SCOPE OR CLASSIFICATION OF INSURANCE
Broadly, insurance may be classified into the following categories :
I. Classification on the basis of nature of business
II. Classification from business point of view
III. Classification from risk point of view
I. On the basis of nature of business
On the basis of nature of business, insurance may be the following types :
1. Life Insurance
2. Fire Insurance
3. Marine Insurance
4. Social Insurance, and
5. Miscellaneous Insurance
1. Life Insurance : Life insurance may be defined as a contract in which the insurer, in consideration of a certain premium, either in a lump sum or by other periodical payments, agrees to pay the assured, or to the person for whose benefit the policy is taken, the assured sum of money, on the happening of a specified event contingent on the human life.
A contract of life insurance, as in other forms of insurance, requires that the assured must have at the time of the contract an insurable interest in his life upon which the insurance is affected. In a contract of life insurance, unlike other insurance, interest has only to be proved at the date of the contract, and not necessarily present at the time when the policy falls due.
A person can assure in his own life and every part of it, and can insure for any sum whatsoever, as he likes. Similarly, a wife has an insurable interest in her husband and vice-versa. However, mere natural love and affection is not sufficient to constitute an insurable interest. It must be shown that the person affecting an assurance on the life of another is so related to that other person as to have a claim for support. For example, a sister has an insurable interest in the life of a brother who supports her.
A person not related to the other can have insurable interest on that other person. For example, a creditor has insurable interest in the life of his debtor to the extent of the debt. A creditor can insure the life of his debtor upto the amount of the debt, at the time of issue of the policy.
An employee has an insurable interest in the life of the employer arising out of contractual obligation to employ him for a stipulated period at fixed salary. Similarly, from an employer to the employee, who is bound by the contract to serve for a certain period of time.
2. Fire Insurance : A fire insurance is a contract to indemnity the insured for distribution of or damage to property caused by fire. The insurer undertakes to pay the amount of the insureds loss subject to the maximum amount stated in the policy. Fire insurance is essentially a contract of indemnity, not against accident, but against loss caused by accident. It is becoming very common in fire insurance policies to insert a condition, called the average clause, by which the insured is called upon to bear a portion of the loss himself. The main object of this clause is to check under-insurance and to encourages for full insurance. It impress upon the property-owner for the need of having his property accurately valued before insurance.
Regarding insurable interest, the insured must have insurable interest in the subject matter both at the time of affecting the policy and at the time of loss. The risk in fire insurance policy commences from the moment of cover note, or the deposit receipt, or the interim protection is issued, and continues for the term covered by the contract of insurance. It may even date back; if the parties so intend. The rate of premium varies to the degree of hazard or risk involved.
3. Marine Insurance : A contract of marine insurance is an agreement whereby the insurer undertakes to indemnity the assured in a manner and to the extent thereby agreed, against marine losses, that is, the losses incidental to marine adventure. There is a marine adventure when any insurable property is exposed to marine perils. Marine perils also known as perils of the seas, means the perils consequent on, or incidental to, the navigation of the sea or the perils of the seas, such as fire, war perils, pirates, robbers, thieves; captures, jettisons, barratry and any other perils which are either of the like kind or may be designed by the policy.
There are different types of marine policies known by different names according to the manner of their execution or the risk they cover. They are : voyage policy, time policy, valued policy, unvalued policy, floating policy, wager or honour policy.
4. Social Insurance : Social insurance has been developed to provide economic security to weaker sections of the society who are unable to pay the premium for adequate insurance. The following types of insurance can be included in social insurance
(i) Sickness Insurance : In this type of insurance medical benefits, medicines and reimbursement of pay during the sickness period, etc. are given to the insured person who fell sick.
ii) Death Insurance : Economic assistance is provided to dependants of the assured in case of death during employment. The employer can transfer his such liability by getting insurance policy against employees.
iii) Disability Insurance : There is provision for compensation in case of total or partial disability suffered by factory employees due to accident while working in factories. According to Employees Compensation Act, the responsibility to pay compensation is vest with the employer. But the employer transfers his liability on the insurer by taking group insurance policy.
iv) Unemployment Insurance : In case insured person becomes unemployed due certain specific reasons, he is given economic support till he gets employment.
v) Old-age Insurance : In this category of insurance, the insured or his dependents is paid, after certain age, economic assistance.
