What Type Of Life Insurance Is Best?

Life Insurance (though it shouldn’t be) is to this day a very controversial issue. There seems to be a lot of different types of life insurance out there, but there are really only two kinds. They are Term Insurance and Whole Life (Cash Value) Insurance. Term Insurance is pure insurance. It protects you over a certain period of time. Whole Life Insurance is insurance plus a side account known as cash value. Generally speaking, consumer reports recommend term insurance as the most economical choice and they have for some time. But still, whole life insurance is the most prevalent in today’s society. Which one should we buy?

Let’s talk about the purpose of life insurance. Once we get the proper purpose of insurance down to a science, then everything else will fall into place. The purpose of life insurance is the same purpose as any other type of insurance. It is to “insure against loss of”. Car insurance is to insure your car or someone else’s car in case of an accident. So in other words, since you probably couldn’t pay for the damage yourself, insurance is in place. Home owners insurance is to insure against loss of your home or items in it. So since you probably couldn’t pay for a new house, you buy an insurance policy to cover it.

Life insurance is the same way. It is to insure against loss of your life. If you had a family, it would be impossible to support them after you died, so you buy life insurance so that if something were to happen to you, your family could replace your income. Life insurance is not to make you or your descendants rich or give them a reason to kill you. Life insurance is not to help you retire (or else it would be called retirement insurance)! Life insurance is to replace your income if you die. But the wicked ones have made us believe otherwise, so that they can overcharge us and sell all kinds of other things to us to get paid.

How Does Life Insurance Work?

Rather than make this complicated, I will give a very simple explanation on how and what goes down in an insurance policy. As a matter of fact, it will be over simplified because we would otherwise be here all day. This is an example. Let’s say that you are 31 years old. A typical term insurance policy for 20 years for $200,000 would be about $20/month. Now… if you wanted to buy a whole life insurance policy for $200,000 you might pay $100/month for it. So instead of charging you $20 (which is the true cost) you will be overcharged by $80, which will then be put into a savings account.

Now, this $80 will continue to accumulate in a separate account for you. Typically speaking, if you want to get some of YOUR money out of the account, you can then BORROW IT from the account and pay it back with interest. Now… let’s say you were to take $80 dollars a month and give it to your bank. If you went to withdraw the money from your bank account and they told you that you had to BORROW your own money from them and pay it back with interest, you would probably go clean upside somebody’s head. But somehow, when it comes to insurance, this is okay

This stems from the fact that most people don’t realize that they are borrowing their own money. The “agent” (of the insurance Matrix) rarely will explain it that way. You see, one of the ways that companies get rich, is by getting people to pay them, and then turn around and borrow their own money back and pay more interest! Home equity loans are another example of this, but that is a whole different sermon.

Deal or No Deal

Let us stick with the previous illustration. Let us say the one thousand 31 year olds ( all in good health) bought the aforementioned term policy (20 years, $200,000 dollars at $20/month). If these people were paying $20/month, that is $240 per year. If you take that and multiply it over the 20 year term then you will have $4800. So each individual will pay $4800 over the life of the term. Since one thousand individuals bought the policy, they will end up paying 4.8 million in premiums to the company. The insurance company has already calculated that around 20 people with good health (between the ages of 31 and 51) will die. So if 20 people pass away, then the company will have to pay out 20 x $200,000 or $4,000,000. So, if the company pays out $4,000,000 and takes in $4,800,000 it will then make a $800,000 profit.

This is of course OVER simplifying because a lot of people will cancel the policy (which will also bring down the number of death claims paid), and some of those premiums can be used to accumulate interest, but you can get a general idea of how things work.

On the other hand, let’s look at whole life insurance. Let us say the one thousand 31 year olds (all in good health) bought the aforementioned whole life policy ($200,000 dollars at $100/month). These people are paying $100/month. That is $1200 per year. If the average person’s lifespan (in good health people) goes to 75, then on average, the people will pay 44 years worth of premiums. If you take that and multiply it by $1200 you will get $52,800. So each individual will pay $52,800 over the life of the policy. Since one thousand individuals bought the policy, they will end up paying 52.8 million in premiums to the company. If you buy a whole life policy, the insurance company has already calculated the probability that you will die. What is that probability? 100%, because it is a whole life (till death do us part) insurance policy! This means that if everyone kept their policies, the insurance company would have to pay out 1000 x $200,000 = $2,000,000,000) That’s right, two billion dollars!

Ladies and gentleman, how can a company afford to pay out two billion dollars knowing that it will only take in 52.8 million? Now just like in the previous example, this is an oversimplification as policies will lapse. As a matter of fact, MOST whole life policies do lapse because people can’t afford them, I hope you see my point. Let’s take the individual. A 31 year old male bought a policy in which he is suppose to pay in $52,800 and get $200,000 back? There no such thing as a free lunch. The company somehow has to weasel $147,200 out of him, JUST TO BREAK EVEN on this policy! Not to mention, pay the agents (who get paid much higher commissions on whole life policies), underwriters, insurance fees, advertising fees, 30 story buildings… etc, etc.

This doesn’t even take into account these variable life and universal life policies that claim to be so good for your retirement. So you are going to pay $52,800 into a policy and this policy will make you rich, AND pay you the $200,000 death benefit, AND pay the agents, staff and fees? This has to be a rip off.

Well, how could they rip you off? Maybe for the first five years of the policy, no cash value will accumulate (you may want to check your policy). Maybe it’s misrepresenting the value of the return (this is easy if the customer is not knowledgeable on exactly how investments work). Also, if you read my article on the Rule of 72 you can clearly see that giving your money to someone else to invest can lose you millions! You see, you may pay in $52,800 but that doesn’t take into account how much money you LOSE by not investing it yourself! This is regardless of how well your agent may tell you the company will invest your money! Plain and simple, they have to get over on you somehow or they would go out of business!

How long do you need life insurance?

