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Note on Types of Insurance

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Insurance can be classified into two categories:

  1. Life insurance
  2. Non-life insurance

Life Insurance

Life insurance is one of the common forms of insurance. It has secured a special position all over the world. It is estimated that life insurance comprises 80 percent of the total insurance business done in the world. It was started in England and other European countries in the 16thcentury. The life insurance in modern lines was developed in the 18thcentury. Life insurance is considered as an investment as the insured gets the amount of insurance with a bonus on the maturity of the policy. It is considered as protection as the nominee gets the financial compensation in the case of the death of the insured. It is also known as a contingent contract because the loss of the life cannot be compensated, but the financial compensation is provided to the nominee for the loss of insured life.

The following are the main definitions of life insurance: -

“Life insurance contract may be defined as the contract whereby the insurer in the consideration of a premium undertakes to pay a certain sum of money either on a death of the insured or on the expiry of the fixed period.” – M. N. Mishra

“The life insurance contract embodies an agreement, in which, broadly stated the insurer undertakes to pay a stipulated sum upon the death of the insured, or at some designated time to designated beneficiary.” – John H. Maggee

From the above definition, it can be concluded that life insurance is the contract in which the insured agrees to pay the premium to the insurer against which the insurer promises to compensate the insured a sum of money on the happening of an event. It contains the elements of investment as well as protection.

Non-life insurance/ General insurance

Non- life insurance refers to the insurance of goods and properties. The insurance which is done for the physical properties other than human life is known as non-life insurance. Non- life insurance is taken as a means of providing financial protection for building, machinery, equipment, furniture, and vehicle and merchandise items against the risk of fire, earthquake, accident and theft. Non-life insurance includes fire insurance, marine insurance, and miscellaneous insurance.

Fire Insurance

Fire insurance is a type of insurance, which is taken for getting financial compensation for the loss by fire. It is a contract in which the insurer promises to pay a certain sum of money to the insured in case of loss of properties caused by setting a fire within specified period of time. On the other hand, the insured agrees to pay the amount of premium in consideration. Thus, fire insurance provides the financial compensation against the loss or damage of the physical goods or properties.

The following are the main definitions of fire insurance: -

“Fire insurance is a device to compensate for the loss consequent upon destruction by fire.” – M. N. Mishra

From the above definition, it is clear that fire insurance is a contract of indemnity under which the insured cannot claim anything more than the value of goods lost by fire or the amount insured, whichever is less. Fire insurance is a recent growth. The first fire insurance institution was established only after the “Great fire of London” in 1666 A.D.

Marine Insurance

Marine insurance is a type of insurance, which is taken for getting the financial compensation against the losses due to perils of the sea in the course of a sea voyage. It is the contract made between the insurers and insured to indemnify against the cursor damage of goods using a ship. There may be different risk such as accident ship, collision, jettison, barratry etc. The subject matter of the marine insurance is a ship, cargo, and freight. The premium is paid periodically or in a lump sum by the insured to the insurer.

The following are the main definitions of marine insurance: -

“Marine insurance is a contract whereby the insurer undertakes to indemnify the insured in a manner and to the extent thereby agreed, against marine losses, that is to say, the losses incidental to marine adventures,” – Indian Marine Insurance Act, 1963

From the above definition, it is obvious that marine insurance is a contract between the insurer and the insured whereby the insurer undertakes to indemnify the insured upon the happening of the marine perils against the consideration of certain payment called premium.

Miscellaneous Insurance

The following are some common types of miscellaneous insurance: -

  1. Motor insurance
    The insurance which is done in order to get the financial compensation for the loss of motor or similar types of vehicles caused by accident, theft or other risk is called motor insurance. While traveling on land using car, bus, van, truck, etc. If the accident took place and happened the events, the insurer compensates for the loss. Thus, it compensates the loss of goods and amount for the death of passenger and loss of vehicles separately. It is compulsory in Nepal.

  2. Employer’s liability insurance
    General insurance also includes employer’s liability insurance. Under it, an insurance policy is taken for the workers of factories or institutions by the employer to compensate the claim of the employees in the event of injury, accident, death and disability while they are at work. Institutions or factories pay the premium regularly to the insurance company for getting such kind of compensation. The insurance company compensates at the time of injury, accident, disability or death of the workers.

  3. Aviation insurance
    Nowadays, air transportation is a popular means of transportation. Sometimes, an accident may take place in the air service. If the accident takes place in the air service, the losses are unbearable. Hence, the aviation insurance is inevitable. In this reality, aviation insurance policy is taken for getting financial compensation for the losses in air service.

  • Insurance is a way, which provides security to the man and his property against the risk and uncertainty.
  • There are two types of insurance. They are life insurance and non-life insurance.
  • Life insurance is the contract in which the insured agrees to pay the premium to the insurer against which the insurer promises to compensate the insured a sum of money on the happening of an event.
  • The insurance which is done for the physical properties other than human life is known as non-life insurance.
  • Non- life insurance is taken as a means of providing financial protection for building, machinery, equipment, furniture, and vehicle and merchandise items against the risk of fire, earthquake, accident and theft.
  • Non-life insurance includes fire insurance, marine insurance, and miscellaneous insurance.
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Very Short Questions

The differences between life insurance and non-life insurance are as follows:

Bases of differences

Life Insurance

Non-life Insurance

Meaning

The insurance of human being is called life insurance.

