Answer: There are two types of risk (1) insurable risk (2) Non insurable risk Insurable risks are those which can be calculated with some accuracy based on the past statistics for example a trader can insure his shop against some misfortune like fire. There are statistics, which tell insurance companies how often, and how susceptible the shops are to fire.

Answer: Non insurable risks are risks which are not calculable as they are not susceptible to statistical measures for example a garment trader can not insure his stock of ladies fashion clothes against the possibility of not being able to sell them over next few weeks because of change in fashion or fall of demand. There are no statistics, which can tell the insurance companies how quickly these garments can go out of fashion.

Answer: The premium is the payment made into the central pool by each policyholder. Experts who are called actuaries calculate the premium of different insurance policies. It is a payment made into an insurance fund for covering risks specified in a particular insurance policy.

Answer : The amount of premium for a particular risk varies between individual policies and depends upon:

(1) the nature of the risk involved

(2) the maximum amount of compensation to be paid

Greater the risk and the value of property insured, higher is the value of premium.

Answer: The fundamental principles of insurance are:

(1) Utmost good faith ; (2) Insurable interest ; (3) Indemnity ; (4) Proximate cause

(1) Utmost good faith: This expects a person who wishes to take out an insurance policy, give all relevant additional information in relation to the application. He must disclose all material facts relating to the risk to enable the insurer to assess the risk accurately. Failure to disclose relevant information or give false information would lead to invalidity of the contract and the insurance company can refuse to compensate any claim if it arises.

(2) Insurable interest: It states that a person must have an insurable interest in whatever he/she is insuring, should a misfortune happen, the person would suffer the loss or incur some kind of liability. For example a person can insure his own house against fire, but not his neighbour's house, because should a fire occur he is not at loss.

(3) Indemnity: According to this principle the insurance company indemnifies a person to the position he was in before the risk occurred. For example if a car is destroyed, the insurer will only pay compensation sufficient to replace it with a vechile of the same make and age. This policy does not allow the insured to make a profit out of a loss.

(4) Proximate cause: before an insurance company pays out on a claim, it will want to satisfy itself that the claim is for an event caused by something which is within the precise terms of the policy. The root cause of the event is known as the proximate cause. For example if a person is insured against his death by accident when flying but die from a heart attack during a flight, the insurer will not compensate.

Answer: Over insurance is when an insured property is covered more than its real value. The amount of compensation that can be claimed is limited to the actual amount of loss according to the principle of indemnity. Thus over insurance leads to higher premium payments for example a warehouse worth $50000 is insured for $60000 against fire. In the event of fire the insurance company will pay the claim of $50000 and not $60000.

Under insurance on the other hand is when a property is covered less than its actual value. Therefore if a warehouse is worth $50000 and is insured for $35000 for fire, than in an event of fire insurance company will pay only $35000 not $50000.

Answer: An insurance broker is an intermediary specialist who gives professional advice and helps in arranging insurance for his client. He informs his clients about the various types of insurance available, he negotiates for the best possible terms on their behalf. He gets commission from the insurance company for these services rendered.

An underwriter is a person who undertakes to insure a person against a risk. He is liable for any loss covered by the policy. Most underwriters are members of Lloyd's of London, which is the largest marine insurance company in the world. His name is stated at the foot of the policy when he underwrites the risk.

Answer: Those wishing to buy insurance at Lloyd's of London can do so only through a Lloyd's broker, who will act as an agent and receive commission. After getting instructions a Lloyd's broker will contact underwriting agents who specialise in specific kind of risk and obtain quotations from them. The broker accepts the most favourable quotation and the underwriting agent notes down the amount of the risk he is prepared to accept and the rate at which the premium is charged. He initials the slip and the rest of the underwriting agents follow him about the rate of the premium. The broker will approach various underwriting agents to cover the entire amount of the risk. Any subsequent claim will be shared by the syndicates in the proportions indicated in the slip.

Once the whole of the risk is covered, the policy can be prepared. It is then sent to Lloyd's policy signing office, where it is checked and then signed by members of the appropriate syndicates. Now the policy is sent to the client.

Answer:

Life assurance: Insurance covers those risks from which losses may or may not occur e.g. Fire. Assurance covers those risks, which are bound to occur e.g. death.

Types of life assurance policy:

(1) Whole life policy: It is payable on the death of the insured. It gives benefits to dependants.