Let me explain what is called The Theory of Decreasing Responsibility, and maybe we can answer this question. Let’s say that you and your spouse just got married and have a child. Like most people, when they are young they are also crazy, so they go out and buy a new car and a new house. Now, here you are with a young child and debt up to the neck! In this particular case, if one of you were to pass away, the loss of income would be devastating to the other spouse and the child. This is the case for life insurance. BUT, this is what happens. You and your spouse begin to pay off that debt. Your child gets older and less dependent on you. You start to build up your assets. Keep in mind that I am talking about REAL assets, not fake or phantom assets like equity in a home (which is just a fixed interest rate credit card)

In the end, the situation is like this. The child is out of the house and no longer dependent on you. You don’t have any debt. You have enough money to live off of, and pay for your funeral (which now costs thousands of dollars because the DEATH INDUSTRY has found new ways to make money by having people spend more honor and money on a person after they die then they did while that person was alive). So… at this point, what do you need insurance for? Exactly… absolutely nothing! So why would you buy Whole Life (a.k.a. DEATH) Insurance? The idea of a 179 year old person with grown children who don’t depend on him/her still paying insurance premiums is asinine to say the least.

As a matter of fact, the need for life insurance could be greatly decreased and quickly eliminated, if one would learn not to accumulate liabilities, and quickly accumulate wealth first. But I realize that this is almost impossible for most people in this materialistic, Middle Classed matrixed society. But anyway, let’s take it a step further.

Confused Insurance Policies

This next statement is very obvious, but very profound. Living and dying are exact opposites of each other. Why do I say this? The purpose of investing is to accumulate enough money in case you live to retire. The purpose of buying insurance is to protect your family and loved ones if you die before you can retire. These are two diametrically opposed actions! So, if an “agent” waltzes into your home selling you a whole life insurance policy and telling you that it can insure your life AND it can help you retire, your Red Pill Question should be this:

“If this plan will help me retire securely, why will I always need insurance? And on the other hand, if I will be broke enough later on in life that I will still need insurance, then how is this a good retirement plan?”

Now if you ask an insurance agent those questions, she/he may become confused. This of course comes from selling confused policies that do two opposites at once.

Norman Dacey said it best in the book “What’s Wrong With Your Life Insurance”

“No one could ever quarrel with the idea of providing protection for one’s family while at the same time accumulating a fund for some such purpose as education or retirement. But if you try to do both of these jobs through the medium of one insurance policy, it is inevitable that both jobs will be done badly.”

So you see, even though there are a lot of new variations of whole life, like variable life and universal life, with various bells and whistles (claiming to be better than the original, typical whole life policies), the Red Pill Question must always be asked! If you are going to buy insurance, then buy insurance! If you are going to invest, then invest. It’s that simple. Don’t let an insurance agent trick you into buying a whole life policy based on the assumption that you are too incompetent and undisciplined to invest your own money.

If you are afraid to invest your money because you don’t know how, then educate yourself! It may take some time, but it is better than giving your money to somebody else so they can invest it for you (and get rich with it). How can a company be profitable when it takes the money from it’s customers, invests it, and turns around and gives it’s customers all of the profits?

And don’t fall for the old “What if the term runs out and you can’t get re-insured trick”. Listen, there are a lot of term policies out there that are guaranteed renewable until an old age (75-100). Yes, the price is a lot higher, but you must realize that if you buy a whole life policy, you will have been duped out of even more money by the time you get to that point (if that even happens). This is also yet another reason to be smart with your money. Don’t buy confused policies.

How much should you buy?

I normally recommend 8-10 times your yearly income as a good face amount for your insurance. Why so high? Here is the reason. Let’s say that you make $50,000 per year. If you were to pass away, your family could take $500,000 (10 times $50,000) and put it into a fund that pays 10 percent (which will give them $40,000 per year) and not touch the principle. So what you have done is replaced your income.

This is another reason why Whole Life insurance is bad. It is impossible to afford the amount of insurance you need trying to buy super high priced policies. Term insurance is much cheaper. To add to this, don’t let high face values scare you. If you have a lot of liabilities and you are worried about your family, it is much better to be underinsured than to have no insurance at all. Buy what you can manage. Don’t get sold what you can’t manage.

Car Insurance Terms and Glossary

No car insurance resource would be complete without a comprehensive glossary of car insurance terms. We’ve compiled a list of terms and their definitions to better help you navigate the sometimes confusing world of insurance

Accident – This is an unexpected sudden event that causes property damage to an automobile or bodily injury to a person. The event may be an at-fault or not-at fault and it may be report or unreported. An accident involving two vehicles may be termed a collision.

Accident report form – This is the report filed by police, often called the police report, containing the important information regarding the vehicle collision. This report will include the names of all individuals involved, vehicles involved, property damaged and citations that were issued.

Adjuster – This is the person who will evaluate the actual loss reported on the policy after an accident or other incident. They will make the determination on how much will be paid on the auto insurance policy by the Insurer.

Agent – This is a licensed and trained individual who is authorized to sell and to service insurance policies for the auto insurance company.

At Fault – This is the amount that you, the policy holder, contributed or caused the auto collision. This determines which insurance agency pays which portion of the losses.

Auto Insurance Score – This is a score similar to credit score that evaluates the information in your consumer credit report. These scores are used when determining pricing for your auto insurance policy. Negative marks on your credit report can increase your auto insurance premiums. The use of this information to determine policy pricing does vary from state to state.

Automobile Insurance – This is a type of insurance policy that covers and protect against losses involving automobiles. Auto Insurance policies include a wide range of coverage’s depending on the policy holders needs. Liability for property damage and bodily injury, uninsured motorist, medical payments, comprehensive, and collision are some of the common coverage’s offered under an auto insurance policy.

Binder – This is a temporary short-term policy agreement put in place while a formal permanent policy is put into place or delivered.

Bodily Injury Liability – This is the section of an insurance policy that covers the cost to anyone you may injure. It can include lost wages and medical expenses.

Broker – This is a licensed individual who on your behalf sells and services various insurance policies.

Claim – This is a formal notice made to your insurance company that a loss has occurred which may be covered under the terms of the auto insurance policy.

Claims Adjuster – This person employed by the insurance agency will investigate and settle all claims and losses. A representative for the insurance agency to verify and ensure all parties involved with the loss, get compensated fairly and correctly.

Collision – The portion of the insurance policy that covers damage to your vehicle from hitting another object. Objects can include but are not limited to; another vehicle, a building, curbs, guard rail, tree, telephone pole or fence. A deductible will apply. Your insurance company will go after the other parties insurance policy for these cost should they be at fault.

