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What is General Insurance?

What is General Insurance?

Simply put, all insurance products not classified as life insurance products are general insurance products. There are a variety of general insurance products ranging from health to property, and everything in between. These branches of insurance come under the term ‘general insurance.’

Still, wondering what is general insurance? Don’t worry. This article will discuss the following aspects of general insurance and clear all your doubts:

 

  • General Insurance Types
  • General Insurance Features
  • General Insurance Example
  • General Insurance vs Life Insurance

General insurance Types

There are a variety of general insurance products available on the market today. Let us discuss some of the most important ones:

 

  • Health insurance: A health insurance policy protects the insured against any unforeseen health complications. Hospitalization charges are borne by the insurance company.
  • Motor insurance: A motor insurance policy protects the insured against motor accidents. Both, third-party and comprehensive motor insurance policies are available in the market.
  • Property insurance: A property insurance policy protects your home or factor against theft, terrorism, acts of nature, etc.
  • Marine insurance: Marine insurance protects a trader’s cargo or vessel against risks of the sea.
  • Travel insurance: Travel insurance protects the insured against the costs of hospitalizations abroad.
  • Accident insurance: An accident insurance policy insures the policyholder against damages caused due to an accident.
  • Aviation insurance: Aviation insurance protects an aircraft against risks of the air.
  • Crop insurance: Crop insurance protects the farmer’s crops against drought, floods, acts of nature, etc.

General Insurance Features

Top 5 features of general insurance include:

 

  • Peace of mind: A policyholder will have peace of mind knowing he is covered against various uncertainties of life.
  • Financial stability: A general insurance policy can many a time provide great financial stability to a policyholder and his family.
  • Wide coverage: Today’s insurance companies provide an option to widen your insurance coverage by additional premium. The wider the coverage, the higher the protection.
  • Savings: There are various general insurance plans like ULIP, money back plans, etc, that provide the policyholder will additional savings benefits.
  • Tax benefits: There are various IT deductions available to policyholders under the Indian IT Act. Individuals can avail of these deductions and lower their tax liability.

General Insurance Examples

Still, confused? Let us provide 2 simple examples of general insurance to clear your doubts.

 

  • Health insurance example: Let us say, Mr. Ajit buys a health cover with an insurance company with coverage of Rs 5 Lakhs. Now, Mr. Ajit has met with a minor accident and requires hospitalization. Upon discharge, he makes a claim with the health insurance company to pay his hospitalization bills. The insurance company does its due diligence and disburses the funds to Mr. Ajit.
  • Motor insurance example: Let us say, Mr. Roy has bought a motor insurance policy for his new Honda City. After a few months of the purchase, his vehicle meets with an accident. Mr. Roy intimates the insurance company and files a claim. The insurance company disburses the funds to repair his car if all documentations are in order.

General Insurance Vs Life Insurance

 

General Insurance

Life Insurance

Meaning

General insurance comprises of all insurance products that are non-life in nature.

Life insurance products are products that provide coverage against the policyholder’s life.

Examples

Motor insurance, health insurance, home insurance, marine insurance, etc.

Term insurance, whole life insurance, ULIP, etc.

Indemnification

Indemnified contract

Not an indemnified contract

Savings Component

Generally, no savings component.

Savings components are available in these type of plans.

Contract Term

Short term

Long term

Claim Payment

Claims are paid on the occurrence of an event.

Claims can be paid at the occurrence of an event or maturity.

Author Bio

This article is written by Team InsuranceLiya.com, an independent website that writes about insurance, finance, health, and more. Our writers have a wealth of knowledge, experience, and degrees in the fields of insurance, finance, economics, and beyond.

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What is an insurance company?

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What is an insurance company?

Insurance may sound like a complicated and daunting subject, but it doesn’t have to be. If you’re thinking about buying your first insurance policy, it is wise to start with the very basics such as ‘What is an insurance company?’Post this, you can move on to understanding slightly more complicated topics such as No Claim Bonus (NCB), claim settlement ratio, cover charge, porting and more. Let’s start with the basics first. This article will illuminate you on the following topics:

  • What is insurance?
  • What is an insurance company?
  • What are the types of insurance companies?

Alright, before you find out what is an insurance company, you need to understand what insurance is. Let’s dive right in.

What is insurance?

Insurance is an agreement between an insurer and an insured. The insurer is generally an insurance company, and the insured is usually an individual. The insurer indemnifies (protects) the insured against unforeseen events. How does an insurer do that? Well, by providing financial assistance.

For instance, Mr. Rajeev bought a health insurance policy from an insurance company. A few months later, Mr. Rajeev falls sick and has to visit the hospital. Since he is insured, he receives a complete refund of the entire amount he spent in the hospital by the insurance company. This is a simple illustration of an insurance agreement.

What is an insurance company?