(2) Term policy: It provides benefit only if death occurs during a specified period. A term policy is often taken out by those with mortgages.

(3) Endowment policy: It guarantees that a fixed sum will be payable on a specified date or at death, whichever is earlier. Some endowment policies are with profits, which require higher premiums. A common practice is to take out a policy, which matures at retirement.

(4) Family income policy: If the policyholder dies, his dependants will be paid an agreed sum at regular intervals until an agreed date. For example £100 a month for 15 years.

(5) Special policy: This is developed by the insurance companies to meet particular requirements. For example a house purchase policy will help the policyholder to purchase a house with the insurance proceeds.

Answer: Marine insurance dates back as far as fifteenth century. It is mainly available through Lloyd's of London. There are mainly four different types of marine insurance available.

(a) Hull insurance: It covers the vessel and its fixtures. It can be obtained for a particular voyage or for a particular period of time such as one year.

(b) Cargo insurance: It covers the goods or merchandise carried by the vessel. Foreign trade is impossible without this insurance.

(c) Freight insurance: Freight is usually paid in advance. If the goods are not delivered for some reason, the company may face a claim for repayment of the freight. Therefore freight insurance is obtained against this possibility.

(d) Shipowner's liability insurance: It covers the shipping company against multiple risks such as collisions with other vessels or dock installations, injury to passengers, crew or dock workers, pollution of water or beaches. In any of these risks taking place the insurance company will compensate the affected quarters.

Answer:

Motor insurance is compulsory for all drivers. Various types of motor vehicle insurance policies are discussed below.

(1) Minimum legal cover: It covers injuries caused to third parties including passengers.

(2) Third party cover: It covers for the injuries caused to third party including passenger and damage to other people's property and their approved legal cost.

(3) Third party, fire and theft: It covers for the injuries to third party including passenger, damage to other people's property, legal cost, theft and fire damage of car.

(4) Comprehensive insurance: It is considered as one of the expensive and exclusive insurance policy which covers against bodily and property damage to third parties, personal injury to driver and passenger, loss of and damage to personal possessions while in the car due to accident, theft or fire.

Answer:

(1) It helps firms to overcome various losses resulting from different accidents and therefore firms can expand their business activities without worrying about uncertain events and its losses such as flood.

(2) It plays a significant role for balance of payment on current account. For example in 1990 UK earned £2700 million alone from selling insurance to foreign clients.

(3) A significant portion of the nation's income is channelled through the insurance companies and invested in the capital market.

(4) It makes an essential contribution to the economic life of the community and helps to raise the standard of living of the people.

Answer:

(1) The policyholder will inform the insurance company regarding the damage of the property and request for a survey of the goods. The policyholder must not temper the conditions of the goods until the surveyors arrive.

(2) Notice of the loss or damage must be made in writing.

(3) Together with his claim form, the insured must submit certain documents to settle his claim.

(4) Some of these documents are papers of the ownership, survey report, invoices to prove value of the asset etc.

(5) The insurance company will then investigate the circumstances of the occurrence and estimate the amount of the loss. The insurance company will compensate only if it's a genuine claim. If the insured is not satisfied with the compensated amount the dispute may be settled by arbitration.

Answer:

Accident insurance covers against burglary and personal accident.

(a) Personal accident: It covers the insured against partial or total disability arising from accidental causes. It is very popular insurance policy among various sports stars. Aircraft passengers may take short-term policies for the duration of the flight.

(b) Property insurance: Many motorists insure their expensive cars against accidental damage. Similarly manufacturers insure their stock and machinery, farmers their animals and households their valuables against theft and accident. It also includes household insurance and it is divided into (1) contents insurance and (2) buildings insurance. Contents insurance covers value of various precious materials inside the house against possible theft and accident and buildings insurance covers the actual building against damage.

Liability insurance covers against claims arising from injuries to other people and damage to their property. Some of the examples of liability insurance are:

(1) Public liability: It covers a company from claims arising from injuries to people or damage to their property. For example the environment pressure group may sue the company for damaging the equilibrium of the environment by dumping toxic waste.

(2) Employers' liability: All employees by law must insure their liability to compensate their employees for disease and injury caused at their work place.

(3) Fidelity bond: Employers may have this insurance against the employee misappropriating the funds. This policy compensates the employers against cash theft by his employees.