Commission – This is the portion of the auto insurance policy that is paid to the insurance agent for selling and servicing the policy on behalf of the company.

Comprehensive – This is a portion of the insurance policy that covers loss caused by anything other than a collision or running into another object. A deductible will apply. This includes but is not limited to vandalism, storm damage, fire, theft, etc.

Covered loss – This is the damage to yourself, other people or property or your vehicle that is covered under the auto insurance policy.

Declarations Page – This is the part of the insurance policy that includes the entire legal name of your insurance company, your full legal name, complete car information including vehicle identification numbers or VIN, policy information, policy number, deductible amounts. This page is usually the front page of the insurance policy.

Deductible Amount – This is the portion of the auto insurance policy that is the amount the policy holder must pay up front before the Insurance Company contributes and is required to pay any benefits. This amount can be within a wide range in price and varies from approximately $100 – $1000. The larger amount you pay in a deductible the lower your normal monthly/yearly policy will cost. This is the portion of the auto insurance policy that would be applicable only to comprehensive or collision coverage.

Discount – This is a reduction in the overall cost of your insurance policy. Deductions can be given for a variety of different reasons including a good driving record, grades, age, marital status, specific features and safety equipment on the automobile.

Emergency Road Service – This is the part of an auto insurance policy that covers the cost of emergency services such as flat tires, keys locked in the car and towing services.

Endorsement – This is any written change that is made to the auto insurance policy that is adding or removing coverage on the policy.

Exclusion – This is the portion of the auto Insurance policy that includes any provision including people, places or things that are not covered under the insurance policy.

First Party – This is the policyholder, the insured in an insurance policy.

Gap Insurance – This is a type of auto insurance provided to people who lease or own a vehicle that is worth less than the amount of the loan. Gap auto Insurance will cover the amount between the actual cash value of the vehicle and the amount left on loan should the care be stolen or destroyed.

High-Risk Driver – If you have a variety of negative marks on your insurance record including driving under the Influences, several traffic violations, etc. you may be labeled as a risk to the insurance company. This will increase your insurance policy or may make you ineligible for coverage.

Insured – The policyholder (s) who are covered by the policy benefits in case of a loss or accident.

Insurer – Is the Auto Insurance company who promises to pay the policy holder in case of loss or accident.

Liability insurance – This part of an auto insurance policy which legally covers the damage and injuries you cause to other drivers and their vehicles when you are at fault in an accident. If you are sued and taken to court, liability coverage will apply to your legal costs that you incur. Most states will require drivers to carry some variation of liability coverage Insurance and this amount will vary state by state.

Limits – This is the portion of the auto insurance policy that explains and lists the monetary limits the insurance company will pay out. In the situation you reach these limits the policy holder will be responsible for all other expenses.

Medical Payments Coverage – This is the portion of an auto insurance policy that pays for medical expenses and lost wages to you and any passengers in your vehicle after an accident. It is also known as personal injury protection or PIP.

Motor Vehicle Report – The motor vehicle report or MVR is a record issued by the state in which the policy holder resides in that will list the licensing status, any traffic violations, various suspensions and./ or refractions on your record. This is one of the tools used in determining the premium prices offered by the insurance agency. This is also used to determine the probability of you having a claim during your policy period.

No-Fault Insurance – If you reside within a state with no-fault insurance laws and regulations, your auto insurance policy pays for your injuries no matter who caused the accident. No-fault insurance states include; Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah and Washington, DC..

Non-Renewal – This is the termination of an auto insurance policy on the given expiration date. All coverage will cease as of this date and insurer will be released of promised coverage.

Personal Property Liability – This is the portion of the auto insurance policy that covers any damage or loss you cause to another person’s personal property.

Personal Injury Protection or PIP – This portion of an auto insurance policy pays for any lost wages or medical expenses to you and any passengers in your vehicle following an accident. PIP is also known as medical payments coverage.

Premium – This is the amount charged to you monthly, yearly or any other duration agreed upon by insurance company and policy holder and paid directly to the auto insurance company. A premium is based on the type and amount of coverage you choose for your vehicle(s) and yourself. Other factors that will affect your insurance premium prices include your age, marital status, you’re driving and credit report, the type of car you drive and whether you live in an urban or rural area. Premiums vary by insurance company and the location you live.

Quotation – This is the amount or estimated amount the insurance will cost based on the information provided to the agent, broker or auto insurance company.

Rescission.- This is the cancellation of the insurance policy dated back to its effective date. This would result in the full premium that was charged being returned.

Rental Reimbursement – This is the portion of the auto insurance policy that covers the cost of an automobile rental of similar size should the covered vehicle be in repair from a reported incident.

Replacement Cost – This is the amount of money it would cost to replace a lost or damaged item at it is actually new replacement value. This monetary amount would be based on a new identical item in the current local market.

Salvage – This is the auto insurance policy holders property that is turned over tot eh insurance agency in a loss final settlement. Insurance companies will sell the salvage property in hopes to recoup some of its monetary loss due to the loss and settlement.

Second Party – this is the actual insurance company in the auto insurance policy.

Surcharge – This is the amount added to your auto insurance policy premium after a traffic violation or an accident in which you were found to be at fault.

Third Party – This is another person other than the policy holder and auto insurance company who has faced a loss and may be able to collect and be compensated on behalf of the policy holder’s negligence.

Total Loss – This is complete destruction to the insured property of a policy holder. It has been determined that it would be a great sum of money to repair the item rather than replace the insured piece of property to its state prior to the loss.

Towing Coverage – This is the portion of the auto insurance policy that covers a specified amount for towing services and related labor costs.

Under insured Driver – This is the portion of an auto insurance policy which covers injuries to you caused by a driver without enough insurance to pay for the medical expenses you have incurred from the accident. This is portion of the policy can vary state by state as some states include damage to the car in this section.

Uninsured Driver or Motorist – This is the portion of the auto insurance policy which covers injuries to you caused by a driver who was without liability insurance at the time of the accident. Uninsured driver or motorist coverage comes in two different sections; uninsured motorist bodily injury and uninsured motorist property damage. Uninsured motorist bodily injury coverage covers the injuries to you or any passenger in your vehicle when there is an accident with an uninsured driver. Uninsured motorist property damage coverage covers the cost for the property damage to your vehicle when there is an accident with an identified uninsured driver. Uninsured driver or motorist coverage must be offered when you purchase the required liability coverage for your vehicle. You must sign a declination waiver if you decline Uninsured driver or motorist coverage. The majority of states require drivers to carry some form of uninsured motorist coverage. Some states include damages to your car in this coverage.