Now that we know what is insurance, let’s understand what is an insurance company. An insurance company is any company that provides insurance and related services to either the general public or other parties.
An insurance company can either do their business by writing insurance policies to the general public, or they can do their business by writing insurance policies to other businesses.
Further, there are insurance companies that provide insurance services to other insurance companies. These are called reinsurance companies.

What are the types of insurance companies?

Insurance companies are generally classified into 3 subsections:

Life insurance companies

What is a life insurance company? A life insurance company is an insurance company that provides life and term insurance-related policies. Types of policies that are written by life insurance companies are:

Each of these policies aims to insure the life of the policyholder. That means either the policyholder or their nominee will get a lump sum amount either on policy maturity or the death of the policyholder.

General insurance companies

What is a general insurance company? A general insurance company is a company that deals with any insurance product that is non-life in nature. For instance, a general insurance company can deal in motor insurance, health insurance, theft insurance, etc. Types of policies that are written by general insurance companies are:

  • Health insurance policies
  • Motor insurance policies
  • Fire insurance policies
  • Theft insurance policies
  • Crop insurance policies
  • Cyber insurance policies

Reinsurance companies

What is a reinsurance company? A reinsurance company is an insurance company that provides insurance to other insurance companies. Now, why would insurance companies need insurance? The answer is quite straightforward.
A large insurance company issues lakhs of policies every year. What happens if there is a major ecological disaster like an earthquake or a flood and all of the policyholders decide to make claims at the same time? The insurance company could face a massive liquidity crisis in such a time.

To overcome this uncertainty, the insurance company pays a reinsurance company a premium to underwrite some of the policies. Thus, if there is a massive influx of claims, the reinsurance company can come to the rescue of the insurance company by handling some of the claims.

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Types of insurance claims

Types of insurance claims

Just buying insurance is not enough. You need to also understand what are the types of claims that you are eligible to make. Are you wondering what are the types of insurance claims? This article will provide you with a detailed understanding of the wide variety of claim types across various insurance verticals.


At the end of the article, you will have a proper understanding of all of the types of insurance claims, ranging from life insurance claim types to motor insurance claim types and everything in between.

  • Types of life insurance claims
  • Types of health insurance claims
  • Types of motor insurance claims
  • Types of property insurance claims

Types of life insurance claims

There are two primary types of life insurance claims. They are maturity claims and death claims.

Maturity claims

There are specific life insurance policies that provide a maturity benefit to policyholders. This is where the policyholder can file a claim with the insurance company when his policy term ends. He/she is eligible to get a maturity payment.
Example: Let us say Mr. Suresh has bought a ULIP Term Insurance with HDFC ERGO with a policy term of 30 years. Mr. Suresh’s term insurance policy now matures after 30 years. He can now file a claim to collect his entire maturity benefit.

Death claims

This is the most typical type of life insurance claim. This is where the policyholder’s family can raise a claim with the insurance company after the policyholder’s demise. The nominee mentioned within the policyholder’s policy shall get the complete death benefit specified within the life insurance policy.

Example: Mr. Manoj had a life insurance policy worth Rs.10 Lakhs with an insurance company. He meets with an unfortunate accident and passes away. His family can now raise a claim with the insurance company, and the insurance company will have to disburse the death benefit amount (Rs.10 Lakhs) to the nominee of the policy.

Types of health insurance claims

There are two types of health insurance claims that a policyholder can make—cashless and Reimbursement.

Cashless claims

A cashless claim is where the policyholder does not need to pay the hospital out of his own pockets. The insurance company will directly disburse the funds to the hospital. It is, however, necessary for the policyholder to get admitted to a network hospital. Thus, it is essential to know which are your closest network hospitals to avoid any last-minute confusion.

Reimbursement claims

A reimbursement claim is when the policyholder will need to initially pay hospitalization expenses out of his own pocket. He can later raise a claim with his insurance company upon discharge. It is essential to keep the original copies of all receipts, bills, statements, certifications, medical reports, etc.

Types of motor insurance claims

Two primary motor insurance claims are first-party claims and third-party claims.

First party claims

This is where your vehicle meets with an accident, and you raise a claim with your insurance company. The claim can be raised for damage to the vehicle, yourself, or a passenger.

Example: Mr. Jatin meets with a minor car accident and breaks his windshield. He is now eligible to raise a claim with his car insurance company for compensation. The insurance company will do their due diligence and pass the claim if everything is in order.

Third-party claims

Mr. Mohit bumps his vehicle into a bystander and causes minor damages to the bystander. The bystander sends a legal notice to Mr. Mohit to pay for damages. Mr. Mohit shares the legal notice to his insurance company, and the company appoints a lawyer for Mr. Mohit. The matter goes into court. The company will now pay whatever amount the court decides to the bystander.


