Assignment on
LIFE,
MARINE & FIRE INSURANCE POLICY
MD.
MAMUN UR RASHID
LECTURER & COURSE TEACHER
DBA, MIU
Md.
Sojibur Rahman 0821BBA00877
Course Title: Insurance and Risk Management
Course code: MGT 412
Fall Semester, 2011
Department of Business
Administration
Manarat International University,
Dhaka
Date: 01 January, 2012
Marine Insurance Contract
1.
Definition of Marine Insurance Contract. Types of
Marine Insurance Contract.
Answer
Marine insurance has been defined as a contract between insurers and
insured whereby the insurer undertakes to indemnity the insured in a manner and
to the interest thereby agreed, against marine losses incidents to marine
adventure.
Types of Marine
Insurance:
The
types of marine insurance is given in below-
a)
Hull Insurance:
Insurance of vessel and its equipments are included under hull Insurance. There
are a number of classifications of vessels such as ocean steamers, sailing
vessels, and so on.
b)
Cargo Insurance:
It may be written under a single risk policy or floating policies.
c)
Freight Insurance:
Fright is to be payable for the carriage of cargoes or if the vessels is
chartered, the money to be paid for the use of the vessel.
d)
Liability Insurance: The marine insurance policy may include liability
hazards such as collision or running down. Insurance can also be taken for the
expenses involved in non-compliance of rules and regulations without any
intention to deceive.
2.
Principle of Insurable Interest in Marine Insurance?
Answer:
An insured person will have insurable interest in the subject
matter where he stands in any legal or equitable relation to the subject matter
in such a way that he may benefit by the safety or due arrival of insurable
property or may be prejudiced by its loss, or by damage thereto or by the
detention thereof or may incur liability in respect thereof.
There
are some principles of insurable interest in marine insurance. They are given
in below-
1)
Lost or not lost: A person can also purchase policy in the subject-matter
in which it was known whether the matters were lost or not lost.
2)
P.P.I. Policies: The subject matter can be insured in the usual
manner by P.P.I. (Policy Proof of Interest). i.e., interest proof policy.
3.
Principle of subrogation in Marine Insurance
Contract?
Answer:
The aim of doctrine of subrogation is that the insured
should not get more than the actual damage. There are some principles which are
given in below-
1.
The insurer
subrogates all the remedies rights and liabilities of the insured alter payment
of the compensation.
2.
The insurer has
right to pay the amount of loss after reducing the sum received by the insured
from the third party.
3.
After
indemnification, the insurer gets all the rights of the insured on the third
parties, but insurer cannot file suit in his own name. Therefore, the insured
must assist the insurer for receiving money from the third party.
4.
Sea worthiness of ship-Explain it?
Answer: The
warranty implies that the ship should be seaworthy at the commencement of the
voyage, or if the voyage is carried out in stages at the commencement of each
stage.
The
seaworthiness
will be clearer from the following points:
1.
The standard to
judge the seaworthiness is not fixed. It is a relative term and may vary
particular vessel at different periods of the sane voyage. A ship may be
perfectly seaworthy for Trans-ocean voyage.
2.
Seaworthiness
does not depend merely on the condition of the ship, but it includes the
suitability and adequacy of her equipment, adequacy and experience of the
officers and crew.
3.
At the
commencement of journey, the ship must be capable of withstanding the ordinary
strain and stress of the sea.
4.
Seaworthiness
also includes “Cargo-Worthiness”. It means the ship must be reasonably fit and
suitable to carry the kind of cargo insured. It should be noted that the
warranty of seaworthiness does not apply to cargo. It applies to the vessel
only.
5.
Classification of Marine insurance?
Answer: Different
classes of policies are used in marine insurance. They are-
1.
Voyage Policies: The policy is issued to cover a particular voyage
from one port to another and from one place to another. The policy mentions the
port of departure and the port of destination, between which the risks are
generally underwritten.
2.
Time Policies: Under this policy, the subject-matter is insured
for a definite period of time, e.g., from 6 a.m. of 1st January,
1976 to 6 a.m. of 1st January 1977.The policy is generally taken for
one year although it may be for less than one year. This policy is commonly
more used for hull insurance than for the cargo insurance.
3.
Voyage and Time
Policy or mixed policies:
In this policy, the elements of voyage policy and of time policy are combined
in under this policy. The reference is made certain period after completion of
voyage. For example, 24 hours after arrival.