Vehicle Identification Number or VIN – A VIN is a 17 letter and number combination that is the identification of the specific vehicle. It will identify the make, modem and year of the automobile. This number is typically located on the driver’s side window on the dash. It can also be found on the vehicles registration and title.

How an Insurance Policy Works

Insurance is synonymous to a lot of people sharing risks of losses expected from a supposed accident. Here, the costs of the losses will be borne by all the insurers.

For example, if Mr. Adam buys a new car and wishes to insure the vehicle against any expected accidents. He will buy an insurance policy from an insurance company through an insurance agent or insurance broker by paying a specific amount of money, called premium, to the insurance company.

The moment Mr. Adam pay the premium, the insurer (i.e. the insurance company) issue an insurance policy, or contract paper, to him. In this policy, the insurer analyses how it will pay for all or part of the damages/losses that may occur on Mr. Adam’s car.

However, just as Mr. Adam is able to buy an insurance policy and is paying to his insurer, a lot of other people in thousands are also doing the same thing. Any one of these people who are insured by the insurer is referred to as insured. Normally, most of these people will never have any form of accidents and hence there will be no need for the insurer to pay them any form of compensation.

If Mr. Adam and a very few other people has any form of accidents/losses, the insurer will pay them based on their policy.

It should be noted that the entire premiums paid by these thousands of insured is so much more than the compensations to the damages/losses incurred by some few insured. Hence, the huge left-over money (from the premiums collected after paying the compensations) is utilized by the insurer as follows:

1. Some are kept as a cash reservoir.

2. Some are used as investments for more profit.

3. Some are used as operating expenses in form of rent, supplies, salaries, staff welfare etc.

4. Some are lent out to banks as fixed deposits for more profit etc. etc.

Apart from the vehicle insurance taken by Mr. Adam on his new vehicle, he can also decide to insure himself. This one is extremely different because it involves a human life and is thus termed Life Insurance or Assurance.

Life insurance (or assurance) is the insurance against against certainty or something that is certain to happen such as death, rather than something that might happen such as loss of or damage to property.

The issue of life insurance is a paramount one because it concerns the security of human life and business. Life insurance offers real protection for your business and it also provides some sot of motivation for any skilled employees who decides to to join your organization.

Life insurance insures the life of the policy holder and pays a benefit to the beneficiary. This beneficiary can be your business in the case of a key employee, partner, or co-owner. In some cases, the beneficiary may be one’s next of kin or a near or distant relation. The beneficiary is not limited to one person; it depends on the policy holder.

Life insurance policies exist in three forms:

• Whole life insurance

• Term Insurance

• Endowment insurance

Whole Life Insurance

In Whole Life Insurance (or Whole Assurance), the insurance company pays an agreed sum of money (i.e. sum assured) upon the death of the person whose life is insured. As against the logic of term life insurance, Whole Life Insurance is valid and it continues in existence as long as the premiums of the policy holders are paid.

When a person express his wish in taking a Whole Life Insurance, the insurer will look at the person’s current age and health status and use this data to reviews longevity charts which predict the person’s life duration/life-span. The insurer then present a monthly/quarterly/bi-annual/annual level premium. This premium to be paid depends on a person’s present age: the younger the person the higher the premium and the older the person the lower the premium. However, the extreme high premium being paid by a younger person will reduce gradually relatively with age over the course of many years.

In case you are planning a life insurance, the insurer is in the best position to advise you on the type you should take. Whole life insurance exists in three varieties, as follow: variable life, universal life, and variable-universal life; and these are very good options for your employees to consider or in your personal financial plan.

Term Insurance

In Term Insurance, the life of the policy-holder is insured for a specific period of time and if the person dies within the period the insurance company pays the beneficiary. Otherwise, if the policy-holder lives longer than the period of time stated in the policy, the policy is no longer valid. In a simple word, if death does not occur within stipulated period, the policy-holder receives nothing.

For example, Mr. Adam takes a life policy for a period of not later than the age of 60. If Mr. Adam dies within the age of less than 60 years, the insurance company will pay the sum assured. If Mr. Adam’s death does not occur within the stated period in the life policy (i.e. Mr. Adam lives up to 61 years and above), the insurance company pays nothing no matter the premiums paid over the term of the policy.

Term assurance will pay the policy holder only if death occurs during the “term” of the policy, which can be up to 30 years. Beyond the “term”, the policy is null and void (i.e. worthless). Term life insurance policies are basically of two types:

o Level term: In this one, the death benefit remains constant throughout the duration of the policy.

o Decreasing term: Here, the death benefit decreases as the course of the policy’s term progresses.

It should be note that Term Life Insurance can be used in a debtor-creditor scenario. A creditor may decide to insure the life of his debtor for a period over which the debt repayment is expected to be completed, so that if the debtor dies within this period, the creditor (being the policy-holder) gets paid by the insurance company for the sum assured).

Endowment Life Insurance

In Endowment Life Insurance, the life of the policy holder is insured for a specific period of time (say, 30 years) and if the person insured is still alive after the policy has timed out, the insurance company pays the policy-holder the sum assured. However, if the person assured dies within the “time specified” the insurance company pays the beneficiary.

For example, Mr. Adam took an Endowment Life Insurance for 35 years when he was 25 years of age. If Mr. Adam is lucky to attain the age of 60 (i.e. 25 + 35), the insurance company will pay the policy-holder (i.e. whoever is paying the premium, probably Mr. Adam if he is the one paying the premium) the sum assured. However, if Mr. Adam dies at the age of 59 years before completing the assured time of 35 years, his sum assured will be paid to his beneficiary (i.e. policy-holder). In case of death, the sum assured is paid at the age which Mr. Adam dies.

Fire Insurance Under Indian Insurance Law

A contract of Insurance comes into being when a person seeking insurance protection enters into a contract with the insurer to indemnify him against loss of property by or incidental to fire and or lightening, explosion, etc. This is primarily a contract and hence as is governed by the general law of contract. However, it has certain special features as insurance transactions, such as utmost faith, insurable interest, indemnity, subrogation and contribution, etc. these principles are common in all insurance contracts and are governed by special principles of law.