Types of property insurance claims

There are a variety of property insurance claims that can be made. Let us understand all of them briefly.

Theft related claims

This is where the internals of the home (jewelry, expensive art, expensive furniture, etc.) are insured, and subsequently stolen. The insured can file an FIR and raise a theft claim with the insurance company.

Fire related claims

A fire can be devastating to a home. It is estimated that every 5th fire-related death originates in India. Over 35 Indian’s die every day of fire-related accidents. There were over 27 thousand fire-related casualties nationwide in 2019 alone. This is an alarming number. If a home is met with a fire, the policyholder can file a claim with the insurance company, provided his home has fire coverage.

Liability claims

This is where your guest, neighbor, or any other individual is hurt due to your negligence. For instance, a person may be visiting your home, and a wall falls on him and injures his arm. This kind of risk can be mitigated by purchasing a liability insurance rider.

Human related property damage

Acts of terror, outsider damage, vandalism, and mischief can be claimed against. For instance, a policyholder can file a property insurance claim if a thief entered his house, stole his valuables, and damaged his property through vandalism.

Natural damage

These claims arise out of acts of nature like earthquakes, tsunamis, forest fires, floods, tornadoes, etc.

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Unemployment insurance in India

Unemployment insurance in India

Ever worry about that dreadful letter stating that your employer doesn’t require your services anymore? Does the thought of losing your job keep you up at night? There is a solution that could make you sleep much better at night. It’s called unemployment insurance. There are 2 major aspects of unemployment insurance in India:-

  • Unemployment insurance addon riders
  • Unemployment allowance provided under ESIC (Rajeev Gandhi Shramik Kalyan Yojana)

Let us discuss both of these options in detail below.

Unemployment insurance addon riders

An unemployment insurance rider is an add-on that you can purchase with your existing life insurance policy. The motive of this additional rider is to cover you against any unforeseen unemployment caused due to:-

  • Mergers and takeovers
  • Bankruptcy announced by your company
  • Department shutdown (due to internal decision of management)

Importance of unemployment insurance

  • It provides a steady flow of income even during the tumultuous period of job loss
  • Helps maintain the standard of living for yourself and your family
  • Provides peace of mind even when you are employed

Exclusions

There are certain things that job insurance does not cover. They are:-

  • Job loss due to resignation
  • Job loss occurring during probation or trial period
  • Job loss due to the poor performance of the employee
  • Unemployment due to a pre-existing illness or sickness

Further, self-employed people cannot opt for unemployment insurance.

Unemployment insurance addon riders in India

  • Secure Mind policy by ICICI Lombard
  • Home Suraksha Policy by HDFC Ergo
  • Safe Loan Shield Policy by Royal Sundaram


Unemployment allowance provided under ESIC (Rajeev Gandhi Shramik Kalyan Yojana)

All employees enrolled under the Employee State Insurance Act can avail of the Rajeev Gandhi Shramik Kalyan Yojana. This Yojna states that an employee can claim unemployment benefits if he/she is unemployed due to no fault of theirs, business winding-ups, or workplace injury

Salient features of Rajeev Gandhi Shramik Kalyan Yojana

  • Unemployed employees will only be provided an allowance for a maximum period of 1 year.
  • The claimant has to ensure that he claims within 6 months of job loss.
  • The claimant cannot claim benefits once he is re-employed.
  • The claimant has to be a member of ESIC for at least 3 years before making claim under RGSKY.

In light of the above information, the prudent employee should know about these unemployment insurance options in India and act upon them. It may save them a lot of unease in the future.

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Principles of insurance (7 important principles you should know)

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Principles of Insurance (The 7 Principles)

Just buying insurance is not enough. The policy buyer also needs to know the rules of the game. The insurance industry and all participants need to adhere to certain principles while dealing with each other, these principles are the principles of insurance.

Insurance has 7 primary principles that both parties (insured and insurer) need to adhere to. We will be discussing these 7 principles in detail so you can get a complete understanding of the principles of insurance. They are:-

 

  1. Principle of utmost good faith
  2. Principle of insurable interest
  3. Principle of proximate cause
  4. Principle of subrogation
  5. Principle of loss minimization
  6. Principle of indemnity
  7. Principle of contribution

Once you understand these insurance principles, you will be in a much better position when it comes to understanding your insurance contract.

1.) Principle of utmost good faith

The principle of utmost good faith elucidates that there should be complete honesty when it comes to sharing of information between the policyholder and the insurance company and vice versa.

All facts relating to the object of insurance must be completely and correctly provided by the policyholder to the insurance company. Similarly, the insurance company must also maintain complete transparency and honesty when it comes to the policy contract. There should be no falsification by either party when it comes to sharing information.

