Basics of Insurance - Risk Management and Insurance, Principles of Insurance Video Lecture | Principles of Insurance - B Com

hi guys weapon here we are here to
discuss about insurance and we will
discuss this topic in detail okay now
firstly let's start off by understanding
what is insurance okay now insurance is
a contract between the insurer and the
insured
okay insurance is a contract between the
insurer and the insured now when you
refer to insurer okay that refers to the
company that's selling you the insurance
policy could be LIC could be Burleson
life could be HDFC Standard Life could
be any of those companies that is
selling you the insurance policy
okay now the insured is you and I when
we take up the policy we are corn as the
insurer now why would anyone go about
taking up an insurance policy you take
up an insurance policy because you want
to protect yourself or your family in
case an eventualities were to occur
what eventualities that's not something
I want to discuss but in case something
were to happen an insurance company can
compensate if this eventualities were to
occur now you have an offer and a
consideration that goes about happening
here the offer is the insurance company
will take care of you and your family if
the eventualities were to occur however
the consideration that you need to pay
here is the premium each insurance
policy has got its own premium depending
upon the type of policy you have the
price or the value of the premium in
fact varies there are some policies
wherein the premium is just a few
hundred rupees per annum while there are
some insurance policies where the
premium could run into lakhs together
per atom okay now firstly let's
understand the principles of an
insurance contract
now first thing that you have there is
the principle of utmost faith in goods a
principle of utmost faith refers to the
insurer and the insured must be clear on
the terms and conditions within the
contract now let's say I am taking up a
health insurance and the insurance
company is going to ask me questions
like does your family suffer from any
heart problems because usually things
like heart problems are in fact genetic
in nature now if this were to be true
that is if my family were to be have a
history of heart problems I am supposed
to declare this in mind surance policy
later on if I were to get into some
medical emergency and I have a heart
problem the insurance company may not
compensate because I never mentioned
these illnesses could come by any time
in my life at the same time the
insurance company as well should be
clear upon the terms and conditions from
their side now when you refer to health
insurance especially the insurance
company will make it very clear what
exactly they are going to compensate
okay are they going to compensate you
for the surgery or are they going to
compensate you for everything else that
includes in the hospitalization bill
that is the medicine cost the nursing
charges the consultation fee all that
are they going to take care of or are
they going to take care of only the
surgery a surgical cost so they need to
be clear from their side and we need to
be clear from our side as well okay the
next thing that you have is insurable
interest now for example if I were to
take up an insurance policy now okay and
let's say about three four months down
the line I lose interest in that policy
however the three months when I have
actually paid the premium I'm not going
to get it back okay I'm not going to get
it back the reason is when I took up the
insurance policy
I had the interest to get the benefits
of the policy later on if I change my
mind or sir compare our circumstances
were to change my interest or my opinion
about that insurance policy
the
company is not going to refund any part
of my premium so that's what we refer to
as insurable interest that is when you
take up the policy you have the
intention to get the benefits of the
insurance contract now indemnity
indemnity refers to replacing something
which has been lost of course this is
not possible with life insurance because
for obvious reasons you can't replace
someone who's been dead okay however you
could go about compensating them
financially in case of fire insurance
indemnity becomes quite common because
you have a type of insurance policy
where if the property has been damaged
the insurance company could replace the
assets which have been damaged if even
with auto insurances well in vacant
insurance as well if you have a
windshield or a door which has been
cracked or dented you have the insurance
company which will replace that with a
new one so indemnity here refers to
something which has been lost and or
damaged and in this case it ends up
getting replaced now contribution you
can take up more than one insurance
policy although I strongly advise
against it you do have the option and
there is no authority that says you
can't invest in this if I know a lot of
people in fact when it comes to saving
taxes they invest in multiple insurance
plans because they're able to get
certain tax benefits now although you
want to invest in multiple insurance
plans the cost of investing in each of
them purely depends on whether you want
to or whether you are able to afford it
or not if you can't then go ahead with
just one policy but like I said there is
