Thursday, August 25, 2011


Insurance provides compensation to a person for an anticipated loss to his life, business or an asset.
 Insurance is broadly classified into two parts covering different types of risks:

1. Long-term (Life Insurance)
2. General Insurance (Non-life Insurance)

Long-term Insurance:
Long term insurance is so called because it is meant for a long-term
period which may stretch to several years or whole life-time of the insured.
Long-term insurance covers all life insurance policies.
 Insurance against risk to one's life is covered under ordinary life assurance.
Ordinary life assurance can be further clasified into following types:

Types of Ordinary Life Assurance Meaning
1. Whole Life Assurance In whole life assurance, insurance company collects premium from the insured for whole life or till the time of his retirement and pays claim to the family of the insured only after his death.
2. Endowment Assurance In case of endowment assurance, the term of policy is defined for a specified period say 15, 20, 25 or 30 years. The insurance company pays the claim to the family of assured in an event of his death within the policy's term or in an event of the assured surviving the policy's term.
3. Assurances for Children i).Child's Deferred Assurance: Under this policy, claim by insurance company is paid on the option date which is calculated to coincide with the child's eighteenth or twenty first birthday. In case the parent survives till option date, policy may either be continued or payment may be claimed on the same date. However, if the parent dies before the option date, the policy remains continued until the option date without any need for payment of premiums. If the child dies before the option date, the parent receives back all premiums paid to the insurance company.
  ii). School fee policy: School fee policy can be availed by effecting an endowment policy, on the life of the parent with the sum assured, payable in instalments over the schooling period.
4. Term Assurance The basic feature of term assurance plans is that they provide death risk-cover. Term assurance policies are only for a limited time, claim for which is paid to the family of the assured only when he dies. In case the assured survives the term of policy, no claim is paid to the assured.
5. Annuities Annuities are just opposite to life insurance. A person entering into an annuity contract agrees to pay a specified sum of capital (lump sum or by instalments) to the insurer. The insurer in return promises to pay the insured a series of payments untill insured's death. Generally, life annuity is opted by a person having surplus wealth and wants to use this money after his retirement.

There are two types of annuities, namely:
Immediate Annuity: In an immediate annuity, the insured pays a lump sum amount (known as purchase price) and in return the insurer promises to pay him in instalments a specified sum on a monthly/quarterly/half-yearly/yearly basis. Deferred Annuity: A deferred anuuity can be purchased by paying a single premium or by way of instalments. The insured starts receiving annuity payment after a lapse of a selected period (also known as Deferment period).
6. Money Back Policy Money back policy is a policy opted by people who want periodical payments. A money back policy is generally issued for a particular period, and the sum assured is paid through periodical payments to the insured, spread over this time period. In case of death of the insured within the term of the policy, full sum assured along with bonus accruing on it is payable by hte insurance company to the nominee of the deceased.

General Insurance:
Also known as non-life insurance, general insurance is normally meant for a short-term period of twelve months or less.
Recently, longer-term insurance agreements have made
an entry into the business of general insurance but their term
does not exceed five years.
 General insurance can be classified as follows:

Fire Insurance Fire insurance provides protection against damage to property caused by accidents due to fire, lightening or explosion, whereby the explosion is caused by boilers not being used for industrial purposes. Fire insurance also includes damage caused due to other perils like strom tempest or flood; burst pipes; earthquake; aircraft; riot, civil commotion; malicious damage; explosion; impact.
Marine Insurance Marine insurance basically covers three risk areas, namely, hull, cargo and freight. The risks which these areas are exposed to are collectively known as "Perils of the Sea". These perils include theft, fire, collision etc.
  Marine Cargo: Marine cargo policy provides protection to the goods loaded on a ship against all perils between the departure and arrival warehouse. Therefore, marine cargo covers carriage of goods by sea as well as transportation of goods by land.
  Marine Hull: Marine hull policy provides protection against damage to ship caused due to the perils of the sea. Marine hull policy covers three-fourth of the liability of the hull owner (shipowner) against loss due to collisions at sea. The remaining 1/4th of the liability is looked after by associations formed by shipowners for the purpose (P and I clubs).
Miscellaneous As per the Insurance Act, all types of general insurance other than fire and marine insurance are covered under miscellaneous insurance. Some of the examples of general insurance are motor insurance, theft insurance, health insurance, personal accident insurance, money insurance, engineering insurance etc.