The insurance of goods or properties is called non-life insurance.

Subject matter

Life of the human being is the subject matter of insurance.

Goods or properties are the subject matter of insurance.

Period of contract

It is a long term contract like 10 years, 15 years, 20 years and so on.

It is a short-term contract which is taken normally for one year and can be renewed.

Indemnify

It is not the contract of indemnify because the life of human being cannot be indemnified in terms of money.

It is the contract of indemnify under which the losses of goods or properties is indemnified in terms of money.

Compensation

Insurance company pays the predetermined sum of money to the insured on the expiry of the policy or to the nominee in the case of the death of the insured.

Insurance company pays the predetermined sum of money to the owner of goods or properties in case of the loss of such goods or properties.

Nature of expenses

An amount of premium paid for life insurance is personal expenses.

An amount of premium paid for non-life insurance is normally considered as business expenses.

Fire insurance is a type of insurance, which is taken for getting financial compensation against the loss by fire. It is a contract in which the insurer promises to pay a certain sum of money to the insured in case of loss of properties caused by setting a fire within specified period of time. On the other hand, the insured agrees to pay the amount of premium in consideration. Thus, fire insurance provides the financial compensation against the loss or damage of the physical goods or properties.

According toBill Weipers, “The basic intention of the fire policy is to provide compensation to the insured person in the event of there being damaged to the property insured.”

From the above definition, it is clear that fire insurance is a contract of indemnity under which the insured cannot claim anything more than the value of goods lost by fire or the amount insured, whichever is less. Fire insurance is a recent growth. The first fire insurance institution was established only after the “Great fire of London” in 1666 A.D.

Marine insurance is a type of insurance, which is taken for getting the financial compensation against the losses due to perils of the sea in the course of a sea voyage.The subject matter of the marine insurance is a ship, cargo, and freight. The premium is paid periodically or in a lump sum by the insured to the insurer.

According toM. N. Mishra,“Marine insurance has been defined as a contract between insurers and insured whereby the insurer undertakes to indemnify the insured in a manner and to the interest thereby agreed, against marine losses incident to marine adventures.”From the above definition, it is clear that marine

From the above definition, it is clear that marine insurance is the contract made between the insurers and insured to indemnify against the cursor damage of goods using a ship. There may be different risk such as accident ship, collision, jettison, barratry etc.

The following are the types of miscellaneous insurance:

  1. Motor insurance
    The insurance which is done in order to get the financial compensation for the loss of motor or similar types of vehicles caused by accident, theft or other risk is called motor insurance. While traveling on land using car, bus, van, truck, etc. If the accident took place and happened the events, the insurer compensates for the loss. Thus, it compensates the loss of goods and amount for the death of passenger and loss of vehicles separately. It is compulsory in Nepal.
  2. Employer’s liability insurance
    General insurance also includes employer’s liability insurance. Under it, an insurance policy is taken for the workers of factories or institutions by the employer to compensate the claim of the employees on the event of injury, accident, death and disability while they are at work. Institutions or factories pay the premium regularly to the insurance company for getting such kind of compensation. The insurance company compensates at the time of injury, accident, disability or death of the workers.
  3. Aviation insurance
    Nowadays, air transportation is a popular means of transportation. Sometimes, an accident may take place in the air service. If the accident takes place in the air service, the losses are unbearable. Hence, the aviation insurance is inevitable. In this reality, aviation insurance policy is taken for getting financial compensation against the losses in air service.

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  • Life insurance was started in England and other European countries in the ______ century.

    21st
    18th
    16th
    13th
  • The life insurance in modern lines was developed in the ______ century.

    13th
    18th
    22nd
    16th
  • Life insurance is also known as ______.

    predicatble contract
    anticipated contract
    contingent contract
    foreseeable agreement
  • "Life insurance contract may be defined as the contract whereby the insurer in the consideration of a premium undertakes to pay a certain sum of money either on a death of the insured or on the expiry of the fixed?period." Who gave this definition?

    A.N. Agrawala
    M. N. Mishra
    B.M. Shrestha
    G.D. Pandey
  • Non-life or general insurance includes ______

    miscellaneous insurance
    marine insurance
    fire insurance
    all the options are correct
  • ______ is a contract in which the insurer promises to pay a certain sum of money to the insured in case of loss of properties caused by setting a fire within specified period of time.

    Marine insurance
    Motor insurance
    Avation insurance
    Fire insurance
  • "Fire insurance is a device to compensate for the loss consequent upon?destruction?by?fire." Who gave this definition?

    Bill?Weipers
    A. Ashley
    M. N. Mishra
    O.P. Gupta
  • "Marine insurance has been defined as a contract between insurers and insured whereby the insurer undertakes to indemnify the insured in a manner and to the interest thereby agreed, against marine losses incident to marine adventures." Who gave this definition?

    Bill?Weipers
    A. Ashley
    M. N. Mishra
    Indian Marine Insurance Act, 1963
  • ______ is a process of making financial compensation against the loss caused by embezzlement, theft, error or fraud committed by the staff of the business.

    Aviation insurance
    Fidelity guarantee insurance
    Motor insurance
    Employer's liability insurance
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