Example

Mr. Ramesh took a life insurance policy. At the time of filling the questionnaire, he did not mention he had a terminal illness. At the time of his demise, the insurance company found out that Mr. Ramesh willfully held back this information and canceled his policy. Due to willfully holding back correct information, Mr. Ramesh’s family did not get any life insurance benefits from their policy.

2.) Principle of insurable interest

This principle states that the policyholder should have an insurance interest in the insured object. This means that there should be a financial loss on part of the policyholder if the insured object gets damaged, destroyed, lost, stolen, etc.

Example

An individual has an insurable interest in his car and can take motor insurance for the same. This is because if his car gets damaged, destroyed, or stolen it will cause financial harm to him.  Thus there is a clear insurable interest of the policyholder in his car.

3.)Principle of proximate cause

The principle of proximate cause states that the closest cause for any particular loss will be considered when it comes to making a claim payment.  For instance, 2 causes caused an event. The nearest cause will be considered while claiming the settlement.

Example

Mrs. Jyoti took an accidental insurance policy from a company. While driving, Mrs. Jyoti had a heart attack, resulting in a car accident. While making her accident insurance claim, the insurance company stated that the nearest cause (Causa Proxima) of the accident was the heart attack and rejected her claim. As heart attack was not covered under her accidental policy.

4.) Principle of subrogation

Under the principle of subrogation, the insurer assumes control over the object of insurance once it has paid the policyholder his/her claim. This allows the insurer to recover any losses that he may have faced by way of legal recourse.

Example

Mr. Jatin has bought a motor insurance policy. Let us assume he meets with an accident with another rider, and totals his car. He was paid full insurance towards his damages by way of his claim.  Later, It was found that the other rider was driving without a valid license and under the influence of alcohol. The insurance company can step into the shoes of the insured and sue the other party for damages and recover their losses.

5.) Principle of loss minimization

Under the principle of loss minimization, it is the duty of the insured to ensure that he has taken all possible steps to minimize the damage caused by an event.

The principle states that even though the policyholder knows he is covered by insurance, he/she should try their level best to protect the insured object.

Example

Mr.Rishi bought motor insurance for his car. Let us assume that fumes are coming out of his engine. Mr. Rishi should make all attempts to extinguish the fumes by using a fire extinguisher and call for help to put the fire out.He should not simply stand idle while the fire consumes the car.

6.) Principle of indemnity

The principle of indemnity states that the insurance company will only reimburse the policyholder in accordance with the actual loss incurred, and not beyond that. This principle is also subject to certain terms and conditions of the policy. But in general, the insurance company will only indemnify the policyholder to the extent of their loss.

Example

Mr. Vikas has taken a health insurance policy worth 2 lakhs. He was admitted to the hospital for a minor condition and his hospital bill came to 1 lakh. The insurance company will only pay Mr. Vikas 1 lakh even though he is covered for 2 lakhs.

7.) Principle of contribution

The principle of contribution states that a person can insure the same object with 2 different insurers. The policyholder will however only be paid off the loss incurred and nothing beyond.

Example

Mr. Kumar has 2 health insurance policies for himself, each worth 2 lacs. Let us assume he was admitted to the hospital for a minor condition and his bill amount came to 2.35 lakhs.  He can claim 2 lakh from the first insurance company and the balance from the second insurance company. He however cannot claim 2 lakhs each from both the insurance companies, as that would lead to a profit on his part.

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Frequently asked questions

  • How many principles of insurance are there?

    There are 7 principles of insurance. They are:

    1. Principle of utmost good faith
    2. Principle of insurance interest
    3. Principle of subrogation
    4. Principle of proximate cause
    5. Principle of loss minimization
    6. Principle of indemnity
    7. Principle of contribution

     

  • Are the principles of insurance mandatory?

    Yes, everyone dealing in insurance mustfollow these principles.

  • Are principles of insurance the same in life insurance Vs health insurance?

    Yes, the principles are the same in life insurance as well as health insurance.

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    Meaning of insurance premium

    Meaning of insurance premium


    So, you’re looking to buy an insurance policy? A prudent choice! That being said, there are a bunch of complicated terms and jargon in the insurance industry. One such term Is an insurance premium. So what is an insurance premium? This article will aim to clear all doubts that you may have on the subject and help you leave this page with complete clarity. So, let’s dive in!

    Meaning of insurance premium

    An insurance premium is a fee that the insurance company takes to cover the risks of a policyholder. The concept of the insurance premium is universal. It is the same across all kinds of insurance policies like life, health, fire, motor, marine, etc.

    Now, why would you be willing to pay a premium to an insurance company? The simple answer is that they are covering you against certain predefined risks. Let’s say you’re traveling abroad and are worried about getting sick while on the trip. This is where a travel insurance policy comes in. An insurance company will (for a premium) provide you a travel insurance policy that will help pay for any hospitalization costs that you may incur while abroad.