4.
Valued Policies: Under this policy the value of loss to be
compensated is fixed and remains constant throughout the risk except where
there is fraud and excessive over-valuation.
5.
Unvalued
Policies: When the value of
policy is not determined at the time of commencement of risk but is left to be
valued when the loss takes place. The value thus left to be decided later on is
called the insurable value or unvalued or valuable policy.
6.
Floating
Policies: This policy describes
the general terns and leaves the amount of each shipment and other particulars
to be declared later on. The declaration is made in order of dispatch of
shipment. The policy is taken for a round large sum which is specified at each
declaration and is attached to each shipment.
7.
Blanket
Policies: The policy is taken to
cover losses within the particular time and place. The policy is taken for a
certain amount and premium is paid on the whole of it in the beginning of the
policy and is re-adjusted at the end of the policy according to the actual
amount at risk.
6.
RDC and labor clause?
Answer:
Running down
Clauses (R.D.C.): This clause is
called collision clause and is included in hull policies. It provides that the
underwriter agrees to take upon the liability of the owner of the ship for
damage done by his vessel to another vessel on collision to the extent of
three-fourths of such liability. The underwriter will be responsible only when
this clause is added in the policy.
Labor Clause: This clause reads as follows: “And in case of loss
of misfortune it shall be lawful to the assured, their factors, servants and
assigns to sue, labor and travel for in and about the defense, safeguards, and
recovery of the said goods and merchandises, and ship, etc., or part thereof,
without prejudice to this insurance, to the charges whereof we, the assurers,
will contribute each one according to the rate and quantity of his sum herein
assured.”
The
essential features of Labor Charges are:
i)
The expenses
must be incurred for the benefit of the subject-matter insured. If occurred for
the common benefit they may become a part of general average which is not
recoverable under this clause.
ii)
They must be
reasonable.
iii)
They may be
incurred by `the assured, his factors, his servants or assigns`.
iv)
The expenses are
incurred to avert or minimize a loss from peril covered by the policy.
7.
Marine perils/losses?
Answer: The
perils insured against are mentioned in the policy and the underwriter shall be
liable for damages caused by the insured perils.
1.
Perils of Sea: Under perils of sea, ordinary action of the winds
and waves, ordinary wear and tear to the vessel, inherent risk of the cargo is
not included.
2.
Fire: In olden times fire was the biggest maritime
perils, but recently it has been under control to a greater extent. Damage
resulting from fire and smoke is included under fire-peril.
3.
Man-of-War: This is the vessel which is authorized by nations
for the purpose of defense or attack in the event of hostilities.
4.
Enemies: The ships belonging to the foe may cause loss to
the insured and is re-underwritten by the marine policy.
5.
Pirates, Rovers,
Thieves: The perils on account
of pirates, rovers and thieves were common in older times, but it has been
reduced considerably these days.
8.
Actual total loss[Notice of abandonment]
Answer: Actual
total loss is a material
and physical loss of the subject-matter insured is destroyed or so damaged as
to cease to be a thing of the kind insured, where the insured is irretrievably
deprived thereof, there is an actual total loss.
The actual total loss occurs in the following
cases:
1.
The
subject-matter is destroyed, e.g., a ship entirely destroyed by fire.
2.
The
subject-matter is so damaged as to cease to be a thing of the kind insured.
3.
The insured is
irretrievably deprived of the ownership of goods even they are in physical
existence as in the case of capture by enemy.
4.
The
subject-matter is lost.
9.
Documents required for claim?
Answer:
The following documents are required at the time of claim.
i)
Policy or
certificate of insurance.
ii)
Bill of lading. It determined the scope of the contract of
carriage.
iii)
Invoice or bill stating terms and conditions of sale.
iv)
Copy of protest, In the event of standing of or accident to the
vessel.
v)
Certificate of
Survey. This is necessary to
find out whether the necessary franchise is reached or not in case of
particular average.
vi)
Account sales or
Bill of sale. Similar
documents where goods have been sold.
vii)
Letter of
subrogation. It gives the
underwriters to sue and recover compensation from third parties where the same
is due.
10.
Documents in different types of claim: Total and
partial loss?