For the last few years, the Indian Government has extended the scope of Social Insurance. Under the concept of social justice, this scheme now extended to Daily-wages earners, Rickshaw pullers, Landless labourers, Sweepers, Craftsmen, etc. through different insurance plans.
5. Miscellaneous Insurance : The process of fast development in the society gave rise to a number of risk or hazards. To provide security against such hazards, many other types of insurance also have been developed. The important among them are :
(i) Vehicle insurance on buses, cars, trucks, motorcycles, etc. and made compulsory so that the losses due to accidents can be claimed from the insurance company. : 14 :
(ii) Personal accident insurance by paying an annual premium Rs.12 on policy worth Rs.12,000. In case of accidental death or total/partial disability, a fixed amount as per conditions of insurance, is paid to the insured.
(iii) Burglary insurance -- (against theft, decoity etc.)
(iv) Legal liability insurance (insurance whereby the assured is liable to pay the damages to property or to compensate the loss of personal injury or death. This is in the form of fidelity guarantee insurance, automobiles insurance and machines etc.)
(v) Crop insurance (crops are insured against losses due to heavy rains and floods, cyclone, draughts, crop diseases, etc.)
(vi) Cattle insurance (Insurance for indemnity against the loss of cattle from various kinds of diseases).
In addition to the above, insurance plans are available against crime, medical insurance, bullock cart, jewellery, cycle rickshaw, radio, T.Vs., etc.
II. Classification from business point of view
From business point of view, insurance can be classified into two broad categories:
1. Life Insurance; and
2. General Insurance
1. Life Insurance : According to Life Insurance Act, 1938, life insurance refers to the contract of insurance on human life, under which if any individual’s death, other than accident, or happening of any event concerning to human life, a certain amount is guaranteed to be paid to assured or his/her legal representative. According to the terms of contract the assured should pay premium, the rate of which may differ according to the human life. The act also provides for
(a) Payment of double or triple rate of accidental benefits, as per terms of contract.
(b) Annuity on human life, and
(c) Superannuation allowance and annuity from the funds created for granting assistance to such persons.
2. General Insurance : General insurance business refers to fire, marine, and miscellaneous insurance business whether carried on singly or in combination with one or more of them, but does not include capital redemption business and annuity certain business. (According to Sec.3(g) of the General Insurance Business (Nationalisation) Act, 1972).
III. Classification from Risk Point of View
From risk point of view, insurance can be classified into four categories :
1. Personal Insurance
2. Property Insurance
3. Liability Insurance
4. Fidelity Guarantee Insurance
A brief description of each is given below :
1. Personal Insurance : Personal insurance refers, the loss of life by accident, or sickness to individual which is covered by the policy. The insurer undertakes to pay the sum insured on the happening of certain event or on maturity of the period of insurance. This insurable sum is determined at the time of affecting the policy and include life insurance, accident insurance, and sickness insurance. Life insurance contains the element of investment and protection, while the accidental, sickness or health insurance contain the element of indemnity only.
2. Property Insurance : Contract of property insurance is a contract of indemnity. Proof by the assured of loss is an essential element of property insurance. The policies of insurance against burglary, home-breaking or theft etc. fall under this category. The assured is required to protect the insured property. After the loss has taken place, the assured usually required to notify the police as to losses.
3. Liability Insurance : Liability insurance is the major field of general insurance whereby the insurer promises to pay the damage of property or to compensate the losses to a third party. The amount of compensation is paid directly to third party. The fields of liability insurance include workmen compensation insurance, third party motor insurance, professional indemnity insurance and third party liability insurance etc. In liability insurance, there may be various reasons for the arising of liability; viz. accident to a worker at the workplace, defective goods, explosion in the factory during the process of production, formation of poisonous gas within the factory, due to the uses of chemicals and other such substances in the manufacturing process.
4. Fidelity Guarantee Insurance : In this type of insurance, the insurer undertakes to indemnify the assured (employer) in consideration of certain premium, for losses arising out of fraud, or embezzlement on the part of the employees. This kind of insurance is frequently adopted as a precautionary measure in cases where new and untrained employees are given positions of trust and confidence.
