During this period of lockdown amid COVID-19 pandemic, people are facing numerous problems in regard to finance. In respect of the same Indian Government has given a relaxation to the health and motor vehicle insurance policy holders. In this article various aspects related to insurance are being highlighted with special reference to the relaxation provided by the Indian Government to the health and motor vehicle insurance policy holders. Through this article one will get a general idea of what insurance is and what are the principles of insurance on which the insurance policy is being issued. Moreover one will get to know the difference between life insurance, general insurance, third party insurance and comprehensive insurance.
What is the meaning of insurance?
An arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.
Principles of Insurance
- Principle of Utmost Good Faith
According to this principle, the insurance contract must be signed by both parties (i.e insurer and insured) in an absolute good faith or belief or trust.
- Principle of Insurable Interest
The principle of insurable interest says that the person getting insured must have the insurable interest in the object of insurance. This means that one needs to have an insurable interest in the thing or person, which he or she needs to get insured.
- Principle of Indemnity
The principle of indemnity says that the insurance agreement is signed only for getting protection against the unpredictable financial losses arising due to future uncertainties.
- Principle of Contribution
- It applies to all the contracts of indemnity, if the insured has taken out more than one policy on the same subject matter.
- According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer.
- If one insurer pays full compensation then that insurer can claim a proportionate claim from another insurer.
- Principle of Subrogation
According to this principle of subrogation, when the insured is compensated for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer.
- Principle of loss Minimization
According to the principle of loss minimization, an insured must try his level best to minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast, etc.
- Principle of Causa Proxima (Nearest Cause)
Proximate cause is connected with how the actual loss or damage happened to the insured party irrespective of whether it is a result of an insured peril.
It looks for what was the reason behind the loss, is that is an insured peril or not.
Difference between general insurance and life insurance
|Key points||Life Insurance||General insurance|
|Meaning||It is an insurance contract, which covers the life-risk of the person insured.||Anything which is not covered under life insurance like motor, house, health, etc.|
|Form||It is a form of investment||It is a contract of indemnity only.|
|Term||Long term||Short term|
|Premium||Premium has to be paid over the year.||Premium has to be paid lump sum.|
|Insurance claim||Insurable amount is paid either on the occurrence of the event, or on maturity.||Loss is reimbursed, or liability will be repaid on the occurrence of uncertain events.|
|Insurable Interest||Must be present at the time of contract||Must be present, at the time of contract and loss|
|Policy value||It can be done for any value based on the premium policy.||The amount payable under life insurance is confined to the actual loss suffered.|
Types of life insurance
- Term Insurance: It is the pure insurance form. It pays your nominee the sum assured in case of your demise within the policy term. It does not have any sum assured or maturity amount. Premium is very low.
- Endowment plans: These are the insurance and investments plans. A certain portion of the premium is paid for the protection of the life and rest amount is invested in low risk debt instruments. So, at the time of maturity the insured person gets a predefined amount.
- Unit linked insurance plans (ULIP): ULIP’s offer life protection as well as the opportunity for capital appreciation by investing in various funds of varying degrees of risk. Just like endowment policies, in ULIPs a certain portion of the premium goes in providing life cover. They generally invest in the equity market, therefore the return is not pre-defined, it depends on the market return. It has a certain lock in period.
Types of General Insurance
- Health Insurance: A general health insurance plan is an indemnity plan that pays for hospitalization expenses up to the sum insured. While you can avail a stand-alone health policy, family floater plans provide coverage to all the members of your family.
- Motor Insurance: Motor insurance covers your vehicle against accidents, damage, theft, vandalism, and so on. This form of insurance comes in two forms- comprehensive and third- party.
- Home Insurance: A home insurance policy protects your home and its belongings from the damages suffered due to man-made or natural- disasters. Some home insurance policies also provide coverage for temporary living expenses in case you are living on rent, due to your home undergoing renovation.
- Travel Insurance: Travel insurance policy covers you against the losses suffered while travelling such as loss of baggage, delays in flights, trip cancellation, etc. In some cases if you are hospitalized while travelling, a travel insurance may also offer cashless hospitalization.
