CBSE Class 11 Business Studies Insurance Worksheet

General Insurance

Fire Insurance:-It is a contract whereby the insurer,in consideration of the premium paid,undertakes to make good any loss or damage caused by a fire during a specified period upto the amount specified in the policy. In fire,insurance,the insured must have insurable interest in the subject matter of the insurance.It must be present both at the time of insurance and at the time of loss. A claim for loss by fire must satisfy the following two conditions:-

(1) There must be actual loss;and

(2) Fire must be accidental and non-intentional.

Marine Insurance:- It is a contract is an agreement wherein the insurer undertakes to compensate the insured for complete or partial loss at sea.It provides protection against loss by marine perils or perils of the sea e.g. collision of ship with the rock,or ship attacked by the enemies,risk of theft of goods,etc.

There are three things involved---Ship or hull,cargo or goods,and freight.

1. Ship or hull insurance:This is an insurance policy for indemnifying the insured for losses caused by damage to the ship.

2. Cargo insurance:The cargo while being transported by ship is subject to many risks,e.g risk of theft,loss of goods.These may be at the port or on voyage.Thus,an insurance policy can be issued to cover against such risks to cargo.

3. Freight insurance: It is for reimbursement the loss of freight to the insured (shipping company),if the cargo does not reach the destination due to damage or loss in transit because in such a case freight charges are not paid to the insurance company.

It must exist at the time of loss but not necessary at the time when the policy was taken.

Meaning: Insurance

Life is full of uncertainties and risk .Buildings may get wholly or partially destroyed due to fire ,storms ,cyclones etc .Goods and other property may be lost or destroyed due to theft ,robbery ,fire flood and such other happenings beyond human control .Both life and property are exposed to risk of accidents e.g, death or serious injury caused by an accident .

Insurance is a means of providing against loss caused by natural or man made factors.

It is a device by which loss likely to be caused by an uncertain event is spread over a number of persons who are exposed to it and who are prepared to insure themselves against such an event .

It is a contract or agreement under which one party agrees in return for a consideration (called ‘premium ‘,which may be monthly ,quarterly ,half yearly or annually ) to pay an agreed amount of money to another party to make good a loss ,damage or injury to something of value

Under the contract of insurance ,the person whose risk is insured is called insured and the firm which insures the risk of loss is known as insurer .

Functions of Insurance

1.) Providing certainty : Insurance provides certainty of payment for the risk of loss .The insurer chargers premium for providing the certainty .

2.) Protection : Insurance provides protection from probable chances of loss .Insurance cannot stop the happenings of a risk or event but can compensate for losses.

3.) Risk sharing :On the happening of a risk event ,the loss or damage is shared by all the insured members (by the way of premium )

4.) Assisting in capital formation : The accumulated funds (i.e premium payments made by insured members) are invested in various income generating schemes .

PRINCIPLES OF INSURANCE

1.UTMOST GOOD FAITH:- A contract found on utmost good faith,Both the insurer and the insured should display good faith towards each other in regard to the contract. E.g,Mr. X is a heart patient but he hides this fact to the LIC while taking a life policy. On his death due to a heart attack,LIC can refuse to pay compensation to his legal representatives because a material fact was not disclosed by the insured.

2. INSURABLE INTEREST:- The insured must have an insurable interest in the subject matter of insurance.Insurable interest means some pecuniary interest in the subject matter of the insurance contract.e.g. a businessman has insurable interest in his stock of goods.It should be present at the time of taking policy in case of Life Insurance,both at the time of taking policy & at the time of loss, and at the time of loss in the case of marine insurance.

3. INDEMNITY:- All insurance contracts of fire or marine insurance are contracts of indemnity. The insurer undertakes to compensate the insured for the loss caused to him/her due to damage or destruction of property insured.This principle of indemnity is not applicable to life insurance because one cannot estimate the loss due to the death of a person.

4. PROXIMATE CAUSE(CAUSA PROXIMA):-According to this principle,when the loss is the result of two or more causes,the proximate cause of loss should be taken into consideration.The insurance company is not liable for the remote cause.e.g. If there had been no fire and goods would have destroyed due to excessive heat,the insurance company would not be liable to pay compensation.