Answer:
Total Loss
i)
Insurance
policy: It furnishes an
evidence of the terms and contract of insurance.
ii)
Bill of lading: It is the correspondence of the insurance of the
insurance contract with the voyage and vessel.
iii)
Copy of the
invoice: A copy of the invoice
relating to the goods insured should be sent. It will help in estimating the
correct value of the goods.
iv)
Protest: A copy of protest is required when the total loss
is due to the loss of the vessel or other accident.
v)
Letter of
subrogation: A letter of subrogation
is sent if anything remains of the subject-matter insured after the total loss
or if there are rights or remedies regarding the interest or against third
parties.
vi)
Notice of
Abandonment: If there is a
constructive total loss, the notice of abandonment is given in the manner.
Partial Loss
In
case of partial average loss:
i)
The policy or
the certificate,
ii)
The invoice for the whole shipment,
iii)
The bill of lading should be sent to the
underwriters and
iv)
The copy of the master
protest or an extract from logbook of the ship is to be presented with
the policy if the particular average is recoverable in certain circumstance
according to the terms of the policy.
v)
A Surveyor’s
Report: A Surveyor’s report
prepared by some recognized surveyor should be appended to the above documents
when evidence is necessary to show that the settled franchise has reached.
vi)
Bill of Sale: When there is a sale of the damaged goods the bill
of sale is required by the measures.
vii)
Letter of
Subrogation: The letter of subrogation
should be duly furnished by the insured if required by the insurers.
viii)
Cost of
Protection: On the proof,
the cost of protection is paid by the underwriters apart from the particular
average if there was a successful claim. In unsuccessful claims, insurers are
not liable to pay these charges.
Fire Insurance Contract
1.
Definition of fire insurance? Causes of fire?
Answer:
Fire insurance is a device to compensate for the loss consequent
upon destruction by fire. It is a cooperative device to share the loss.
Causes of Fire
Fire
waste is the result of two types of hazard viz. `physical` and `moral`.
i)
Physical Hazard: It refers to the inherent risk of fire in the
property which may occur due to inflammable nature.
ii)
Moral Hazard: The moral hazard depends upon the man as physical
hazard depends on the property. The property may be set on fire by the owner or
by any person with his willingness; carelessness and lack of sense of duty may
also increase the fire waste.
2.
Private and public fire prevention activities?
Answer:
Private Fire
prevention Activities
a)
Construction: In construction of building, fire resistive
materials, fire proof construction, greatest care in exercising selection of
the type and planning of the construction.
b)
Fire Services: The important thing is to extinguish fire before it
reaches large proportions. The owner should consider equipping his building
with an automatic sprinkler system.
c)
Occupation: There are considerable hazard in certain occupation
e.g., in oil or coke or chemical industry.
d)
Management: Good management of property may reduce the chances
of fire.
e)
Exposure: Fire insurance rates are determined on the basis of
possibility of exposure.
Public Fire prevention Activities
a)
Community
Surveys: Engineering survey of
the cities and localities is made. As a result of its investigation many have
improved their fire departments involved in the protection against fire.
b)
Standard schedule
for grading cities: Under this
schedule a number of cities according to fire prevention devices.
c)
Underwriter’
laboratories: The
laboratories are to find out the possible causes of fire losses.
d)
Equipments: Fire can be properly checked only through the
possession and maintenance of adequate equipment.
e)
Salvage Corps
and salvage works by fire departments:
The chief aim of the corps is to protect property from unnecessary smoke and
water damage.
f)
Legislation and
Regulation: National Board
of fire underwriters’ fire brigade and other such associations are engaged in
fire preventive and protective efforts under a certain law.
3.
Principle of insurable interest in fire insurance
contract?
Answer: Insurable interest is the general
principle of insurance without which insurance cannot lawfully be enforced for
an insurance unsupported by an insurable interest would be a gambling
transaction.
The
Principle of insurable interest in fire insurance contract is given in below-
i)
There should be
a physical object capable of damaged or destroyed by fire.
ii)
The object must
be the subject matter of insurance.
iii)
The insured must
stand in such relationship as recognized by law where the insured is benefited
by the safety of the subject-matter or be prejudiced by its loss.
4.
Different types of policies (1-7)?
Answer:
The policies can be of various types which are discussed in below-
1.
Valued Policy: The value of the property to be insured is
determined at the inception of the policy. In this case the insurer pays the
total admitted value irrespective of the then of fire, but a value agreed at
the inception of the policy.
2.