    Insurance premium examples

    Let us further solidify the concept of an insurance premium with the help of a couple of more examples.

    Life insurance premium

    Let us say Mr. Ram has taken a life insurance policy worth 50 lakh Rupees from HDFC Life. For Mr. Ram (or his heirs) to avail the benefits of his life insurance policy will have to regularly pay his premium until his policy matures or he passes away.

    Health insurance premium

    Let us assume that Mrs. Meena has taken a health insurance policy worth 10 lakh Rupees from HDFC Ergo. She will have to ensure regular premium payment for her to be covered against any hospitalization charges in the future. If she fails to pay her premium even after the premium grace period, her policy benefits will lapse.

    Motor insurance premium

    Let us assume that Mrs. Sheela has taken a Motor insurance policy for her new Honda Accord. It is mandatory for her to purchase a motor insurance policy under the Motor Vehicles Act. A motor insurance policy can either be third-party or comprehensive. The policy will cover risks against accidents and Mrs. Sheela will have to pay a premium to the insurance company for bearing this risk.

    4 Important Points To Remember

    Premium payment: It is very important to pay your insurance premium on time, to ensure continuity of benefit. If for any reason you have failed to pay your premium on time, it is critical that you pay it within the grace period.

    Flexible premiums: Premium payment can be flexible. A company will generally accept premiums yearly, half-yearly, one time premium (for certain policies), monthly, etc.

    Premium discount: Many companies provide discounts on premiums if you decide to make premium payments for 2 or 3 years in advance. The discounts range from 10-20%.

    Tax benefit: The premium that you pay has a tax benefit that is attached to it. Premiums are tax-deductible under sections 80C & 80D of the Indian Income Tax Act.

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    Insurance Sector in India

    graph

    Insurance Sector in India (Key Takeaways)

    If you’ve ever bought an insurance policy or are looking to buy an insurance policy in India, it would be well worth your time to at least familiarize yourself with some of the basic key takeaways and learnings of the insurance sector in India.

    In a massive country like India, the insurance sector plays a pivotal role in the stability and protection of the nation. The concept of insurance is rather simple, insurance is where the risk is undertaken by parties that are capable of bearing those risks (for a premium). The idea behind this is to transfer the risk from the insured (the policyholder) to someone who is more capable of bearing the risk (insurance company). This leads to financial and social stability across a country. The insurance sector in India is regulated by the Insurance regulatory and development authority (IRDA).

    We will be discussing some of the following salient features and aspects relating to the insurance sector in India:-

    • Participants in the insurance sector
    • Regulator of the insurance sector in India
    • Growth of the insurance sector in India
    • Insurance sector reforms in India
    • FDI in insurance sector
    • Jobs in the insurance sector
    • Government schemes

    Participants in the Insurance Sector

    There are 3 board sub-sections in the insurance sector. They are life insurance, general insurance, and reinsurance.

    1.) Life insurance companies: There are a total of 24 life insurance companies in India.

    2.) General insurance companies: A total of 34 general insurance companies are active in India (as of 2021).

    3.) Reinsurance companies: General Insurance Corporation Of India (GIC) is the only reinsurance company in India.

    Regulator of the Insurance Sector in India

    The insurance sector in India is regulated by IRDA (having its headquarters in Hyderabad). IRDA came into force in 1999, after the Indian Parliament passed the IRDA act in 1999. It is IRDA’s role to ensure fair competition among the insurance companies and the efficient functioning of the insurance sector in India. It is also the IRDA’s principal goal to ensure that the end customer’s (policyholders) rights are upheld and no injustice is done to them in any capacity.

    Growth of Insurance Sector in India 

    The insurance sector grew at a compounded annual growth rate (CAGR) of over 12% from 2013-17 and is expected to grow at approximately 5% from 2017-22. India is the 10th largest life insurance market in the world and the 15th largest Non-life insurance market in the world respectively. The life insurance sector in India is valued at $92.1 billion, and the General insurance sector is valued at $24.5 billion.

    That being said, penetration of the insurance market is still a measly 5-10%, signifying tremendous growth potential in the future.

    Future of the Insurance Sector in India 

    The overall Insurance sector in India is expected to grow to $250 billion by the year 2025. India is also forging ahead with a plethora of high-tech insurance products like Unit Linked Insurance Plans (ULIPs) and innovative agricultural insurance products. The penetration of the insurance market in India is also likely to increase due to the innovative intermediary distribution services like Point Of Sales Person (POSP), TPA services, Brokers, insurance repositories, insurance marketing firms, insurance self network platforms(ISNP), and Online web aggregators.