no law that says that you can't go about
taking more than one policy in fact I
can take up a health insurance policy
buy from many companies in fact let's
say I find the policies of both Apollo
and Religare very suitable to my
requirements where both of them are able
to compensate me for certain illnesses I
can in fact take up both health
insurance policies but then again the
cost consideration
must be taken now subrogation
subrogation refers to in some cases
especially in auto insurance you come
across situations where the insurance
company is going to replace the part of
the automobile which has been damaged
now let's say you got into a car
accident
the door was tinted what the insurance
company would do is they'll replace the
door with a new one for him now what's
going to happen to the old door the
insurance company has compensated you by
replacing the old door with a new one
what are they going to do with the old
door is something which is up to them
let's say they were to sell it for the
scrap value you will not be able to get
any benefit from back there because your
benefit ended after they replace the old
door with a new one you cannot get any
further benefit from the sale of that
old door and the salvage value of that
old or the same thing you could say for
even fire insurance if some property has
been damaged in fire in a fire and this
property however has got some salvage
value the insurance company will keep
that salvage value they will compensate
you by replacing what has been damaged
however they will not give you any part
of the compensation of the salvage value
that okay and then you have mitigation
mitigation here refers to minimizing the
risk from your side okay minimizing the
risk from your side the insurance
company expects you to minimize risk
from your side say for example if you
take up a health insurance policy it's
not advice that you immediately take up
smoking and drinking because this is
going to affect you in the long term and
this could in fact pose some serious
health problems later on so you should
protect yourself from any problems that
could happen this could even mean if you
are traveling in a two wheeler you are
required to even wear a helmet when you
are riding your bike even that is in
fact a part of mitigation okay then Casa
Proxima refers to the nearest possible
cause insurance companies don't really
look into the
details of what may have happened but
there's a car accident the policy would
cover only a car accident they don't
release consider okay what is the real
reason why it actually happened was it
because they didn't see a pothole in the
road they suddenly lost control that's
something which they don't really look
at it all they would look at is okay the
nearest possible costs if you refer to
illnesses especially if the illness is
terminal they would just categorize it
as a terminal illness they would really
not get into the details of how did this
person end up getting this and what he
could have done in fact to avoid things
like this so Casa Proxima refers to the
nearest possible cause now this question
could in fact come for ten marks so
please know that this topic indeed Amy
now coming to the various types of
insurance policies they could ask you
each of them for an N mark question or I
to be as brief as possible in this
because I need to cover a large amount
of information in a short amount of time
just to make the topic easier for you
all so firstly life insurance a whole
life policy in case of a whole life
policy the insurance plan you will be
able to get compensation upon the
insured person's death okay let's say in
my case if I happen to die at the
mortality rate of 60 my family is able
to get it as soon as I happen to die so
that's a case of a whole life policy
endowment policy refers to a policy
which has a particular number of years
and the eventualities should occur in
that particular number of years so
that's what you would refer to as an
endowment policy joint life policy is a
type of insurance policy which is taken
by two or more persons let's say a
father who take a joint life policy for
his wife and for his child him and then
you have an annuity policy the word
annuity if you're a mathematics student
and UT here refers to equal amounts of
money being given back in equal
intervals of time
there are many insurance policies which
they also refer to as a money back
policy or a cash back
policy Baron let's say you make the
insurance policy we need the investment
today around five years from now and in
intervals of five years a certain amount
of money is in fact returns back to your
account it's a form of savings for many
people so that's what you refer to as an
annuity policy dumb assurance Tom
assurance is a type of insurance policy
which is very very similar to endowment
we're in if the eventualities occurs
within the particular number of years
then you are able to get that
compensation if it occurs after that
particular term you don't get anything
okay now children's deferred insurance
this is an extremely popular type of
insurance mainly introduced by UTI now
how does it work the parents should go
about investing in an insurance policy
right now and the returns are given to
back to them when the child turns 18 or
say 21 depending upon the policy they
have now this is a great way to save for
the child's future say for their college
