Types of insurance and the methods of settlement of claims

There are various types of insurance that are present today. However, unfortunately many of us are not aware of how to settle claims after the loss has occurred. Many a times, they are exploited by the agents. The article provides a complete detail on the procedure for the settlement of claims in case of fire and marine insurance.

Fire insurance

Fire insurance may be defined as the contract in writing whereby the insurance company in consideration for a small sum of money ( the premium) undertakes to indemnify the insured for any loss or damage to the insured property in case of a fire.
Remember that the term 'fire' must satisfy the following conditions:
  • There must be actual fire or ignition. If the property is damaged by smoke or excessive heat, the insurance company will not be liable to pay any compensation as per the principle of causa proxima.

  • The fire should be accidental and not intentional. Loss covered by mere negligence is covered but loss due to any malicious act is not.

    Kinds of fire insurance policies

  • Valued policy: Under this policy, the value of the property insured is agreed upon at the time of taking up the policy. The insurance companies agrees to pay a pre-determined price if the property is damaged. valued policies are generally issued for the policy whose value cannot be determined easily like paintings, works of arts, antique jewelery etc.

  • Average policy: This type of policy contains an average clause. This implies that if the value of the property insured is more than the sum insured at the time of the fire, the insurance company will be liable to pay a rateable proportion of the loss.
    Suppose, person insures his house against fire for Rs 10 lakh whereas the value of the house is Rs 15 lakh. The house is damaged by the fire and the loss suffered is Rs 6 lakh. He can claim only Rs. 4 lakh form the insurance company.

  • Floating policy: This policy is taken to cover the risk of goods lying at different places the stocks of which are changing. The premium charged is generally the average of the total amount of premium he would have paid if he has taken the different policies. Such policies are very useful for the businessman whose stocks of good keep no changing.

    Methods of taking fire insurance policies

  • Insurance agents: A person who want to insure his property against fire may do so through an insurance agent or directly through the insurance company. Generally, the policy is taken through an agent as his expert advice is available free of cost but one should be careful against fraudulent activities and must pay the amount only after seeing all the proper documents.

  • Selection of the policy: Now, an appropriate policy must be chosen from the list of the policies described above which shall depend on your needs.

  • Proposal form: Whenever a person wants to get a policy, he has to fill a prescribed form. Full detail regarding the policy must be stated in the form, location, contents and value of the property.

  • Investigation of the property: On receipt of the proposal form, the insurance company sends a surveyor to evaluate the property. After examining the property, the surveyor submits his report to the insurance company.

  • Fixation of the premium: The nature and amount of premium is fixed on the basis of value of the property and report of the surveyor.

  • Payment of the premium: The insurance company informs the applicant that his form has been accepted. The insurance pays the premium and gets a cover note form the company. The risk covers starts from the date mentioned in the cover note or the day of payment of first premium.

    Procedure for settlement of claims

  • Notice of fire: As soon as the fire occurs, the insured must send a notice of loss in writing to the insurance company. If possible, he must submit the evidences of loss and the evidence he did everything to mitigate the loss. If deliberate arson is suspected, an FIR must be lodged with the police and a copy of FIR must be submitted along with the notice.

  • Submission of claim: After receiving the notice of fire, the insurance company sends a claim form to the insured. The insured should carefully fill the form as the details given in the form can affect the amount of the claim. Any wrong information can result in the refusal of the claim.

  • Inspection of the property: The insurance company may send an examiner or an inspector to examine the loss. The inspector makes an inspection and submits it to the company.

  • Assessment of the loss: After getting the report, the insurance company appoints an agent or an assessor to determine the value of the loss that has to be compensated.

    Payment of the claim: The insurance company makes payment to the insured on the basis of the report of the assessor.
    It may also reject the claim on the following grounds:
  • The claim is fraudulent.

  • The loss was not covered by the fire.

  • The loss occurred due to defect in the insured property not disclosed at the time of taking up the policy.

  • The loss was not intentional.

  • The insured has no insurable interest at the time of the loss.

    Marine insurance

    Marine insurance is a contract of indemnity whereby the insurance company undertakes to indemnify the insured for the loss or damage to the cargo or ship or freight on account of marine insurance. Marine insurance is one of the oldest type of the insurance which plays a vital role in the foreign trade.

    Subject matter of marine insurance

  • Hull insurance: In this type of marine insurance, the ship is insured against sea perils. It covers all the damages caused to the structure of the ship.

  • Cargo insurance: Carge means the good that is being transported through a ship.

  • Freight insurance: When freight is payable at the port of destination, shipping company may not get the freight if the goods are damaged during the journey. In such a case, the shipping company may insures its freight.

    Procedure for taking marine policy

  • Enquiry: First of all, the company or the person will make an enquiry with the insurance company or its agent. In India, General Insurance Corporation offer marine insurance policies.

  • Proposal form
    The person intending to take up a marine insurance policy will fill up a form available with the insurance company. The form should contain the following details:
  • Name, address and business of the proposer.

  • Name of the ship

  • Full details of the cargo.

  • Subject matter of the insurance.

  • Amount or sum to be insured.

  • Tye voyage or the period of the policy.

  • Cover note: The inured pays the amount of the premium and gets a cover note. It is issued as a preliminary step to the final preparation of the policy.

  • Issue of the policy: The marine insurance company shall prepare and issue the policy to the insured. It contains the following particulars:

  • Name of the insured or his agent.

  • Subject matter of the insurance

  • Marine risks insured against

  • Amount insured and the premium

  • Name, address and signature of underwriter.

  • description ad period of voyage

  • Name of the ship

  • Name of the captain of the ship

  • Special or additional clauses if any.

    Settlement of claim in marine insurance

  • Submission of the claim

  • Checking of the policy cover

  • Investigation of the claim

  • Determination of the amount of the loss

  • Preparation of the documents

  • Payment of the claim.

    Implied warranties in marine insurance policy

    Implied warranties are not mentioned in the marine policy but are implied by law, custom or general agreement. Many person do not take care of this conditions and fail to get their claims.

  • Seaworthiness of the ship: This warranty implies that the ship is in all respects, fit for the voyage when it starts sailing. The warranty ceases to operate when the ship starts sailing. A ship is said to be seaworthy when it is reasonably fit in all respect to encounter the ordinary perils of the sea.

  • Legality of the voyage: The adventure insured must be lawful adn must not be used for an illegal purpose.

  • Non-deviation of the ship: It implies that the ship must not deviate from the route prescribed in the policy or form the usual or customary route. However, the deviation may be excused if:

  • It is expressly authorized by the term of the policy.

  • It is caused by the circumstances beyond the control of the master and his employer.

  • It is reasonably necessary to comply with the express or implied warranty.

  • It is reasonably necessary for the safety of the ship or the subject matter insured.

  • It is necessary to save a human life or to save a ship in distress involving danger to human life.

  • It is reasonably necessary to obtain surgical aid for any person on board the ship.

  • No change and delay in the voyage: If the ship changes its destination, there is a change of voyage and the insurer ceases to be liable from the date when the decision to change the voyage was taken. This warranty also implies that there should be no unjustified delay in the voyage.

  • Proper documentation: This warranty implies that the ship shall carry all the proper documents necessary to prove her neutrality.

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