FIRE INSURANCE:

According to S. 2(6A), “fire insurance business” means the business of effecting, otherwise than incidentally to some other class of insurance business, contracts of insurance against loss by or incidental to fire or other occurrence, customarily included among the risks insured against in fire insurance business.

According to Halsbury, it is a contract of insurance by which the insurer agrees for consideration to indemnify the assured up to a certain extent and subject to certain terms and conditions against loss or damage by fire, which may happen to the property of the assured during a specific period.
Thus, fire insurance is a contract whereby the person, seeking insurance protection, enters into a contract with the insurer to indemnify him against loss of property by or incidental to fire or lightning, explosion etc. This policy is designed to insure one’s property and other items from loss occurring due to complete or partial damage by fire.

In its strict sense, a fire insurance contract is one:

1. Whose principle object is insurance against loss or damage occasioned by fire.

2. The extent of insurer’s liability being limited by the sum assured and not necessarily by the extent of loss or damage sustained by the insured: and

3. The insurer having no interest in the safety or destruction of the insured property apart from the liability undertaken under the contract.

LAW GOVERNING FIRE INSURANCE

There is no statutory enactment governing fire insurance, as in the case of marine insurance which is regulated by the Indian Marine Insurance Act, 1963. the Indian Insurance Act, 1938 mainly dealt with regulation of insurance business as such and not with any general or special principles of the law relating fire of other insurance contracts. So also the General Insurance Business (Nationalization) Act, 1872. in the absence of any legislative enactment on the subject , the courts in India have in dealing with the topic of fire insurance have relied so far on judicial decisions of Courts and opinions of English Jurists.

In determining the value of property damaged or destroyed by fire for the purpose of indemnity under a policy of fire insurance, it was the value of the property to the insured, which was to be measured. Prima facie that value was measured by reference of the market value of the property before and after the loss. However such method of assessment was not applicable in cases where the market value did not represent the real value of the property to the insured, as where the property was used by the insured as a home or, for carrying business. In such cases, the measure of indemnity was the cost of reinstatement. In the case of Lucas v. New Zealand Insurance Co. Ltd.[1] where the insured property was purchased and held as an income-producing investment, and therefore the court held that the proper measure of indemnity for damage to the property by fire was the cost of reinstatement.

INSURABLE INTEREST

A person who is so interested in a property as to have benefit from its existence and prejudice by its destruction is said to have insurable interest in that property. Such a person can insure the property against fire.

The interest in the property must exist both at the inception as well as at the time of loss. If it does not exist at the commencement of the contract it cannot be the subject-matter of the insurance and if it does not exist at the time of the loss, he suffers no loss and needs no indemnity. Thus, where he sells the insured property and it is damaged by fire thereafter, he suffers no loss.

RISKS COVERED UNDER FIRE INSURANCE POLICY

The date of conclusion of a contract of insurance is issuance of the policy is different from the acceptance or assumption of risk. Section 64-VB only lays down broadly that the insurer cannot assume risk prior to the date of receipt of premium. Rule 58 of the Insurance Rules, 1939 speaks about advance payment of premiums in view of sub section (!) of Section 64 VB which enables the insurer to assume the risk from the date onwards. If the proposer did not desire a particular date, it was possible for the proposer to negotiate with insurer about that term. Precisely, therefore the Apex Court has said that final acceptance is that of the assured or the insurer depends simply on the way in which negotiations for insurance have progressed. Though the following are risks which seem to have covered Fire Insurance Policy but are not totally covered under the Policy. Some of contentious areas are as follows:

FIRE: Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. For e.g., paints or chemicals in a factory undergoing heat treatment and consequently damaged by fire is not covered. Further, burning of property insured by order of any Public Authority is excluded from the scope of cover.

LIGHTNING : Lightning may result in fire damage or other types of damage, such as a roof broken by a falling chimney struck by lightning or cracks in a building due to a lightning strike. Both fire and other types of damages caused by lightning are covered by the policy.

AIRCRAFT DAMAGE: The loss or damage to property (by fire or otherwise) directly caused by aircraft and other aerial devices and/ or articles dropped there from is covered. However, destruction or damage resulting from pressure waves caused by aircraft traveling at supersonic speed is excluded from the scope of the policy.

RIOTS, STRIKES, MALICIOUS AND TERRORISM DAMAGES: The act of any person taking part along with others in any disturbance of public peace (other than war, invasion, mutiny, civil commotion etc.) is construed to be a riot, strike or a terrorist activity. Unlawful action would not be covered under the policy.

STORM, CYCLONE, TYPHOON, TEMPEST, HURRICANE, TORNADO, FLOOD and INUNDATION: Storm, Cyclone, Typhoon, Tempest, Tornado and Hurricane are all various types of violent natural disturbances that are accompanied by thunder or strong winds or heavy rainfall. Flood or Inundation occurs when the water rises to an abnormal level. Flood or inundation should not only be understood in the common sense of the terms, i.e., flood in river or lakes, but also accumulation of water due to choked drains would be deemed to be flood.

IMPACT DAMAGE: Impact by any Rail/ Road vehicle or animal by direct contact with the insured property is covered. However, such vehicles or animals should not belong to or owned by the insured or any occupier of the premises or their employees while acting in the course of their employment.

SUBSIDENCE AND LANDSLIDE INCULUDING ROCKSIDE: Destruction or damage caused by Subsidence of part of the site on which the property stands or Landslide/ Rockslide is covered. While Subsidence means sinking of land or building to a lower level, Landslide means sliding down of land usually on a hill.

However, normal cracking, settlement or bedding down of new structures; settlement or movement of made up ground; coastal or river erosion; defective design or workmanship or use of defective materials; and demolition, construction, structural alterations or repair of any property or ground-works or excavations, are not covered.

BURSTING AND/OR OVERFLOWING OF WATER TANKS, APPARATUS AND PIPES: Loss or damage to property by water or otherwise on account of bursting or accidental overflowing of water tanks, apparatus and pipes is covered.

