Q.Describe various types of insurance and examine the nature of risks protected by each type of insurance.

• Life insurance — protection plus investment against the certain risk of death and the risk of living too long (retirement); pays an assured sum on a specified life event or on maturity; not a contract of indemnity.
• Fire insurance — strict indemnity against loss or damage caused by fire; the fire must be accidental and cause actual loss; insurable interest must exist at both effecting and loss. …

Life Insurance — risk to human life

Since life itself is uncertain, individuals seek to assure a future sum. Two kinds of risk arise: the certain event of death, which threatens the income of dependent family members, and the risk of living too long (retirement), when a person may become too old to earn.

• Definition — life insurance is a contract in which the insurer, for a premium, agrees to pay the assured sum on the happening of a specified event contingent on human life, or on the expiry of a certain period.
• Nature — it is protection plus investment (a sum returns to the insured on death or on expiry) and it encourages saving, giving security to the insured and dependents.
• It is not a contract of indemnity — a human life cannot be compensated, so a fixed sum, decided at the outset, is paid; insurable interest must exist when the policy is effected (a person in his own life, a creditor in the life of his debtor).

Fire Insurance — risk of loss by fire

Fire insurance is a contract whereby the insurer, for the premium, undertakes to make good any loss or damage caused by fire during a specified period, up to the amount in the policy (normally one year, renewable).

• Conditions for a claim — there must be an actual loss, and the fire must be accidental and non-intentional. Overheating without ignition is not a fire loss.
• It is a contract of strict indemnity — the insured recovers the actual loss after deducting depreciation, within the insured limit, so no one gains from insurance. For example, if a house is insured for a certain sum and destroyed, the insurer pays the actual loss after depreciation, not automatically the full sum.
• Insurable interest must exist both at the time of insurance and at the time of loss, and fire must be the proximate cause.

Marine Insurance — perils of the sea

Marine insurance is an agreement whereby the insurer undertakes to indemnify the insured against marine losses — the perils of the sea such as collision with rocks, attack by enemies, fire, capture by pirates and the acts of the ship's captain and crew, causing damage, destruction or disappearance of ship and cargo and non-payment of freight. Marine insurance covers three things:

• Ship or hull insurance — losses from damage to the ship exposed to sea dangers.
• Cargo insurance — the cargo against risks at port (theft, lost goods) and during the voyage. …