous
substance from hefty penalties. This is done by proving
compulsory insurance for third party liability. As from the
name of the act, it is Public Liability.

First time owner is put on anvil to provide the

compensation/relief, when death or injury to any person
(please note-other than a workman) or damage to any
property has resulted from an accident of hazardous
substance.

Actually the owner shall buy one or more insurance

policies before he/she starts handling any hazardous
substance. When any accidents come in knowledge of
Collector, then he/she verify the occurrence of accident and
order for relief as he/she deems fit.

The only restriction that is put on Public Liability

Insurance Act is that the application for relief should
within five years of the occurrence of the accident.

When Collector finds the guilty, the insurer (means person

or insurance company) is required to pay amount as
deems to be fit as per law within a period of thirty days
of the date of announcement of the award. The Owner
shall also pay the relief as Collector deems fit because it is
duty of owner to keep the hazardous material safe in his
custody. The amount is normally deposited in account of
“Relief Fund” and Collector arrange the relief to pay from
the Relief Fund.

The Collector shall have all the powers of Civil Court for
the purpose of taking evidence on oath and of enforcing
the attendance of witnesses and of compelling the
discovery and production of documents and material
objects and for such other purposes as may be prescribed.

Where an offence has been committed by any

Department of Government in case of hazardous
chemical, the Head of the Department shall be deemed

 to be guilty of the offence and shall be liable to be

punished.

Insurance policy taken out by an owner shall not be for

a amount less than the amount of the paid-up capital of
the under taking handling any hazardous substance and
owned or controlled by that owner and more than the
amount, not exceeding fifty crore rupees, as may be
prescribed. “Paid-up capital” in this sub-section means, in
the case of an owner not being a company, the market value
of all assets and stocks of the undertaking on the date of
contracts of insurance.

Contribution of owner to the Environmental Relief

Fund:

An owner shall contribute to the Environmental Relief fund

a sum equal to the premium payable to the insurer and
every contribution to the Environmental Relief Fund shall
be payable to the insurer, together with the amount of
premium.

Powers of Collector:

• The Collector may follow such summary

procedure for conducting an inquiry on an application
for relief under the Act, as he thinks fit.
• The Collector shall have all the powers of a Civil
Court for the following purposes namely:-
• summoning and enforcing the attendance of
any person and examining him on oath.

 • requiring the discovery and production of

documents;
• receiving evidence on affidavits;
• subject to the provisions of sections 123 and
124 of the Indian Evidence Act, 1872,
requisitioning any public record or document or
copy of such record or document from any office;
• issuing commissions for the examining of
witness or documents;
• dismissing an application for default or
proceeding ex-parte;
• setting aside any order of dismissal of any
application for default or any order passed by it
exparte;
• inherent powers of a civil court as-served
under section 151 of the Code of Civil Procedure,
1908.

Jurisdiction of Court of India :

No court shall take cognizance of any offence under this

Act except on a complaint made by

• Any authority or office or person authorized by

Central Government.
• Any person after giving notice but should not less
than 60 days for the alleged offence and of his
intention to make a complaint to the Central
Government or the authority or officer authorized as
mentioned above.

 Advisory Committee

The Central Government constitutes an Advisory

Committee for the cases/matters relating to the insurance
policy under this Act:

• The Advisory Committee shall consist of–

• 3 officers nominated by Central Government;
• 2 persons on behalf of insurers;
• 2 persons on behalf of owners ; and
• 2 persons from amongst the experts of
insurance or hazardous substances, to be appointed
by the Central Government.

Chairperson shall be one of the member nominated by

Govt of India.

Amount of Compensation

• Reimbursement of medical expenses incurred up

to a maximum of Rs. 12,500 in each case.
• For fatal accidents the relief will be Rs. 25,000 per
person in addition to reimbursement of medical
expenses if any, incurred on the victim up to a
maximum of Rs. 12,500.
• For permanent total or permanent partial disability
or other injury or sickness, the relief will be
• reimbursement of medical expenses incurred,
if any, up to a maximum of Rs. 12,500 in each case
and

 • cash relief on the basis of percentage of

disablement as certified by an authorised
physician. The relief for total permanent disability
will be Rs. 25,000.
• For loss of wages due to temporary partial
disability which reduces the earning capacity of the
victim, there will be a fixed monthly relief not
exceeding Rs. 1,000 per month up to a maximum of 3
months provided the victim has been hospitalised for a
period of exceeding 3 days and is above 16 years of
age.

14) SOCIAL INSURANCE

Social insurance is any government-sponsored program

with the following four characteristics:

• the benefits, eligibility requirements and other aspects

of the program are defined by statute;
• explicit provision is made to account for the income
and expenses (often through a trust fund);
• it is funded by taxes or premiums paid by (or on behalf
of) participants (but additional sources of funding may
be provided as well); and
• the program serves a defined population, and
participation is either compulsory or so heavily
subsidized that most eligible individuals choose to
participate.

Social insurance has also been defined as a program whose

risks are transferred to and pooled by an often government
organisation legally required to provide certain benefits.

15) Similarities between social insurance and private

insurance

Typical similarities between social insurance programs and

private insurance programs include:

• Wide pooling of risks;

• Specific definitions of the benefits provided;
• Specific definitions of eligibility rules and the amount
of coverage provided;
• Specific premium, contribution or tax rates required to
meet the expected costs of the system.[

· · Social insurance programs share four

characteristics: they have well-defined eligibility
requirements and benefits, have provisions for program
income and expenses, are funded by taxes or premiums
paid by participants, and have mandatory or heavily
subsidized participation.