    The number of registered intermediaries under IRDA as of 2021 are as follows:-

    • 483 registered insurance brokers
    • 23 registered TPAs
    • 22 registered web aggregators
    • 4 registered insurance repositories
    • 398 registered insurance marketing firms

    FDI in Insurance Sector

    FDI limit in the insurance sector is up to 74%. The limit was increased from 49% to 74% in the 2021 Union Budget. This move is bound to increase foreign investment in the sector greatly.

    Insurance Sector Reforms in India

    IRDA has introduced a plethora of insurance reforms in the country. They include:-

    • Bancassurance
    • Common service centers
    • Electronic insurance
    • Competition reforms
    • Investment reforms
    • Customer-centric reforms

    1.) Bancassurance

    Previously Bank’s could only sell a single insurer’s insurance products. This leads to a lack of selection variety and ended up being detrimental to the end customer. Seeing this, IRDA has introduced the Bancassurance reform where a bank can offer a multitude of insurance products across various insurance companies. This increases the choice for the end customer.

    2.) Common service centers

    Common Service Centres (CSC) are physical locations set up across the nation for distributing government schemes and products. It was introduced under the ambit of the
    Ministry of Electronics and Information Technology and is managed by CSC e-Governance Services India Limited. There are over 1.5 lakh CSCs across the country.

    4.) Electronic insurance

    IRDA has pushed for Electronic Insurance. This means insurance policies, related documents, and KYC requirements will be handled electronically and without the need for physical handling.

    5.) Competition reforms

    Companies having paid-up capital of over INR 1 billion are eligible to partake in the insurance sector. There are various further reforms pushed by IRDA to ensure fair competition among insurance companies.

    Investment reforms

    As mentioned above, FDI in the insurance sector has been increased from 49% to 74%. This reform is likely to bring in an influx of foreign capital in the sector and create additional jobs across the sector.

    Customer Centric Reforms

    Some customer centric reforms introduced are:

    • An Insurance company cannot reject any claim made by an insured person if he or she has been a regular premium payer for 3 years.
    • Life Insurance Company of India is now mandated to pay interest on delayed payments to its customers.
    • There is an attempt to generalize insurance products, resulting in an easier understanding of policies.

    Jobs in the Insurance Sector 

    • The India Today-Employment Trends Survey puts the insurance industry within the top 10 recruiters in the nation.
    • An NIA-CII survey estimates that over 6.5 million people were employed in the insurance sector in 2012.
    • According to the CII Report, there will be an additional demand of 2.1 million skilled jobs within the insurance sector in India by 2025.

    Thus it can be concluded that the insurance sector will be a leading absorber of skilled labor within the nation in the years to come.

    Government Schemes

    The Government Of India has introduced a plethora of insurance schemes in the nation, intending to provide economic and social stability. Mentioned below are some of the popular government schemes:

    • Universal Health Insurance Scheme (Ayushman Bharat Yojna)
    • Aam Admi Bima Yojna (AABY)
    • Central Government Health Scheme (CGHS)
    • Employment State Insurance Scheme (ESIS)

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    Insurance Regulatory And Development Authority (IRDA)

    Insurance Regulatory and Development Authority (IRDA)

    IRDA stands for Insurance Regulatory and Development Authority. It is an autonomous body of the Government Of India tasked with the regulation and management of the insurance sector in India. IRDA came into force after the government of India passed the IRDA Act in the Indian Parliament in 1999.

    In this article, we will discuss some of the important aspects of IRDA including:-

    • What is IRDA?
    • IRDA Act
    • Functions of IRDA
    • IRDA Regulations
    • IRDA Headquarters
    • IRDA Structure
    • Chairman of IRDA
    • IRDA Complaints
    • IRDA Pan Lookup

    What is IRDA?

    The formation of an insurance regulatory authority was recommended by the Malhotra Committee in the year 1999. The government acted on this recommendation with the formation of The Insurance Regulatory And Development Authority (IRDA). IRDA is tasked with the regulation of insurance and reinsurance activities, along with the promotion of fair practices and competition among insurance companies. The end objective of IRDA is to ensure what is best for the consumer prevails.

    IRDA Act

    The INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA ACT came into effect in 1999, with the purpose of amending earlier acts, namely the Life Insurance Corporation Act, 1956, General Insurance Business Act, 1972, and the Insurance Act, 1938. The IRDA Act provides a framework, guidelines, rules, and instructions to insurance companies in India. It is an enforceable act passed by the Parliament Of India.

    Functions of IRDA

    The following core functions of the IRDA are specified under the IRDA Act, 1999.