5.SUBROGATION:_After the insured is compensated for the loss or damage of the property insured by him,the right of ownership of such property passes on to the insurer.This is because the insured cannot make any profit by selling the damaged property.The isnured has not right over the damaged parts since he has already got compensation for the loss,because he gets the insurance claim and gets damaged parts replaced with new ones.

6. Contribution:- When more than one insurance policy is taken to cover the same risk ,then it is known as “Double Insurance”.then all the insurers will contribute the amount of loss in proportion to the amount assured by each of them and compensate him for the actual amount of loss.The insured cannot claim total loss from each insurer because he has no right to recover more than the full amount of his actual loss.e.g. A businessman gets his factory insured against fire for Rs. 5,00,000 with insurer A and Rs. 3,00,000 with insurer B. Due to fire a loss of Rs. 1.60,000 occurred.Then,insurers A and B will contribute the loss in the ration 5:3 and will be liable to pay Rs. 1,00,000(5/8*1,60,000) and Rs. 60,000(3/8*1,60,000) respectively to the businessman.

7. Mitigation of loss:- According to this principle,the insured must take reasonable steps to minimize the loss or damage to the insured property:otherwise the claim from the insurance company may be lost.e.g if goods kept in a store house catch fire and the ownder of the goods does not try to save them from fire just because there is an insurance cover,he will lose insurance claim.

There are three types of Insurance:-

LIFE INSURANCE:-A life insurance policy is basically a protection against the uncertainity of life that is death. It is a contract in which the insuranc company undertakes to insure the life of a person in exchange of a sum of money called premium and promises to pay a certain sum or money either on the death of the assured or on expiry of certain period.

Importance of Life Insurance:- It provides protection to the family a premature death of an individual.

It gives adequate amount at an old age when earning capacilites are reduced.

Life insurance is not only a protection but is a sort of investment because a certain sum is returnable to the assured at the time of death or at the expiry of a certain period.

Life insurance contract is not a contract of indemnity.The life of a human being cannot be compensated and only a specified sum of money is paid.

Types of life insurance policies:-

1. Whole Life Policy:-The amount payable will not be paid before the death of the assured.The Policy money then becomes payable only to his/her beneficiaries or legal heirs.

2. Endowment Life Assurance Policy:-The insurance company undertakes to pay the policy money when the assured attains a particular age or on his death,whichever is earlier.

3. Joint Life Policy:This policy is taken up by two or more persons like two partners and the premium is jointly in instalments or lump sum.

4. Annuity Policy:- This policy is taken by those who prefer a regular income after a certain age.Under this policy, premium is paid lump sum or in instalments by the assured.

5. Childern’s Endowment Policy:- This policy is taken by a peron for his/her children to meet their higher education or marriage expenses.The insurance company pays the policy money when the children attain a particular age.

Types of other insurances

Health Insurance:-It is a safeguard against medical costs.It covers the expenses of hospitalization/nursing home bills and doctor’s services under Medical expenses.It replaces the income lost while the insured is unable to work under disability income.

Motor Vehicle Insurance:- It is becoming very popular because the owner’s liability to compensate people who were killed or insured through negligence of the motorists or drivers on to the insurance company.The rate of premium under motor insurance is standardized.

Burglary Insurance:The loss on accounts of damages of households goods and properties and personal effects due to theft,burglary,house-breaking etc. are involved. It falls under the classification of insurance of property.

Cattle Insurance:- In which a sum of money is secured to the assured in the event of death of animals like bulls,buffaloes,cows ets.It is a contract against death resulting from accident,disease of according of any other case.

Crop Insurance:- It is a contract to provide a measure of financial support to farmers in the event of risks of loss or damages relating to production of rice,wheat,oil seeds,pulses etc. due to drought or flood.

Fidelity Insurance:- It is used to protect an employer from the dishonesty of an employee.Banks,loan companies and other businesses commonly use such insurance policies for cashiers and other employees who handle company funds.The employer is insured against loss upto the amount of the policy.