education or for their future for their
financial security for any of that if
you want to save this is one type of a
policy which is in fact extremely
popular for that okay and then you have
policy with profits and policy without
profits policy with profits are also
referred to as unit length insurance
plans wherein the premium that you would
invest in an insurance company is in
fact used to used to how do I say this
it's used to put money into the stock
market your premium is in fact taken and
is in fact invested in the stock market
now this is done for a large period of
time I'm 26 now if I were to invest in a
unit my premium every year would be in
fact invested in the stock market now
would usually get these returns save and
I am 60 years old now from now to 60
years old the stock market is going to
move up and down continuously in fact
it's a very volatile system so what
happens here is let's say the stock
market does extremely well when I was 40
years old okay now how well it does when
I am 40 let's say I'm able to get a
return of 20% when I'm 40 this high rate
of return which I get in one particular
year is what I'll be getting but when I
am going to retire let's say at the age
of 16 the market is doing quite badly
where I am getting I'm going to get only
8% rate of the tunnel juleps work in
such a way that in that period of
investment whichever period had the
highest rate of return that is something
which they are going to give you back
this is one of the reasons why they're
one of the most popular forms of
investments policy without profits like
the name says you don't get anything
extra you're not able to get any
compensation out of the investment it's
just like any other regular insurance
plan and you just save for the future
okay policy with profits you are able to
get the benefit of the stock market okay
and then you have group insurance
extremely popular if you are in the
corporate world this is one of the very
famous benefits which companies give to
their employees it's a way to keep them
more motivated and then you have gender
policy these are the types of insurance
policies where the value of the premium
is in fact just a few hundred rupees and
of course the compensation as well is in
the range of a lakh or two lakh rupees
the only advantage is it's able to
protect the risk of the minorities it's
able to in fact make people aware of
something like insurance and get the
benefit of risk protection at a very
very low price like I said the premium
on this is just a few hundred rupees per
annum in comparison to a regular life
insurance premium which could run to in
fact tens of thousands per annum him now
moving on from life insurance to fire
insurance specific policy fire insurance
before I get to the types fire insurance
is always taken for property
now in case property were to be damaged
from the fire
you're going to get compensation from
the insurance company because the goods
have been damaged due to the fire and
remember the compensation is given only
if you made adequate arrangements in
order to reduce the chances of a fire in
case the fire was intentional as they
call it as arson you will not be getting
any compensation in that case so what
are the different types of fire
insurance policies firstly you have
specific policy wherein a specific asset
is insured this is very common in case
of a museum where you have artifacts
which are in fact extremely valuable
they would end up taking an insurance
policy on each of these artifacts
comprehensive policy covers a variety of
risks okay it covers a variety of
recipie could cover even life in fact
that is in case a person were to die
from a fire you are not discovered in
case of a comprehensive policy loading
policy let's say you have a type of
policy wherein you are going to consider
the various properties that you have
across the country okay various
properties that you have across the
country in that case you are going to
take up a fire insurance policy not just
on one property but you're going to take
it upon multiple properties you do that
because you want to make sure that you
get the benefit of insurance throughout
the places where you're doing business
in that case you end up taking a
floating policy replacement or a
reinstatement policy if you remember the
concept of subrogation I told you that
property which has been damaged has in
fact replaced by the insurance company
in this case you have the property in
fact being replaced because the fire has
ended up damaging this of course
remember this is not possible in case
the property which has been damaged is
unique or one-of-a-kind in that case the
only thing they could do is end up
giving you a financial compensation and
not really replace something which is in
fact a unique or one-of-a-kind
and then you have valued policy in a
valued policy the property is valued
when the insurance policy is taken up
itself now right now the home I am
currently staying has got a market value
of around 60 lakhs okay now that is of
today February 10th 2014 it's worth 60
lakhs now I'm sure the value of this
property is going to increase over a
course of time now let's say a fire were
to happen in this place after about say
five years from now okay in 2019 a fire
is going to happen if I have taken up a
fire insurance policy today and the fire