    • Protection of insurance policy-holders, including claims settlements disputes
    • Maintain a registry of insurance companies in India
    • Laying down a specific code of conduct for insurance companies and agents
    • Presenting general guidelines to insurance companies and their agents
    • Encouraging professionalism among insurance and reinsurance companies
    • Regulation of insurance premiums
    • Regulation and over-watch of funds collected by insurance companies
    • Ensuring the maintenance of the solvency ratio of an insurance company. Thus ensuring the financial strength of the company
    • Handling of disputes between parties
    • Providing a framework of efficient and sustainable growth of the insurance sector in India
    • Correspond with Insurance Ombudsman in matters of dispute among stakeholders

    IRDA Regulations

    IRDA provides regulations for various branches of the insurance sector in India. They include providing regulatory instructions relating to the general insurance sector, health insurance sector, reinsurance sector. Further regulations relating to brokers, web aggregators, investment funds, expense management, corporate policy, solvency margin, among others.

    IRDA Headquarters

    The current IRDA headquarters are in Hyderabad, Telangana. Its head office building was established in 2001.

    IRDA Corporate Structure

    IRDA corporate structure comprises 10 members. A Chairman, 5 permanent members, and 4 temporary members. All members can be appointed for a maximum duration of 5 years. All appointments are made by the Government Of India.

    Chairman of IRDA

    The current Chairman of IRDA is Dr. Subhash C. Khuntia. Dr.Khuntia assumed the position of IRDA Chairman in May 2018. He has a distinguished service record in the civil services of India, with distinguished positions held in The Ministry of Human Resources, Ministry Of Finance, and Ministry Of Petroleum And Gas

    Dr. Khuntia has a Ph.D. in Economics along with holding master’s degrees in physics and computer science.

    IRDA Complaints 

    In case you wish to raise a complaint with IRDA, you will have to contact the Grievance Redressal Cell of IRDA. Mention your complaint on the complaints registration form and send it to the Grievance Redressal Cell.

    Alternatively, you can also lodge an online complaint by making use of IRDA’s Integrated Grievance Management System (IGMS)

    IRDA Pan Lookup

    It is imperative that you know that your agent is registered with the IRDA. If you wish to cross-verify the details of your agent, you may use the IRDA pan lookup tool for the same. Just enter the PAN Card details or Aadhar Card details of your agent in the IRDA pan lookup tool and you should be furnished with the following details:-

    • Name of agent/company
    • Date of joining
    • Company
    • Date of birth
    • Insurer company
    • Agency code
    • Termination date (If terminated)

    If the details are as per your satisfaction, you may choose to continue doing business with the agent.

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    Insurance

    Insurance as a contract (key takeaways)

    declaration

    Insurance as a contract (key takeaways)

    An insurance contract is generally a bilateral agreement between 2 parties. Namely, the insurer and the insured. The insurer agrees to bear a certain kind of risk for a fee (known as a premium). While the insured gets peace of mind knowing that he is covered against uncertainty.

    A contract can be termed as an insurance contract if it has valid characteristics under the Indian Contracts Act, 1872. What are these characteristics? They are:-

    • Competent to contract: Both parties should be of sound mind, not minor, and be competent to enter into a contract.
    • Free consent of parties: Both parties should enter into a contract without the influence of coercion, fraud, or misrepresentation of any type.
    • Lawful consideration: The nature of consideration should be lawful (example: legal tender of a nation)
    • Lawful object: Object of the contract should not be forbidden by law.

    If a contract fulfills all the characteristics above and deals with the object of insurance, it can be termed as an insurance contract.

    Let us talk about the two important aspects of an insurance contract below:-

    • Types of insurance contracts
    • Principles of an insurance contract

    Insurance contract types

    Contract of indemnity vs contract of certainty

    A contract of indemnity is where the insurer is insuring the insured against an event that may or may not happen. For example, a Motor insurance policy is a contract of indemnity, where the insurer will only pay the insured in case of an accident.

    A contract of certainty is where the insurer is insuring the insured against an event that is certain to happen. For example, a life insurance policy, where the insured is certain to die. Thus the payment will certainly happen in the event of death.

    Principles of an insurance contract

    There are 7 principles of an insurance contract, they are:-

    • Utmost Good Faith
    • Indemnity
    • Subrogation
    • Proximate cause
    • Contribution
    • Loss minimization
    • Insurable interest

    Utmost good faith

    Both parties, the insurer and the insured have to act in utmost good faith with each other. This means that there should not be any falsification of information by either party. The contract will be liable to be void in case utmost good faith is not maintained.

    Indemnity

    The insurer will only indemnify the insured against the actual loss caused by an event, and will not go beyond that. For instance, Mr. Mukesh has purchased a motor insurance policy with a coverage of 1 lac. Mr. Mukhes has met with an accident and the damages to his car cost 50000. In this case, the insurance company will pay Mr. Mukesh no more than 50000, even though his policy coverage is 1 lakh.

    Subrogation

    The principle of subrogation states that after the insured has been paid by the insurer, there is a transfer of ownership of the insured property. For example, Mr. Jay has insured a building and that building has caught fire. Mr.Jay will get his compensation from the insurance company, and the insurance company will now have ownership of that building. The insurance company may now choose to sue any party that they feel caused the fire and recover the dues.