Valuable Policy: Valuable policy is that policy where claim amount
is to be determined at the market price of the damaged property.
3.
Specific Policy: Where a specific sum is insured upon a specified
property in case of a specified period, the whole of the actual loss is payable
provided it does not exceed the insured amount.
4.
Floating Policy: The floating policy is the policy taken to cover
one or more kinds of goods at one time under one sum assured for one premium
and in relation to the same owner. This policy is useful to cover fluctuating
stocks in different localities.
5.
Average Policy: Policy containing `average clause` is called an
Average Policy. The amount of indemnity is determined with reference to the
value of the property insured.
6.
Excess Policy: Sometimes, the stock of a businessman may fluctuate
from time to time and he may be unable to take one policy or specific policy.
7.
Declaration
Policy: The excess policy
contributes to only a ratable proportion of the loss because if the amount of
excess stock exceeds the sum set in the excess policy the businessman will not
have a full cover owing to average condition.
5.
Payment of claim –Information required for claim?
Answer:
A claim form is issued to the policyholder. The claim form requires the
following information:
i)
Full description
of circumstances of the loss such as date of loss time, the place of fire.
ii)
Cause of fire.
iii)
Particulars of
the property affected by the loss such as description, value at the time of
fire, value of salvage and the claim amount.
iv)
Statement of
other insurances on the property, name of the insurer, the policy number and
the sum insured.
v)
Sound value of
all the property.
6.
Definitions reinsurance- advantages and limitations?
Answer:
Reinsurance is the transfer of insurance business from one
insurer to another. The insurer transferring the business is called `principal`
and the office to which the business is transferred is called for `reinsurer or
guaranteeing office`.
Advantages of
Reinsurance
1.
The original
insurer can accept the risk to the extent of his limit. In absence of
reinsurance, a person desiring a large amount of insurance will have to take a
number of policies from several insurers.
2.
Reinsurance
makes it possible to accept each risk for the very amount desired by the
proposer and to transfer the excess above the `retention limit` to another
insurer.
3.
The reinsurance
gives the benefit of the greater stability resulting from a widespread of
business.
4.
The reinsurance
makes stability in underwriting and consistency in underwriting results over a
period.
5.
It provides a
safeguard against serious effects of conflagration.
6.
The reinsurance
has the effect of stabilizing income and losses over a period of years.
Limitations of Reinsurance
1.
The financial
status and premium income of the insurer. A new insurer with small premium
income cannot afford to sustain a loss which might be borne with ease by
established insurer with ample reserve.
2.
The experienced
in a particular class of risk:
i)
The degree of
the fire hazard present.
ii)
The extent of
the damage likely to be sustained.
iii)
The fire
extinguishing facilities available.
3.
The limit will
vary according to the nature and size of the concerns proposing for insurance.
4.
Location and
other factors affecting the risk are also taken into account while calculating
the amount of limit.
Life Insurance contract
Definition
of life Insurance Contract:
Life
insurance contract may be defined as the contract, whereby the insurer in
consideration of a premium undertakes to pay a certain sum of money either on
the death of the insured or on the expiry of a fixed period.
Features
of Life Insurance Contract
1. Nature
of General Contract
2. Insurable
Interest
3. Utmost
Good Faith
4. Warranties
5. Proximate
Cause
6. Assignment
and Nomination
7. Return
of Premium
8. Other
Features
In
life Insurance contract the first three features are very important while the
rest of them are of complementary nature.
Answer:
Insurable interest
is the pecuniary interest. The insured must have an insurable interest in the
life to be insured for a valid contract. Insurable interest arises out of the
pecuniary relationship that exists between the policy holder and the life
assured so that the former stands to lose by the death of the latter or
continues to gain by his survival. If such relationship exists then the former
has insurable interest in the life of the letter. The loss should be monetary
or financial.
Insurable Interest
Insurable Interest in
owns life Insurable
interest in others life
Proof is not required proof is required
Business
relation Family
relation
Insurable Interest in owns life:
An individual always has an insurable interest in his owns life. It presence is
not required to be proved. The insurable interest in own life is unlimited
because the loss to the insured or his dependents cannot be measured in term of
money.
Insurable Interest in others life: there are two
types of insurable interest in others life. First where proof is not required,
second proof is required.
a)
Proof is not required: There is only
two such case where the presence of insurable interest is presumed and
therefore need not be proved.