Third party and Comprehensive insurance: an analytical study
- Third party insurance
Definition- Third-party insurance is an insurance policy purchased for protection against the claims of another. One of the most common types is third-party insurance is automobile insurance. Third-party offers coverage against claims of damages and losses incurred by a driver who is not the insured, the principal, and is therefore not covered under the insurance policy. The driver who caused damages is the third party. For instance “A” (who has purchased the insurance against his car), is driving his car on road, hits “B” (third party) while driving and due to this B’s family has to suffer financial losses due to his hospitalisation charges. Here as “A” has purchased third party insurance against his car therefore the insurance company themselves will compensate B for his losses.
- Comprehensive insurance
Definition- Comprehensive insurance is a car insurance policy that covers damages to your vehicle that are not caused by a collision with another car. It is required on leased vehicles, and on vehicles that are currently being paid for by a loan. Comprehensive auto insurance is supplementary, meaning it’s an optional coverage which can be added to an insurance policy. For maximum protection, you can pair comprehensive coverage with liability and collision coverage, or choose classic car insurance that provides flexible usage and coverage designed specifically for classic cars.
Difference between third party and comprehensive insurance
|Key points||Third party insurance||Comprehensive insurance|
|What is it?||A car insurance plan that covers for the damages caused by your vehicle to the third party such as a person, other vehicle, etc.||A car insurance plan that covers for the damages caused by your vehicle to the third party as well as it covers you and your own vehicle.|
|Coverage details||It’s coverage area is limited to the third party damages only for example is you hit another person with your vehicle or any property too.||It’s coverage area is not limited to the damages and losses suffered by the third party but it also covers you and your own car for example if your car do suffers damages due to earthquake then comprehensive insurance shall cover it.|
|Advantages||The insurance protects your pocket in case you accidentally hurt someone or someone’s vehicle or property.||The insurance plan protects your pocket in any case that is whether you accidentally cause damage to another party or you yourself and your vehicle too, you wont end up paying any damages or losses.|
|Limitations||It doesn’t cover the damages of you and your car therefore its less expensive.||It covers the damages of you yourself, your vehicle and damages caused to third parties too therefore a little expensive too.|
|Customization||Customization cannot be done under this insurance plan.||Customization is allowed under this plan as one can add on the protection against gearbox protection, breakdown assistance, engine failure, return to invoice, etc.|
|Premium price||The premium to be paid is lower as compared to the comprehensive insurance as it covers third party damages only. Moreover, the premium price is pre-determined.||The premium to be paid is highest but on the other hand more benefits are being enjoyed by the owner of this kind of insurance plan.|
|What should I go for?||This kind of insurance plan is a basic insurance plan, therefore if a person is driving an old car then a basic third party insurance plan would be sufficient.||As stated above that it’s more expensive than a third party insurance plan but it does cover each and every kind of damage or loss which can be suffered by you or your vehicle. Additionally, if one does not opt for a claim in a year then he can avail the benefit of discount as for no claim bonus.|
Relaxation to insurance policy holder amid COVID-19
Due to COVID-19 pandemic people are facing numerous financial problems therefore the government of India have decided to give a relaxation to the health and motor vehicle insurance policy holders with respect to it’s date of renewal that is relaxation on health and motor insurance policy only. The benefit of relaxation would be provided to those who had their motor or health insurance policy’s date renewal during the period of lockdown that is between 25th March 2020 till 14th April 2020. If one’s policy renewal date lies between these dates then he or she can pay his or her premium before 21st April, 2020. This relaxation is applicable on all health insurance policies. As far as motor vehicle insurance is concerned then the relaxation is applicable on third party insurance only. The relaxation is not applicable on any kind of comprehensive insurance policy.
Conclusion and Suggestion
Would like to conclude this topic with a suggestion that if one is having a policy of comprehensive nature, then he shall pay the premium before the date of renewal so as to attain maximum benefit. Additionally, one can enjoy the benefit of no claim bonus too. If one this thinking of the fact that whether cover of the policy will be maintained during the lockdown period or not, then he may not worry about the same as this relaxation policy will not have any effect on the insurance policy provided that if one’s renewal date was before lockdown, then the policy would be considered as expired.