[Types of Insurance] Life Insurance and Non Life Insurance
Insurance business can be divided into two broad categories, life and nonlife. Life insurance is related with making provision for a specific event happening to the individual, such as death whereas non life is more commonly concerned with the provision for a specific event which affects a property, such as fire, flood, theft etc.
According to the U.S. Life Office Management Association Inc. , life insurance provides a sum of money if the person who is insured dies whilst the policy is in effect.
Life Insurance
It refers to the making contracts of insurance upon human life including any contract whereby the payment of money is assured on death or on the happening of any contingency to the dependent on human life and any contract which is subject to the payment of premiums for a term and shall be deemed to include; (i) The granting disability and double and triple indemnity accident benefits, if so provided in the contract of insurance; (ii) The granting of annuities of human life; and (iii) The granting of superannuation allowance and annuities payable out of any fund applicable solely to the relief and maintenance of the person engaged or who have been engaged in any particular profession, trade or employment or of the dependents of such persons.
Non Life Insurance
It includes conventional classification of insurance which includes : (i) Fire insurance (ii) Marine insurance and (iii) Miscellaneous insurance (accident); whereas Modern classification of General Insurance includes; (i) Insurance of person; (ii) Insurance of property; (iii) Insurance of interest; and (iv) Insurance of liability.
Different Risks
Risks are classified in various ways;
1. One classification is based on the extent of the damage likely to be caused. It covers (i) Critical risk which creates the bankruptcy of the owner; (ii) Important risks which may upset family or business finances badly, requiring a lot of time to recover and (iii) Unimportant risk refers to less damaging risks, like temporary illness or accidents.
2. Another classification is between financial and Non-Financial risks. Insurance is concerned with only financial risks.
(i) A third classification is between Dynamic and Static risks. Dynamic risks are caused by perils which have national consequence, like inflation, calamities, technology, political upheavals etc. static risk are caused by perils which have no consequence on the national economy, like a fire or theft or misappropriation. Dynamic risks are less likely to occur than static risks, but are also less predictable. Static risks are more suited to management through insurance.
4. Fundamental risks are those that affect larger populations while particular risks affect only specific persons.. Life Insurance business deals with particular risks.
5. Another classification is between pure risks and speculative risks. The later are in the nature of betting or gambling where the risk is, to some extent, under the control of the person concerned, while a pure risk is not so. It is more in the nature of an Act of God. Insurance deals with only pure risks and not speculative risks.
Social Security
When the bread earner dies, to that extent, the family’s income reduces. The economic condition of the family is affected, unless other arrangements come into being to restore the situation. Life insurance provides such an alternate arrangement. If this did not happen, another family would be pushed into the lower strata of society. The lower strata create a cost on society. Poor people cost the nation by way of subsidies. Poor people also cost by way of larger growth in population, poor education and vagaries in behaviour of children. Life insurance helps to reduce such costs. In this sense, the life insurance business is complimentary to the Govt.’s efforts in social management.
In India, Article 411 requires the States, within the limits of its economic capacity and development, to make effective provision for securing the right to work, to education and to provide public assistance in case of unemployment, old age, sickness and disablement and in other cases of undeserved want. Part of the Govt.’s obligations to the poorer sections is met through the mechanism of life insurance.