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Types of Insurance

There are various types of insurance business present according to the enactments given to them. Insurance may be broadly classified as follows:
  • Life Insurance
Since life is very precious and any unexpected thing can happen, everyone tries to insure themselves. There are every chances for all the individuals to experience something accidental including death. If that's the case then there will be no one to take care of the other members of the family if they are dependent on that person. The other risk is that the person may live too long that until he becomes old enough to retire. The earnings are going to decrease and end even in the latter. Hence to overcome such difficulties people seek help from the insurance companies. To overcome the uncertainty of life, life insurance policy was introduced. But as time went on many other insurance policies have come under way according to the individuals needs. Life insurance is defined as a bond in which the insurer in consideration of a certain premium, either in a lump sum or by other periodical payments, agrees to pay to the assured, or to the person for whose benefit the policy is taken, the assured amount, on the happening of a specified event conditional on the human life or at the expiry of time period specified. Hence, the insurance company agrees to insure the life of the person in exchange for an amount called premium. This premium may be paid as a whole or in installments. Hence the company promises to pay certain amount of money either on the death of the person or due to aging (i.e., the expiry of certain period). Thus, the person is sure that a specified amount will be given under any of the given event. This agreement or bond which contains all the terms and conditions is put on paper and such agreement is called the policy. The person whose life is insured is called the assured person. The company hence is called the insurer and the amount the assured person pays to the company is called premium which can be paid in installments. This provides a safeguard for the dependent family members if there is any premature death or aging of the assured. Hence the insurance not only acts as protection but also as an investment. Life insurance indirectly encourages savings as premium has to be paid periodically and hence provides a sense of security. The important points of a life insurance bond are:
  1. The bond is suppose to have all the essentials of a valid contract. Certain things like offer and acceptance, free consent, capacity to enter into a bond, lawful consent and lawful object must be there for the bond to be valid;
  2. The assured has to be true and honest in giving information to the insurance company as it is a bond of utmost good faith. He should give all the necessary facts to the company accurately;
  3. The insured must have some interest in the life insurance policy. Without any interest the bond is void. With life insurance, the insured must show some interest while the bond is being affected. It is not necessary that the assured should continue having interest as the bond matures. For example, a person is assumed to have an interest on his life, while a creditor has an interest in the life of the debtor, and a proprietor of a drama company has an insurable interest in the lives of the actors;
  4. This contract is not a bond of indemnity. The life of the insured cannot be brought back but only some amount of money can be reimbursed and that is why the amount is decided well in advance. The amount reimbursed is fixed earlier to the signing of the bond. Hence its not a bond of indemnity.

Types of Life Insurance Policies

The paperwork containing the term and conditions along with the signatures is called the policy. The policy is insured after the proposer and the insurer fill in the proposal forms. Requirements differ from person to person according to their needs. They can be family needs, children's needs, old age and special needs. To cater the needs of everyone the insurers have developed different types of schemes such as Whole Life Assurance, Endowment type plans, combination of Whole Life and Endowment type plans, Children's Assurance plans and Annuity plans. Some of them are shown below:
  1. Whole Life Policy: In this kind of policy, the amount payable to the insured is paid only after the death that too only to the beneficiaries or heir of the deceased. The premium is generally payable for a fixed time (20 or 30 years) or for the whole life of the insured. The policy generally continues till the death of the assured if the premium is payable for a fixed period.
  2. Endowment Life Assurance Policy: The Insurance Company agrees to pay a fixed amount on the death of the assured or due to aging whichever comes earlier. The sum is payable to the heir or nominee or the insured in the case of death and in the case of aging the sum will be paid to the assured after a fixed period i.e., till he/ she attains a particular age. This mean that the endowment policy matures after a few years.
  3. Joint Life Policy: Two or more persons take up this policy together. Either anyone or both can pay the premium or the whole lump sum. The assured sum or policy money is paid on the death of either one or both to the other survivor or survivors. Normally this policy is taken up by husband and wife jointly or by two partners in a partnership firm and the amount is paid to the survivors on the death of either of the two.
  4. Annuity Policy: In this policy, the assured amount of money is paid after the assured attains the mentioned age in monthly, quarterly, half yearly or annual installments. The premium is also paid in installments or as a whole. This policy is useful to those who want to have a regular income after attaining certain age.
  5. Children's Endowment Policy: This policy is useful to those who want to manage the education or marriage of their children In the future. The insurer pays the assured a certain amount of money after the children attain certain age. The person entering into the bond pays the premium but no premium will be paid, if he dies before the policy matures.
    • Fire Insurance
Fire insurance is a bond whereby the insurer, giving consideration to the premium paid, undertakes to compensate any loss or damage caused by fire accidents during a specified period the amount mentioned in the policy. Normally, the fire insurance is specified only for an year and renewed every year. like other policies the premium is either paid as a lump sum or in installments. A claim for the damage caused Is suppose to satisfy two conditions which are must:
  1. There is suppose to be actual loss; and
  2. Fire should not be intentional.
The risk covered by a this bond is the damage resulting from fire or any other cause, and which is the closest cause of the loss. If there is a loss due to overheating without any ignition then it will not be regarded as a fire loss. This bond is made on the fundamental principles of insurance