insurance happens and the fire happens
five years from now the insurance
company will end up giving me only 60
lakhs because a valued policy is what is
the value of the property as of that
particular date so even if the fire
happens in 2019 when the property value
is in fact quite high I'll still end up
getting the value of the property only
as of 2014
unvalued policy the other way around you
are able to get the value of the
insurance claim based on the present day
market value not on what is decided on a
previous day then you have loss of
profit policy now a loss of profit
policy is a type of policy wherein now
if you remember the Russell market file
a lot of the traders in fact were unable
to do business for several days why were
they unable to do business for several
days now the reason was after the fire
had happened these guys were had to get
their business back together by
replacing whatever has been damaged
removing the debris putting up the new
shelves getting the inventory all that
now this would have taken them at least
a month now an entire month they've been
unable to do any business at all because
they've not been able to do any business
for an entire month
whatever are the profits that they could
have made that's what the insurance
company would compensate them for now
remember here this is not like any
you're not making any jackpot win here
you could have been doing business
normally if circumstances
not altered due to the file now rather
than selling goods like you would do
usually you are getting compensation
from the insurance company in a loss of
profit policy okay moving on to marine
insurance in case of marine insurance
you have wide policy marine insurance is
in fact a type of insurance which is
usually taken in case of foreign trade
so the first type of policy that you
have there is voyage policy which policy
covers a insurance based on a particular
amount of distance that is how many
nautical miles do you have to take in in
order for the policy to be valid let's
say you have an insurance policy for say
100 nautical miles now the ship is
considered to travel 100 nautical miles
if it were to cross beyond that any
damages that were to occur beyond that
distance that they travel that's
something which the insurance company
would not compensate this is very very
similar to the warranty that you have on
your automobiles wherein they say twenty
thousand kilometres or thirty thousand
kilometres until then you have free
service and that's the similar way in
which this insurance works as well time
policy the amount of days or the number
of days it actually takes for the ship
to reach its destination and the
insurance policy can be made valid for
that number of days mixed policy a
combination of the two okay valued
policy and unvalued policy exactly as
what I said for fire insurance no
different here at all but just that the
same concept is implemented for marine
insurance then you have wagering policy
now wagering policy here refers to a
type of policy which is given just for
the sake of satisfying the customs guys
what that means here is the customs will
not allow you to send these Goods out of
the country if you are able to if you
are not having any insurance with you
insurance is mandatory however let's say
you are unable to afford the insurance
you get more or less a policy which is a
dummy policy okay this is perfectly
legal you are just showing the customs
look I have a policy but in reality if
any damages were to occur to your
property which are sending across for
foreign trade you will not be getting
any compensation for this now this is
what you would refer to as a wagering
policy or an honor policy okay you are
not going to get any compensation
remember you are getting a policy just
for the sake of making sure the customs
I love you too
send these goods out of the country then
you have a floating policy a floating
policy is a type of policy where an one
insurance policy is valid for multiple
trips now a ship would be traveling to
and fro from to the same location
multiple times so in order to avoid
taking insurance policies continuously
you have one policy that's able to cover
multiple journeys of the same ship of
course block policy is a type of policy
wherever from the time you dispatch the
goods from the manufacturing plant you
send it through say roadways railways
until it reaches the port okay and even
after when it go leaves the port and
goes to its destination the policy
continues to be valid so your marine
insurance although the word marine is
there is in fact valid right from the
manufacturing point itself okay so
that's what you refer to as a block
policy now there are other types of
marine insurance as well like you have
one which is known as shipbuilders risk
policy as well okay and you even have
special hazards policy in case you have
pirates and everyone attacking you
shipbuilders policy like the name says
any damages were to happen during the
construction of a ship the insurance
company is able to compensate you for
this okay I hope the topic was clear and
I hope I didn't rush through this too
fast in case you have any doubts with
any of the concepts here you are welcome
to go about leaving questions comments
in the section below and I will get back
to you immediately
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