Example:
Wife has insurable interest in the life of her husband
Husband has insurable interest
in the life of his wife.
b)
Proof is required: Insurable
interest has to be proved in the following case.
1)
Business
relationship: The policy holder may have insurable
interest in the life of assured due to business or contractual relationship.
2)
Family
relationship: The insurable interest may arise due to
family relationship if pecuniary interest exists between the policy holders and
life assured.
Answer:
Utmost
good faith: The life insurance requires that the principle of utmost
good faith should be preserve by both the parties. Insured and insurer must be
of the same mind at the time of contract because only then the risk may be
correctly ascertained.
i) Material
fact:
In life insurance material facts are age, income, occupation, health, habits,
residence, family history and plan insurance. This all facts must be disclosed.
1) Duty
of both parties: Insured and insurer both are
responsible to disclose all the materials facts which influence the decision of
the proposer whether apply or not to apply for insurance.
2) Full
and true discloser: Utmost good faith says that there
should be full and true discloser of all the materials facts and there will no
concealment misrepresentation, half discloser and fraud of subject.
3) Extent
of duty: The duty of discloser finishes at the
moment when the proposal form has been fully and correctly fulfilled provided
there is no such facts which he consider or expected to be considered materials
and have not been disclosed.
4) Legal
consequence: In the absence of utmost good faith the
contract will be void able at the option of the person who suffered loss due to
non discloser.
5) Indisputability
of policy: The doctrine of utmost good faith works
as a great hardship for a long period on the plea of misstatement at the time
of proposal.
Answer:
Proximate cause:
The efficient or effective causes which cause the loss is called proximate
cause. It is real and actual cause of loss. If the cause of loss (peril) is
insured, the insurer will pay otherwise the insurer will not compensate.
i)
War risk:
policy issued on exclusion of war and aviation risks. In the operation of war
or aviation death only premium paid or surrender value whichever is higher is
payable and total policy amount is not payable.
ii)
Suicide:
If suicide occurs within one year of policy or there was intention to commit
suicide and the payment of policy would be restricted.
iii)
Accident benefit:
A problem arises when an insured under an accident policy is killed or suffers
an injury which has an immediate cause and also remote cause. In accident
benefit policy double of the policy amount is paid.
Other
features
Life
Insurance policies have the following features.
Life
Insurance contract is
i)
A
laudatory contract
ii)
A
unilateral contract
iii)
A
conditional contract
iv)
A
contract of adhesion
v)
Not
a contract of indemnity.
i)
A Laudatory contract: A Laudatory
contract means contract depends on chance. In ordinary contract approximately
equal value is exchanged by both parties; but in life insurance contract, the
full sum assured may be payable even if all premium are not paid.
ii)
Unilateral contract: Life insurance
contract is unilateral contract because here only the insurer makes an
enforceable. The proposer had already perform his duty of payment of premium.
iii)
Conditional contract: Life insurance
contract is conditional contract because the insurer shall pay the assure sum
only when the contract is continuing by payment of premium.
iv)
Contract of adhesion: Contract of
adhesion means that the terms of the contract are not arrive by mutual
negotiation between the parties as in the case of ordinary contracts.
v)
Indemnity Contract is not applied: In life
insurance the indemnity contract is not applicable because the value of loss at
death cannot be ascertained. It is not possible to ascertain the time up to
which insured would have survived and it is also difficult to ascertain the
amount of money to be earned by him during lifetime.
Classification of policy
Whole
life policy:
Whole
life policies are issued for life. It means that the policy amount will be paid
at the death of the life assured. The life assured thus cannot get the policy
amount during his life time only his dependents will get advantage of this
policy after his death. The whole life policy can be divided by its payment.
i.
Single premium: the whole premium is
paid only one time in that case
ii.
Continuous premium: in this case policy
holder pays the premium up to his life time. After his death his dependents get
advantage.
iii.
Limited premium: in limited premium the
policy holder the premium for specific time period.
Term insurance policy: term insurance is far a
short period of years ranging from three month to seven year. Sum assured
payable only in the event of death of the life assured accruing during the
period. The selected term premium is usually payable throughout the term of the
policy or till the prior death of the life assured.
1)
Straight term (temporary) insurance.
The corporation issues term insurance for two years the sum assured will be
payable only in the event of the life assured death accruing within two years
from starting of the policy. A single premium is required to be paid at the
outset.