Difference between Life, Fire and Marine Insurance


Life Insurance

Fire Insurance

Marine Insurance


Human life

Property or assets

Ship, cargo or freight


Protection and investment

Only protection

Only protection

Insurable interest

Should be present at the time of effecting but not when the claim falls due

Should be there at the time of effecting as well as when claim falls due

Only during the time when claim falls due

Time period

Exceeds more than a year or longer like 5 to 30 years or entire life

Does not exceed one year

Normally for one year or the period of voyage or mixed


No indemnity policy. Paid either on death or maturity or happening of certain event

Bond of indemnity. Can claim only the actual amount or less provided minding the maximum limit of the bond

Bond of indemnity. Can claim only the market value of the ship and goods destroyed.

Loss measurement

Not measurable



Surrender value

Has a surrender value

Does not have

Does not have


Any amount

Amount cannot be more than the subject matter

Amount is according to the market value

Contingency of risk

Event is bound to happen and hence claim will be present

Is not bound to happen so there is an uncertainty

Is not bound to happen so there is an uncertainty

The Important Ones are

  1. In fire insurance, the insured should have insurable interest in the matter of insurance and without the interest the bond of insurance is void. In this case the insured must show interest at the time of the bond as well as at the time of the loss. For example, a person has insurable interest in his property, a businessman has insurable interest in the stock he owns, plant, machinery and building, an agent has an insurable interest in the property of his principal, a partner has insurable interest in the property of a partnership firm, and a mortgagee has insurable interest in the property, which is mortgaged.
  2. Similar to the life insurance bond, even this policy of fire insurance is a bond of utmost good faith. The insured should give true and honest information to the insurance company. It is his duty to disclose accurately the facts regarding the nature of property and risks To them and at the same time the insurance company should also disclose the facts of the policy to the proposer.
  3. The bond of fire insurance is a bond of strictest indemnity. The insured can acquire the actual amount of loss from the insurer in case of any loss. But it is subject only to the maximum amount for which it is insured. For example, if a person has insured his house for Rs10,00,000 the insurer is not bound to pay that amount, although the house may have been totally destroyed by fire; but he will pay the actual loss after deducting depreciation within the maximum of Rs.10,00,000. The main purpose of this is that the person should not gain by insurance.
  4. The insurer would reimburse only after finding out if fire is the proximate cause for damage.
    • ​​Marine Insurance
A marine insurance bond is an agreement whereby the insurer agrees to undertake to indemnify the insured in the manner and to the extent thereby agreed against marine losses. It gives protection against loss caused by marine accidents like collision of ship with the rock, or ship attacked by the enemies, fire and captured by pirates and actions of the captains and crew of the ship. These happenings cause loss, damage or theft of the ship and cargo and non-payment of the cargo and hence marine insurance insures ship hull, cargo and freight. Thus, it is a solution by which the insurer undertakes to reimburse the owner of a ship or cargo for complete or partial loss at sea. The insurer gurantees compensate the losses due to damage to the ship or cargo occurring due to the risks incidental to marine journeys. The insurer is called as the underwriter and the insured pays certain amount of money to get assurance from the insurer. But its slightly different from the other types because there are ship or hull, cargo or goods, and freight all involved at the same time.
  1. Ship or Hull Insurance: Since the ship is exposed to many dangers at sea, the insurance policy is to make sure that they cover the losses caused to the ship.
  2. Cargo Insurance: Even the cargo while being transported by ship has got many risks like risk of theft at the port, lost goods or on voyage etc. Thus, an insurance policy is required to cover against such risks as well.
  3. Freight Insurance: The company is not paid freight charges in case there occurs any loss or damage during the journey. Hence for reimbursing the loss of freight to the shipping company the insurance can be taken.
The fundamental principles are similar to the general principles. The important points are:
  1. The insured is allowed to get the actual amount of loss under any event of damage but is not allowed to make profit out of the marine insurance bond in any case. But in the case of cargo policies commercial indemnity is provided and the insurer indemnifies the insured "in the manner and to the extent agreed." While for 'Hull Policy', the amount is fixed according to the current market value;
  2. The bond of marine insurance is a again a bond of utmost good faith. The insurer and the insured must disclose everything regarding the subject matter. The insured must accurately disclose all facts about the nature of shipment and the risk of damage to which it is exposed;
  3. Insurable interest may not be present while the policy was taken but should be there at the time of loss;
  4. The proximate cause of damage will be taken under consideration in case of any damage and the insurance company will pay only if that particular cause is covered by the policy.

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