Broadly, insurance may be classified into the following categories :
I. Classification on the basis of nature of business
II. Classification from business point of view
III. Classification from risk point of view
I. On the basis of nature of business
On the basis of nature of business, insurance may be the following types :
1. Life Insurance
2. Fire Insurance
3. Marine Insurance
4. Social Insurance, and
5. Miscellaneous Insurance
1. Life Insurance : Life insurance may be defined as a contract in which the insurer, in consideration of a certain premium, either in a lump sum or by other periodical payments, agrees to pay the assured, or to the person for whose benefit the policy is taken, the assured sum of money, on the happening of a specified event contingent on the human life.
A contract of life insurance, as in other forms of insurance, requires that the assured must have at the time of the contract an insurable interest in his life upon which the insurance is affected. In a contract of life insurance, unlike other insurance, interest has only to be proved at the date of the contract, and not necessarily present at the time when the policy falls due.
A person can assure in his own life and every part of it, and can insure for any sum whatsoever, as he likes. Similarly, a wife has an insurable interest in her husband and vice-versa. However, mere natural love and affection is not sufficient to constitute an insurable interest. It must be shown that the person affecting an assurance on the life of another is so related to that other person as to have a claim for support. For example, a sister has an insurable interest in the life of a brother who supports her.
A person not related to the other can have insurable interest on that other person. For example, a creditor has insurable interest in the life of his debtor to the extent of the debt. A creditor can insure the life of his debtor upto the amount of the debt, at the time of issue of the policy.
An employee has an insurable interest in the life of the employer arising out of contractual obligation to employ him for a stipulated period at fixed salary. Similarly, from an employer to the employee, who is bound by the contract to serve for a certain period of time.
2. Fire Insurance : A fire insurance is a contract to indemnity the insured for distribution of or damage to property caused by fire. The insurer undertakes to pay the amount of the insureds loss subject to the maximum amount stated in the policy. Fire insurance is essentially a contract of indemnity, not against accident, but against loss caused by accident. It is becoming very common in fire insurance policies to insert a condition, called the average clause, by which the insured is called upon to bear a portion of the loss himself. The main object of this clause is to check under-insurance and to encourages for full insurance. It impress upon the property-owner for the need of having his property accurately valued before insurance.
Regarding insurable interest, the insured must have insurable interest in the subject matter both at the time of affecting the policy and at the time of loss. The risk in fire insurance policy commences from the moment of cover note, or the deposit receipt, or the interim protection is issued, and continues for the term covered by the contract of insurance. It may even date back; if the parties so intend. The rate of premium varies to the degree of hazard or risk involved.
3. Marine Insurance : A contract of marine insurance is an agreement whereby the insurer undertakes to indemnity the assured in a manner and to the extent thereby agreed, against marine losses, that is, the losses incidental to marine adventure. There is a marine adventure when any insurable property is exposed to marine perils. Marine perils also known as perils of the seas, means the perils consequent on, or incidental to, the navigation of the sea or the perils of the seas, such as fire, war perils, pirates, robbers, thieves; captures, jettisons, barratry and any other perils which are either of the like kind or may be designed by the policy.
There are different types of marine policies known by different names according to the manner of their execution or the risk they cover. They are : voyage policy, time policy, valued policy, unvalued policy, floating policy, wager or honour policy.
4. Social Insurance : Social insurance has been developed to provide economic security to weaker sections of the society who are unable to pay the premium for adequate insurance. The following types of insurance can be included in social insurance
(i) Sickness Insurance : In this type of insurance medical benefits, medicines and reimbursement of pay during the sickness period, etc. are given to the insured person who fell sick.
ii) Death Insurance : Economic assistance is provided to dependants of the assured in case of death during employment. The employer can transfer his such liability by getting insurance policy against employees.
iii) Disability Insurance : There is provision for compensation in case of total or partial disability suffered by factory employees due to accident while working in factories. According to Employees Compensation Act, the responsibility to pay compensation is vest with the employer. But the employer transfers his liability on the insurer by taking group insurance policy.
iv) Unemployment Insurance : In case insured person becomes unemployed due certain specific reasons, he is given economic support till he gets employment.
v) Old-age Insurance : In this category of insurance, the insured or his dependents is paid, after certain age, economic assistance.