2)
Renewable term policy:
These policies are renewable at the expiry of term for an additional period
without medical examination but the premium rate will be altered according to
the age increase.
3)
Convertible term policy:
under this policy option to convert it into whole life or endowment policy is
available. Incorporation the life assured under
this plan has an option to convert the policy either a limited payment
life policy or endowment assurance policy without fresh medical examination at
any time during the specified term except.
i.
Convertible term policy is issued only
first class lives.
ii.
Person age 40 or hazardous occupation
including persons in armed forces will not eligible for this policy.
iii.
Proposal on the lives of ladies are also not
considered under this plan.
iv.
This policy entertained the person in
government or quasi-government service or service of reputed commercial firms.
v.
The cost of medical examination bear by
proposal.
vi.
Admission of age before issuing of policy is
essential.
vii.
Premium may be single, yearly, half yearly
installments only.
viii.
No surrender value paid up value, no
rebate in premium whether for large sum or for mode of payment of premium are
allowed under this policy.
Endowment
policy
The
endowment policies can be several of which important endowment policies are
discussed below:-
1)
Pure endowment policy: the sum assured is payable on the life
assured surviving the endowment term. In event of his death within the term
premiums may be returnable or not.
2)
Ordinary endowment policy:
this is the policy which actually represents the life insurance in true sense.
This is ideal combination of family protection and the investment. It is taken
specified term of years, the sum assured. Being payable either on the life
assured death during the period or on his survival to the end of the period.
3)
Joint life endowment policy: this policy covers more than one life under a
single policy. Under this plan, the sum assured is payable on the expiry of the
term or on the death of one of the assured lives during the endowment period.
Premium are payable throughout the endowment period or till the prior-death of
anyone of the live assured.
4)
Double endowment policy:
under this policy, if the life assured dies during the endowment period, the
basic sum assured is payable and if he survives to the end of the term, double
of the sum assured is paid. The term of policy is ranging from 10 years to 40
years but no policy is insured to mature at an age exceeding 65 years.
5)
Fixed term (marriage) endowment
policy: under this plan, the sum assured is
payable only at the end of stipulated period but the premium cases if death of
the policy-holder occurs earlier.
6)
Educational annuity policy: like marriage endowment policy, this policy
is also taken out on the life of the father or guardian who undergoes medical
examination, the child for whose benefit policy is taken is called beneficiary.
This assured amount payable in equal installments over period of five years.
7)
Triple benefit policy:
the special feature of the plan is that there is a guaranteed and steadily
increasing family provision during the selected period along with the old age
benefits.
Difference
between Annuity contracts and life insurance policy are given below
|
Criteria
|
Annuity
contracts
|
Life
insurance policies
|
|
1.
Accumulated funds
|
The
annuity contracts liquidates gradually the accumulated funds
|
Life
insurance contracts provide gradual accumulated of funds.
|
|
2.
Beneficiary
|
This
is taken for one’s own benefit
|
This
is taken for benefits of the dependents
|
|
3.
Time of payment
|
This
payment stops at death
|
This
payment usually given death
|
|
4.Basis
of premium calculation
|
Premium
is calculated on the basis of longevity of the annuitant
|
Premium
in life assurance is based on the mortality of the policy holder
|
|
5.conclution
|
Annuity
is protection against living too long.
|
Life
insurance contract is protection against too short.
|
Selection
of Risk:
i)
The first and the foremost purpose of
the selection of risk is to determine whether the proposal should be accepted
or not.
ii)
The second objective of the selection in
to determine the rate of premium to be charged for the assured. The premium is
depends upon the amount of risk.
iii)
Since there are various degree of risk
to a person and so theoretically at least, all the persons should be charged
different premium, but it is not practicable to charge so many premiums as many
applications are.
iv)
The fourth aim of selection is to avoid
any discrimination on the part of the lives assured. Since the degree of risk
is not the same to all the persons, different premiums should be charged from
different groups.
v)
The selection of risk is also essential
to avoid adverse-selection. Selection of risk is very essential to cheek the
anti-selection or adverse-selection which means selection of the persons for
insurance who are not insurable and charging of lesser premium for those who
are to be charged higher premium.
Factors
affecting Risk:
In
life insurance, the factors which may affect the risk are usually those factors
which are affecting the mortality. They are also called factor affecting
longevity of a person.