    Proximate cause

    The principle of proximate cause states that if multiple causes are causing the loss. The closest cause will be considered.

    Contribution

    The principle of contribution states that in the event that a person takes 2 or more insurance policies for the same insured object, he will only be indemnified against the actual loss suffered and not beyond. For example, Mr. Harish has bought 2 car insurance policies (the first policy has a cover of 2 lacs and the second has a cover of 3 lacs) for his Honda City. Let us assume that he has met with an accident and the cost is 2. Mr. Harish on this occasion can only make a claim for INR 2 lakhs, even though he has a coverage of 5 lakhs across 2 policies.

    Loss minimization

    The principle of loss minimization states that in the event of an unfortunate event, the insured person will take all measures to reduce the damage caused to the insured object. For example, a person who has bought a fire insurance policy for his home should attempt to extinguish the fire (in case of a fire) if it can be safely done.

    Insurable interest

    what is insurable interest? The Principle of insurable interest means that there should be financial value attached to the insured property. The policyholder should stand to lose financially in the event that the insured object is damaged, lost, or stolen. If there is no insurable interest the insurance contract becomes compromised.

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    Frequently asked questions about insurance contracts

  • Is an insurance policy a contract?

    Yes, an insurance policy is a contract between the insurer and the insured.

  • What happens if you breach the principles of insurance?

    If you breach the principles of insurance, your insurance policy can be terminated.

  • Do both parties need to be of sound mind to enter into an insurance contract?

    Yes, both parties need to be of sound mind under the Contracts Act of India.

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    Insurance

    Effect of GST on insurance premium

    taxes

    Effect of GST on insurance premium

    The Goods And Services Tax (GST) came into effect from 1st July 2017. The introduction of GST affected the insurance sector; specifically on insurance premiums. The cost of getting insured generally went up with the introduction of this tax, making insurance more expensive than before.

    Let us understand what are some of the benefits of GST and then discuss the price changes in premium.

    Benefits of GST

    • Tax benefit of up to 1.5 lac per anum is provided as a deduction (including GST amount) under Section 80C and 80D.
    • Reduction in corruption will have an overall positive impact in most sectors.
    • Various experts have touted that GST will make insurance and related services cheaper going ahead.

    Effect of GST on insurance premium

    Effect on life insurance premium

    Life insurance premium pre GST was taxed at 15% including Swacha Bharat Cess and Krishi Kalyan Cess. Post GST, life insurance premium is now taxed at 18%. Thus 3% additional taxation has been levied on life insurance premiums. Term Insurance and Unit Linked Plans (ULIPS) are also similarly taxed. Endowment plans are taxed at 4.5% for the first year and 2.25% for subsequent years. Single premium annuity policies are taxed at 1.8%.

    Example

    Let us understand the GST taxation process with the help of a simple example. Let us assume that Mr. Ajit purchased a health insurance plan from ICICI Lombard, costing him an annual premium of INR 10000 (before GST). He will have to pay a GST of 18% on 10000 I.e 1800 as GST. Thus bringing his total premium payable to INR 11800.

    Effect on General Insurance Premium

    General insurance and health insurance premiums have also been hiked similarly under GST. Pre GST the taxation was 15%, and post GST the taxation has been elevated to 18%, thus making health and general insurance products more expensive.

    Government schemes exempted from GST

    Various government schemes are exempted from GST. The primary reason for these exemptions is that most of these schemes are targeted to the low-income group bracket, and the government wants to provide relief to the same. Schemes exempted from GST:-

    • Aam Aadmi Bima Yojana (AABY)
    • Janashree Bima Yojana (JBY)
    • Pradhan Mantri Vaya Vandan Yojana
    • Varishtha Pension Bima Yojana (VPBY)
    • Pradhan Mantri Jan Dhan Yojana
    • Janashree Bima Yojana (JBY)
    • Insurance policies provided to armed forces (By Government)
    • Micro life insurance policies

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    Frequently asked questions about GST on insurance premiums

  • How much GST is applicable on insurance?

    18% GST is applicable on insurance premiums in India.

  • Is there GST on life insurance premiums?

    Yes, GST is applicable on premiums paid towards life insurance.

  • Which Government schemes are exempted from GST?

    The following Government schemes are exempted from GST:

    • Aam Aadmi Bima Yojana (AABY)
    • Janashree Bima Yojana (JBY)
    • Pradhan Mantri Vaya Vandan Yojana
    • Varishtha Pension Bima Yojana (VPBY)
    • Pradhan Mantri Jan Dhan Yojana
    • Janashree Bima Yojana (JBY)
    • Insurance policies provided to armed forces (By Government)
    • Micro life insurance policies