MISSILE TESTING OPERATIONS: Destruction or damage, due to impact or otherwise from trajectory/ projectiles in connection with missile testing operations by the Insured or anyone else, is covered.

LEAKAGE FROM AUTOMATIC SPRINKLER INSTALLATIONS: Damage, caused by water accidentally discharged or leaked out from automatic sprinkler installations in the insured’s premises, is covered. However, such destruction or damage caused by repairs or alterations to the buildings or premises; repairs removal or extension of the sprinkler installation; and defects in construction known to the insured, are not covered.

BUSH FIRE: This covers damage caused by burning, whether accidental or otherwise, of bush and jungles and the clearing of lands by fire, but excludes destruction or damage, caused by Forest Fire.

RISKS NOT COVERED BY FIRE INSURANCE POLICY

Claims not maintainable/ covered under this policy are as follows:

o Theft during or after the occurrence of any insured risks

o War or nuclear perils

o Electrical breakdowns

o Ordered burning by a public authority

o Subterranean fire

o Loss or damage to bullion, precious stones, curios (value more than Rs.10000), plans, drawings, money, securities, cheque books, computer records except if they are categorically included.

o Loss or damage to property moved to a different location (except machinery and equipment for cleaning, repairs or renovation for more than 60 days).

CHARACTERICTICS OF FIRE INSURANCE CONTRACT

A fire insurance contract has the following characteristics namely:

(a) Fire insurance is a personal contract

A fire insurance contract does not ensure the safety of the insured property. Its purpose is to see that the insured does not suffer loss by reason of his interest in the insured property. Hence, if his connection with the insured property ceases by being transferred to another person, the contract of insurance also comes to an end. It is not so connected with the subject matter of the insurance as to pass automatically to the new owner to whom the subject is transferred. The contract of fire insurance is thus a mere a personal contract between the insured and the insurer for the payment of money. It can be validly assigned to another only with the consent of the insurer.

(b) It is entire and indivisible contract.

Where the insurance is of a binding and its contents of stock and machinery, the contract is expressly agreed to be divisible. Thus , where the insured is guilty of breach of duty towards the insurer in respect of one subject matters covered by the policy , the insurer can avoid the contract as a whole and not only in respect of that particular subject mater , unless the right is restricted by the terms of the policy.

(c) Cause of fire is immaterial

In insuring against fire, the insured wishes to protect him from any loss or detriment which he may suffer upon the occurrence of a fire, however it may be caused. So long as the loss is due to fire within the meaning of the policy, it is immaterial what the cause of fire is, generally. Thus , whether it was because the fire was lighted improperly or was lighted properly but negligently attended to thereafter or whether the fire was caused on account of the negligence of the insured or his servants or strangers is immaterial and the insurer is liable to indemnify the insured. In the absence of fraud, the proximate cause of the loss only is to be looked to.

The cause of the fire however becomes material to be investigated

(1). Where the fire is occasioned not by the negligence of, but by the willful

(2) Where the fire is due is to cause falling with the exception in the contract.

LIMITATION OF TIME

Indemnity insurance was an agreement by the insurer to confer on the insured a contractual right, which prima facie, came into existence immediately when the loss was suffered by the happening of an event insured against, to be put by the insurer into the same position in which the accused would have had the event not occurred but in no better position. There was a primary liability, i.e. to indemnify, and a secondary liability i.e. to put the insured in his pre-loss position, either by paying him a specifying amount or it might be in some other manner. But the fact that the insurer had an option as to the way in which he would put the insured into pre-loss position did not mean that he was not liable to indemnify him in one way or another, immediately the loss occurred. The primary liability arises on the happening of the event insured against. So, the time ran from the date of the loss and not from the date on which the policy was avoided and any suit filed after that time limit would be barred by limitation.[2]

WHO MAY INSURE AGAINST FIRE?

Only those who have insurable interest in a property can take fire insurance thereon. The following are among the class of persons who have been held to possess insurable interest in, property and can insure such property:

1. Owners of property, whether sole, or joint owner, or partner in the firm owning the property. It is not necessary that they should possession also. Thus a lesser and a lessee can both insure it jointly or severely.

2. The vender and purchaser have both rights to insure. The vendor’s interest continues until the conveyance is completed and even thereafter, if he has an unpaid vendor’s lien over it.

3. The mortgagor and mortgagee have both distinct interests in the mortgaged property and can insure, per Lord Esher M.R.”The mortgagee does not claim his interest through the mortgagor , but by virtue of the mortgage which has given him an interest distinct from that of the mortgagor”[3]

4. Trustees are legal owners and beneficiaries the beneficial owners of trust property and each can insure it.

5. Bailees such as carriers, pawnbrokers or warehouse men are responsible for there safety of the property entrusted to them and so can insure it.

PERSON NOT ENTITLED TO INSURE

One who has no insurable interest in a property cannot insure it. For example:

1. An unsecured creditor cannot insure his debtor’s property, because his right is only against the debtor personally. He can, however, insure the debtor’s life.

2. A shareholder in a company cannot insure the property of the company as he has no insurable interest in any asset of the company even if he is the sole shareholder. As was the case of Macaura v. Northen Assurance Co.[4] Macaura. Because neither as a simple creditor nor as a shareholder had he any insurable interest in it.

CONCEPT OF UTMOST FAITH

As all contracts of insurance are contracts of utmost good faith, the proposer for fire insurance is also under a positive duty to make a full disclosure of all material facts and not to make any misrepresentations or misdescreptions thereof during the negotiations for obtaining the policy. This duty of utmost good faith applies equally to the insurer and the insured. There must be complete good faith on the part of the assured. This duty to observe utmost good faith is ensured b requiring the proposer to declare that the statements in the proposal form are true, that they shall be the basis of the contract and that any incorrect or false statement therein shall avoid the policy. The insurer can then rely on them to assess the risk and to fix appropriate premium and accept the risk or decline it.

The questions in the proposal form for a fire policy are so framed as to get all information which is material to the insurer to know in order to assess the risk and fix the premium, that is, all material facts. Thus the proposer is required too give information relating to:

o The proposer’s name and address and occupation

o The description of the subject matter to be insured sufficient for the purpose of identifying it including,

o A description of the locality where it is situated

o How the property is being used, whether for any manufacturing purpose or hazardous trade.etc

o Whether it has already been insured

o And also ant personal insurance history including the claims if any made buy the proposer, etc.