For the last few years, the Indian Government has extended the scope of Social Insurance. Under the concept of social justice, this scheme now extended to Daily-wages earners, Rickshaw pullers, Landless labourers, Sweepers, Craftsmen, etc. through different insurance plans.
5. Miscellaneous Insurance : The process of fast development in the society gave rise to a number of risk or hazards. To provide security against such hazards, many other types of insurance also have been developed. The important among them are :
(i) Vehicle insurance on buses, cars, trucks, motorcycles, etc. and made compulsory so that the losses due to accidents can be claimed from the insurance company. : 14 :
(ii) Personal accident insurance by paying an annual premium Rs.12 on policy worth Rs.12,000. In case of accidental death or total/partial disability, a fixed amount as per conditions of insurance, is paid to the insured.
(iii) Burglary insurance -- (against theft, decoity etc.)
(iv) Legal liability insurance (insurance whereby the assured is liable to pay the damages to property or to compensate the loss of personal injury or death. This is in the form of fidelity guarantee insurance, automobiles insurance and machines etc.)
(v) Crop insurance (crops are insured against losses due to heavy rains and floods, cyclone, draughts, crop diseases, etc.)
(vi) Cattle insurance (Insurance for indemnity against the loss of cattle from various kinds of diseases).
In addition to the above, insurance plans are available against crime, medical insurance, bullock cart, jewellery, cycle rickshaw, radio, T.Vs., etc.
II. Classification from business point of view
From business point of view, insurance can be classified into two broad categories:
1. Life Insurance; and
2. General Insurance
1. Life Insurance : According to Life Insurance Act, 1938, life insurance refers to the contract of insurance on human life, under which if any individual’s death, other than accident, or happening of any event concerning to human life, a certain amount is guaranteed to be paid to assured or his/her legal representative. According to the terms of contract the assured should pay premium, the rate of which may differ according to the human life. The act also provides for
(a) Payment of double or triple rate of accidental benefits, as per terms of contract.
(b) Annuity on human life, and
(c) Superannuation allowance and annuity from the funds created for granting assistance to such persons.
2. General Insurance : General insurance business refers to fire, marine, and miscellaneous insurance business whether carried on singly or in combination with one or more of them, but does not include capital redemption business and annuity certain business. (According to Sec.3(g) of the General Insurance Business (Nationalisation) Act, 1972).
III. Classification from Risk Point of View
From risk point of view, insurance can be classified into four categories :
1. Personal Insurance
2. Property Insurance
3. Liability Insurance
4. Fidelity Guarantee Insurance
A brief description of each is given below :
1. Personal Insurance : Personal insurance refers, the loss of life by accident, or sickness to individual which is covered by the policy. The insurer undertakes to pay the sum insured on the happening of certain event or on maturity of the period of insurance. This insurable sum is determined at the time of affecting the policy and include life insurance, accident insurance, and sickness insurance. Life insurance contains the element of investment and protection, while the accidental, sickness or health insurance contain the element of indemnity only.
2. Property Insurance : Contract of property insurance is a contract of indemnity. Proof by the assured of loss is an essential element of property insurance. The policies of insurance against burglary, home-breaking or theft etc. fall under this category. The assured is required to protect the insured property. After the loss has taken place, the assured usually required to notify the police as to losses.
3. Liability Insurance : Liability insurance is the major field of general insurance whereby the insurer promises to pay the damage of property or to compensate the losses to a third party. The amount of compensation is paid directly to third party. The fields of liability insurance include workmen compensation insurance, third party motor insurance, professional indemnity insurance and third party liability insurance etc. In liability insurance, there may be various reasons for the arising of liability; viz. accident to a worker at the workplace, defective goods, explosion in the factory during the process of production, formation of poisonous gas within the factory, due to the uses of chemicals and other such substances in the manufacturing process.
4. Fidelity Guarantee Insurance : In this type of insurance, the insurer undertakes to indemnify the assured (employer) in consideration of certain premium, for losses arising out of fraud, or embezzlement on the part of the employees. This kind of insurance is frequently adopted as a precautionary measure in cases where new and untrained employees are given positions of trust and confidence.
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