Age:
The
age of the life to be assured is the most important factor to affect mortality.
Except for a few years of the childhood, the premium is determined at every
year of the completion of age. The corporation asks for the age nearly to
birthdays. The person below six month and the person above six months older of
the age will be treated of the same age .For instance, a person of 22 years 7
months and another person of 23 years 5 months will be treated the age of 23
years.
Build:
Build
refers to physique of the proposed life and includes height, weight, the
distribution of weight and chest expansion. There are standards of weight
according to maximum weight reveal the indication of certain hidden diseases.
Therefore this sign is not favorable.
Physical
Condition:
The
physical condition of the age life proposed has a direct bearing on the
mortality of the life. Insurers are, therefore, very particular about the
conditions of an applicants’ sight, hearing, hearts, arteries, lungs, tonsils,
teeth, kidneys, nervous system etc.
Personal
History:
The
personal history of the life proposed would reveal the possibility of death to
him. The history may be connected with the a) health record, b) past habit, c)
previous occupation d) insurance history.
a) Health
Record: The past health record is the most
important factor under personal history because It affects the longevity or
mortality of a person to a greater extent. It includes any operations of the
life proposed.
b) Past
Habits: The insurers want to know the past
habit the life proposed, for drugs or alcohol because the cure may be only
temporary.
c) History
of occupation: If the proponent was employed in
hazardous or unhealthy occupation, there is a possibility that he may still
retain ill-effects therefore or may revert to such occupation.
d) Insurance
History: The previous amount of insurance may
disclose the degree of risk of the applicant. If he was refused insurance. It
might be suspicious factor of his insurability.
Family History:
Like
the personal history, family history also requires information of habit,
health, occupation and insurance of other family member, particularly of the
parents, brother and sisters. The children’s history of health is also
required.
Occupation:
Occupation
is an important factor to affect the risk. It affects the occupation in various
ways. Firstly the nature of work may be hazardous because he may suffer an
accident at any time while at work. Secondly, the morals of the workers may go
down. Thirdly, the chemical effect may be poisonous. Fourthly, the dusty or
unventilated house, unhealthy or insanitary environments may deteriorate the
health of the workers.
Residence:
The
risk will be lesser in a good climate area and more in a bad climate although
the difference in narrowed down because of better medical and sanitary
facilities. The geographical location, atmosphere, travel etc, are important
factor which may affect the risk.
Present Habits:
The
general mode of living of the proposer affects the risk. Drunkards and
non-temperate persons cause increase in mortality. Similarly temperate habits
tend to increase longevity of a person.
Morals:
It
has been observed that the departure from the commonly accepted standards of
ethical and moral conduct involve extra mortality. Infidelity and departure
from the code of sex behavior are seriously regarded because these may affect
the health. Unethical conduct is considered to be another form of moral hazard.
Race and Nationality:
The
mortality rate differs from race to race and nation to nation. In India,
persons of high, race or caste are expected to live longer than the scheduled
castes or tribes. Similarly, countries near to equator have more mortality.
Sex:
Mortality of the female sex is higher than the male sex because the physical hazard of maternity is present in the former case. Moreover, the ladies are physically more handicapped.
Mortality of the female sex is higher than the male sex because the physical hazard of maternity is present in the former case. Moreover, the ladies are physically more handicapped.
Economic Status:
The
higher economic status generally provides a better field for insurance due to
various reasons. Education, financial and professional consciousness makes the
proponent insurance minded. The chance of death is also lower in higher status
of the society.
Sources of Risk
Information:
Information
on the factors affecting risk is collected before it can be evaluated to
determine the degree of risk. It is collected from various sources because it
is not possible to get all information from one source.
The Proposal Form:
The
first and the important source of risk information is application form. The
proposer is required to disclose all the material facts truly and fully.
The
proposal from into two parts.
1) Application form
2) Personal Statement
The
application includes question to home , address, term of insurance , sum to be
assured, mode of premium payment, date of birth, object of insurance, name of
the nominee, engagement In navy ,air force and military service or the
intention to be engaged in these services.
Medical Examiner’s
Report
The
medical examiner has to identify the application to avoid the case of
impersonation. Where proposal’s apparent age, general health, habit,
vaccination, deformity are asked. Measurement of height, gums, digestive tract,
nervous system operations and other details etc, are inquired by physical test
of the life to be assured.