· · Social insurance programs differs from welfare

programs in that they take participant contributions into

account. Welfare benefits are based on need, not

contributions.

· · Social Security, Medicare, and unemployment

insurance are three well-known social insurance programs
in the United States.

16) HEALTH INSURANCE

Health insurance is insurance against the risk of incurring

medical expenses among individuals. By estimating the
overall risk of health care and health system expenses,
among a targeted group, an insurer can develop a routine
finance structure, such as a monthly premium or payroll
tax, to ensure that money is available to pay for the health
care benefits specified in the insurance agreement. The
benefit is administered by a central organization such as a
government agency, private business, or not-for-profit
entity. According to the Health Insurance Association of
America, health insurance is defined as "coverage that
provides for the payments of benefits as a result of sickness
or injury. It includes insurance for losses from accident,
medical expense, disability, or accidental death and
dismemberment"

17)INSURANCE MARKET

Marketing. Insurers will often use insurance agents to

initially market or underwrite their customers. Agents can
be captive, meaning they write only for one company, or
independent, meaning that they can issue policies from
several companies.

The insurance industry of India consists of 52 insurance

companies of which 24 are in life insurance business and 28
are non-life insurers. Among the life insurers, Life
Insurance Corporation (LIC) is the sole public sector
company.

Indian insurance market

Out of 28 non-life insurance companies, there are six public

sector insurers, which include two specialised insurers
namely Agriculture Insurance Company Ltd for Crop
Insurance and Export Credit Guarantee Corporation of
India for Credit Insurance. Moreover, there are 5 private
sector insurers are registered to underwrite policies
exclusively in Health, Personal Accident and Travel
insurance segments. They are Star Health and Allied
Insurance Company Ltd, Apollo Munich Health Insurance
Company Ltd, Max Bupa Health Insurance Company Ltd,
Religare Health Insurance Company Ltd and Cigna TTK
Health Insurance Company Ltd.

In addition to 52 insurance companies, there is sole national

re-insurer, namely, General Insurance Corporation of India.
Other stakeholders in Indian Insurance market include
approved insurance agents, licensed Corporate Agents,
Brokers, Common Service Centres, Web-Aggregators,
Surveyors and Third Party Administrators servicing Health
Insurance claims.

Insurance Laws (Amendment) Act, 2015 provides for

enhancement of the Foreign Investment Cap in an Indian
Insurance Company from 26% to an Explicitly Composite
Limit of 49% with the safeguard of Indian Ownership and
Control.

18) UTMOST GOOD FAITH

Utmost good faith is a common law principle (sometimes

called Uberrimae Fidei). The principle means that every
person who enters into a contract of insurance has a legal
obligation to act with utmost good faith towards the
company offering the insurance.

What is the 'Doctrine Of Utmost Good Faith'

 The doctrine of utmost good faith is a minimum standard

that requires both the buyer and seller in a transaction act
honestly toward each other and not mislead or withhold
critical information from one another. The doctrine of
utmost good faith applies to many common financial
transactions. It is also known in its Latin form as
"uberrimae fidei."

BREAKING DOWN 'Doctrine Of Utmost Good Faith'

In the insurance market, the doctrine of utmost good faith

requires the party seeking insurance discloses all relevant
personal information. For example, if you are applying for
life insurance, you are required to disclose any previous
health problems you may have had. Likewise, the insurance
agent selling you the coverage must disclose the critical
information you need to know about your contract and its
terms.

The doctrine of utmost good faith provides general

assurance that the parties involved in a transaction are being
truthful and acting in an ethical way. This can include
ensuring all relevant information is available to both parties
while negotiations are taking place or amounts are being
determined.

Uses of the Doctrine of Utmost Good Faith

Aside from the aforementioned use in the insurance market,

good faith may also be exercised while completing various
financial transactions. This can include when a business or

individual seeks financing from banking institutions, or

when a financial institution provides a fee estimate as a real
estate loan is in process.

Often, estimates provided by certain service providers are

made in good faith. In this context, it refers to the fact the
service provider, such as a plumber or electrician, is
confident in the cost estimate based on the known factors
surrounding the transaction, in this case a repair. It is
considered good faith only, and not legally bonding, as it
acknowledges that not all variables are known. Certain
issues may not be discoverable, by the service provider or
the person requesting service, until certain work has begun.

Repercussions for Violations of Good Faith

Depending on the nature of the transaction, violations of the

doctrine of good faith can result in a variety of
consequences. Most commonly, whatever contract was
drawn based on inaccurate information, caused by
intentional misinformation or failure to disclose, may cause
the contract to become null and void.

19) INSURABLE INTEREST

Insurable interest exists when an insured person derives a

financial or other kind of benefit from the continuous
existence, without impairment or damage, of the insured
object (or in the case of a person, their continued survival).

A person has an insurable interest in something when loss

of or damage to that thing would cause the person to suffer
a financial or other kind of loss. Typically, insurable interest
is established by ownership, possession, or direct
relationship. For example, people have insurable interests in
their own homes and vehicles, but not in their neighbors'
homes and vehicles, and certainly not those of strangers.

The "factual expectancy test" and "legal interest test" are

the two major concepts of insurable interest.