Apart from questions in the proposal form, the proposer should disclose whether questioned or not-

1. Any information which would indicate the risk of fire to be above normal;

2. Any fact which would indicate that the insurer’s liability may be more than normal can be expected such as existence of valuable manuscripts or documents, etc, and

3. Any information bearing upon the more; hazard involved.

The proposer is not obliged to disclose-

1. Information which the insurer may be presumed to know in the ordinary course of his business as an insurer;

2. Facts which tend to show that the risk is lesser than otherwise;

3. Facts as to which information is waived by the insurer; and

4. Facts which need not disclosed in view of a policy condition.

Thus, assured is under a solemn obligation to make full disclosure of material facts which may be relevant for the insurer to take into account while deciding whether the proposal should be accepted or not. While making a disclosure of the relevant facts, the

DOCTRINE OF PROXIMATE CAUSE

Where more perils than one act simultaneously or successively, it will be difficult to assess the relative effect of each peril or pick out one of these as the actual cause of the loss. In such cases, the doctrine of proximate cause helps to determine the actual cause of the loss.
Proximate cause was defined in Pawsey v. Scottish Union and National Ins. Co.,[5]as “the active, effective cause that sets in motion a train of events which brings about a result without the intervention of any force started and working actively from a new and independent source.” It is dominant and effective cause even though it is not the nearest in time. It is therefore necessary when a loss occurs to investigate and ascertain what is the proximate cause of the loss in order to determine whether the insurer is liable for the loss.

PROXIMATE CAUSE OF DAMAGE

A fire policy covers risks where damage is caused by way of fire. The fire may be caused by lightening, by explosion or implosion. It may be result of riot, strike or on account of any, malicious act. However these factors must ultimately lead to a fire and the fire must be the proximate cause of damage. Therefore, a loss caused by theft of property by militants would not be covered by the fire policy. The view that the loss was covered under the malicious act clause and therefore .the insurer was liable to meet the claim is untenable, because unless and until fire is the proximate cause f damage, no claim under a fire policy would be maintainable.[6]

PROCEDURE FOR TAKING A FIRE INSURANCE POLICY

The steps involved for taking a fire insurance policy are mentioned below:

1. Selection of the Insurance Company:

There are many companies that offer fire insurance against unforeseen events. The individual or the company must take care in the selection of an insurance company. The judgment should rest on factors like goodwill, and long term standing in the market. The insurance companies can either be approached directly or through agents, some of them who are appointed by the company itself.

2. Submission of the Proposal Form:

The individual or the business owner must submit a completed prescribed proposal form with the necessary details to the insurance company for proper consideration and subsequent approval. The information in the Proposal Form should be given in good faith and must be accompanied by documents that verify the actual worth of the property or goods that are to be insured. Most of the companies have their own personalized Proposal Forms wherein the exact information has to be provided.

3. Survey of the Property/ Consideration:

Once the duly filled Proposal Form is submitted to the insurance company, it makes an “on the spot” survey of the property or the goods that are the subject matter of the insurance. This is usually done by the investigators, or the surveyors, who are appointed by the company and they need to report back to them after a thorough research and survey. This is imperative to assess the risk involved and calculate the rate of premium.

4. Acceptance of the Proposal:

Once the detailed and comprehensive report is submitted to the insurance company by the surveyors and related officers, the former makes a thorough perusal of the Proposal Form and the report. If the company is satisfied that their is no lacuna or foul play or fraud involved, it formally “accepts” the Proposal Form and directs the insured to pay the first premium to the company. It is to be noted that the insurance policy commences after the payment and the acceptance of the premium by the insured and the company, respectively. The Insurance Company issues a Cover Note after the acceptance of the first premium.

PROCEDURE ON RECEIPT OF NOTICE OF LOSS

On receipt of the notice of loss, the insurer requires the insured to furnish details pertaining to the loss in a claim from relating to the following information-

1. Circumstances and cause of the fire;

2. Occupancy and situation of the premises in which the fire occurred;

3. Insured’s interest in the insured property; that is capacity in which the insured claims and whether any others are interested in the property;

4. Other insurances on the property;

5. Value of each item of the property at the time of loss together with proofs thereof , and value of the salvage ,if any; and

6. Amount claimed

Furnishing such information relating to the claim is also a condition precedent to the liability of the insurer. The above information will enable the insurer to verify whether-

(1) The policy is in force;

(2) The peril causing the loss is an insured peril;

(3) The property damaged or lost is the insured property.

Rules for calculation of value of property

The value of the insured property is-

1) Its value at the time of loss, and

2) At the place of loss, and

3) Its real or intrinsic value without any regard for its sentimental vale. Loss of prospective profit or other consequential loss is not to be taken into account.

FILING OF CLAIMS

How a claim arises?

After a contract of fire insurance has come into existence, a claim may arise by the operation of one or more insured perils on an unsecured property. There may in addition one or more uninsured perils also operating simultaneously or in succession of the property. In order that the claim should be valid the following conditions must be fulfilled:

1. The occurrence should take place due to the operation of an insured peril or where both insured and other perils operated , the dominant or efficient cause of the loss must have been an insured peril;

2. The operation of the peril must not come within the scope of the policy exceptions;

3. The event must have caused loss or damage of the insured property;

4. The occurrence must be during the currency of the policy;

5. The insured must have fulfilled all the policy conditions and should also comply with requirements to be fulfilled after the claim had arisen.

MATERIAL FACTS IN FIRE INSURANCE: PREVIOUS CONVICTION OF THE ACCUSED

The criminal record of an assured could affect the moral hazard, which insurers had to assess, and the non-disclosure of a serious criminal offence like robbery by the plaintiff would a material non-disclosure.

INSURED’S DUTY ON OUTBREAK OF FIRE, IMPLIED DUTY

On the outbreak of a fire the insured is under an implied duty to observe good faith towards the insurers and the in pursuance of it the insured must do his best to avert or minimize the loss. For this purpose he must (1) take all reasonable measures to put out the fire or prevent its spread, and (2) assist the fire brigade and others in their attempts to do so at any rate not come in their way.
With this object the insured property may be removed to a place of safety. Any loss or damage the insured property may sustain in the course of attempts to combat the fire or during its removal to a place of safety etc., will be deemed to be loss proximately caused by the fire.