Agent’s Report
He
has to furnish information of sum assured, name, acquaintances with the proposer,
time and place of first introduction, identity of the life, medical examiners,
name and address, monthly income and occupation of the proposer, general state
of health, relation with the agent etc.
The inspection Report
The
insurers generally verify the information obtained by an independent agency.
This is conducted without the knowledge of the applicant. Today, the insurer
has their own inspection staffs that are generally known as inspectors or field
officers or development officers.
Private Friends Report
This
is not required .but for some checking purposes, confidential report of the
friends of the proposer is considered. Since the friends are fully aware of the
personal and private life of the proposer, they can give better information than
the agents.
Attending Physicians
Family
physicians can give better records of health, history of the proposed life and
his family. Family physician has given true and fair report of the required
information by the insurers.
Medical Information
Bureau
This
bureau is common in USA. An effective bureau for furnishing confidential
medical report .MIB has recorded sufficient information of reputed and
distinguished persons so the bureau is competent enough to report adequate and
fair information.
Neighbors and Business
Associates
The
obtained information can be tallied with other information.
Commercial Credit
Investigation Bureau
The
credit worthiness is decided by the Bureau. The information given by the Bureau
is treated confidential. These reports are expected tube correct and fair to a
greater extant.
Mortality Table
Mortality
table is such date which records the past mortality and is put in such form as
can be used in estimating the course of future data.
Features
1.
Observation of
Generation
In
preparation of mortality table persons of a generation are selected and they
are observed up to death. No new entries or withdrawals are assumed at any
stage of the study.
2.
Start from a
point
The
mortality table starts from a point, which depends on the requirement of the
insurer, and will continue up to the point all of them has been dead.
3.
Yearly
Estimation
The
mortality table records the yearly death or survival rate. Each and every year
is considered for calculation the rates.
4.
Motility and
Survival Rate
Age
is consideration each and every year. Any table giving mortality rates only is
not mortality. Each year number, living is the previous year’s number of living
minus previous year’s number dying and.
Source
of Mortality Information
1.
Population
statistic
2.
Records
of life insurers
Population Statistics
The
insurer gets number of living at each age from the census records and the
number of deaths from municipal and other death records. The population
statistics will show how many persons have died, what age, persons at the
beginning, it can be calculated how many died in a particularly age.
Records of Insurers
The
records
Net single premium
net
single premium is that premium which is received by the insurer in a lump sum
and is exactly adequate, along with the return earned thereon, to pay the
amount of claim wherever its arises whether at death .
Steps for calculations
Determine what constitutes
a claim (a) death (b) survival or (c) both.
Determine when claims
are paid (a) at the beginning (b) at the end or (c) during the year,
Determine the number of
years of interest involved and find the present value of a rupee,
Determine the present
value of the claims for each year,
Determine the net
single premium, divided by number assumed for buying policy
The
step of premium calculation varies according to the nature of the policy which
will be clear later on. When premium is calculated several questions emerged
simultaneously.
Assumptions underlying
rate computations
There
are certain variables which are to be assumed at a level for calculation and
alterations in premium calculation are made at later stage according to the
change in the variable, the following factors are assumed while calculating the
net single premium.
As many policies of the
given type are being issued as is the number of persons.
Premiums are collected
in advance or in the beginning of the period.
All collections are
immediately invested and will remain invested until money is needed for the
payment of the claims.
Mortality rate will be
the same as given in the mortality table and will he uniformly distributed
throughout the year.
All policies are of the
same amount, say Rs. 1000
Claims will be paid
only at the end of the period.
These
assumptions may not be totally practicable, but they are taken as for making
calculations. The changes in assumption can be adjusted accordingly.
Convertible term policy:
under this policy option to convert it into whole life or endowment policy is
available. Incorporation the life assured under
this plan has an option to convert the policy either a limited payment
life policy or endowment assurance policy without fresh medical examination at
any time during the specified term except. The last two years in this case
premium rate will be increase according to age attained.
i.
Convertible term policy is issued only
first class lives.
ii.
Person age 40 or hazardous occupation
including persons in armed forces will not eligible for this policy.
iii.
Proposal on the lives of ladies are also not
considered under this plan.
iv.
This policy entertained the person in
government or quasi-government service or service of reputed commercial firms.
No
surrender value paid up value, no rebate in premium whether for large sum or
for mode of payment of premium are allowed under this policy.
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