If the insured fails in his duty willfully and thereby increases the burden of the insurer, the insured will be deprived of his right to revive any indemnity under the policy.[7]

INSURER’S RIGHTS ON THE OUTBREAK OF FIRE

(A) Implied Rights

Corresponding to the insured’s duties the insurers have rights by the law, in view of the liability they have undertaken to indemnify the insured. Thus the insurers have a right to-

o Take reasonable measures to extinguish the fire and to minimize the loss to property, and

o For that purpose, to enter upon and take possession of the property.

The insurers will be liable to make good all the damage the property may sustain during the steps taken to put out the fire and as long as it in their possession, because all that is considered the natural and direct consequence of the fire; it has therefore been held in the case of Ahmedbhoy Habibhoy v. Bombay Fire Marine Ins. Co [8] that the extent of the damage flowing from the insured peril must be assessed when the insurer gives back and not as at the time when the peril ceased.

(B) Loss caused by steps taken to avert the risk

Damage sustained due to action taken to avoid an insured risk was not a consequence of that risk and was not recoverable unless the insured risk had begun to operate. In the case of Liverpool and London and Globe Insurance Co. Ltd v. Canadian General Electric Co. Ltd., [9] the Canadian Supreme Court held that “the loss was caused by the fire fighters’ mistaken belief that their action was necessary to avert an explosion , and the loss was not recoverable under the insurance policy, which covered only damage caused by fire explosion., and the loss was not recoverable under the insurance policy, which covered only damage caused by fire or explosion.”

(C) Express rights

Condition 5- in order to protect their rights well insurers have prescribed for better rights expressly in this condition according to which on the happening of any destruction or damage the insurer and every person authorized by the insurer may enter, take or keep possession of the building or premises where the damage has happened or require it to be delivered to them and deal with it for all reasonable purposes like examining, arranging, removing or sell or dispose off the same for the account of whom it may concern.

When and how a claim is made?

In the event of a fire loss covered under the fire insurance policy, the Insured shall immediately give notice thereof to the insurance company. Within 15 days of the occurrence of such loss, the Insured should submit a claim in writing, giving the details of damages and their estimated values. Details of other insurances on the same property should also be declared.

The Insured should procure and produce, at his own expense, any document like plans, account books, investigation reports etc. on demand by the insurance company.

HOW INSURANCE MAY CEASE?

Insurance under a fire policy may cease in any of the following circumstances, namely:

(1) Insurer avoiding the policy by reason of the insured making misrepresentation, misdescription or non-disclosure of any material particular;

(2) If there is a fall or displacement of any insured building range or structure or part thereof , then on the expiry of seven days wherefrom, except where the fall or displacement was due to the action of any insured peril; notwithstanding this, the insurance may be revived on revised terms if express notice is given to the company as soon as the occurrence takes place;

(3) The insurance may be terminated at any tie at the request of the insured and at the option of the company on 15 days notice to the insured

CONCLUSION

Tangible property is exposed to numerous risks like fire, floods, explosions, earthquake, riot and war, etc. and insurance protection can be had against most of these risks severally or in combination. The form in which the cover is expressed is numerous and varied. Fire insurance in its strict sense is concerned with giving protection against fire and fire only. So while granting a fire insurance policy all the requisites need be fulfilled. The insured are under a moral and legal obligation to be at utmost good faith and should be telling true facts and not just fake grounds only with the greed to recover money. Further all insurance policies help in the development of a Developing nation. Hence insurance companies have a burden to help the insured when the insured are in trouble.

REFERENCE:

1. (1983) VR 698 (Supreme Court of Vienna)

2. Callaghan v. Dominion Insurance Co. Ltd. (1997) 2 Lloyd’s Rep. 541 (QBD)

3. Small v. U.K Marine Insurance Association (1897) 2 QB 311
4. (1925) AC 619

5. (1907) Case.

6. National Insurance Company v. Ashok Kumar Barariio

7. Devlin v. Queen Insurance Co, (1882) 46 UCR 611.

8. (1912) 40 IA 10 PC

9. (1981) 123 DLR (3d) 513 (Supreme Court of Canada)

Books Referred:

1. The Economics of Fire Protection by Ganapathy Ramachandran

2. Modern Insurance Law, by John Birds

3. The Handbook of Insurance Regulatory and Development Authority Act and Regulations with Allied Laws ,by Nagar

Scam Artists Want To Finance Your Next Car!

If you have shopped online for car loans recently you may have found hundreds of tempting offers. Many offers promise you guaranteed financing regardless of credit history, bankruptcy, divorce, and the end of the world … (well maybe we exaggerated that one a bit), but you get the idea.

Presently, over 100,000 people per day apply online to receive car loans from companies that promise financing with bad credit or no credit. What you need to be aware of is that not all of the websites out there are legitimate. If you are unfamiliar with the term, “Phishing Website” you should Google it today and learn what it is. You could be giving your information to someone that wants to steal your identity!

You might think, “Well if I have bad credit, then who cares if they steal it, won’t do any good for them anyhow.” That is not entirely accurate. Once they determine that your credit will not work, maybe your medical information will. Medical identity theft is rapidly growing due to increased health care costs and outrageous insurance premiums.

We recently heard of a victim who after applying for several car loans with no luck, and no return calls, she began receiving collection notices from a cancer treatment clinic in California. Since she lives in Maine, and is physically unable to travel, she got concerned.

Several months later, and several thousand dollars in attorney’s fees she found out that her social security number, income information, birth date, and other pertinent information was harvested from the internet and sold to scam artists that know how to generate medical insurance cards good enough to pass the “adequate” hospital screening process. All of this information harvesting was tracked to a website offering “guaranteed auto financing regardless of credit or income history”.

The worst part is her blood type was changed, because the person receiving cancer treatments on her information was type B and she was type A. Had she not caught this before going in for emergency treatment, she might have been pumped full of the wrong blood!

The moral of the story is, if you do not have the best credit and you want to get financing for a car or any other item, do some digging first to check on the credibility of the source you are working with. Your best bet will most likely be finding a dealership or local financing company that works with people to reestablish credit; or has other programs available that will fit your situation.