The Aspect of Insurable Interest and its Transferability

Did you know you can't buy insurance for just anyone... or a cover for an asset owned by someone? 

A person who takes out insurance must have an insurable interest in the subject matter of the insurance; otherwise the contract will be invalid. In some instances, it may be illegal.

A person has an insurable interest in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. Typically, insurable interest is established by ownership, possession, or direct relationship. For example, people have insurable interests in their own homes and vehicles, but not in their neighbors' homes and vehicles, and certainly not those of strangers.

The concept of insurable interest is important in the insurance industry and it appears differently to a layman and to the insurance company. Insurance is supported on 3 main principals – Utmost good faith, Insurable interest and Indemnity followed by Subrogation and Contribution. When speaking of insurable interest, the aspect of financial evaluation does come to the fore but there are other parameters too. Again, since Life cannot be evaluated financially, insurable interest is examined separately through the eyes of a Life and General Insurer.

Ownership gives the owner an insurable interest in that property. However, there are other factors that can also give rise to an insurable interest:

Who	Has Insurable Interest in whom
Person	Own life (unlimited)
Creditor	Debtor to the extent of his outstanding debt
Employer	Employee to the extent of the value of his services.
Employee	Employer to the extent of his remuneration
Secured creditors	Property used as security
Bailor	Property of the Bailee (legal liability)
Buyer	Property he is contracted to buy in the future.
Business Partners	Lives of each other
Spouse	Life of the other
Parents	Life of children (as long as they are minor)
Surety	Debtor and Co-Surety

When it should exist?

Type of Insurance	At the time of purchase	At the time ofloss
Life Insurance	yes	not reqd.
Property/Liability Insurance	yes	Yes
Marine Insurance	Not reqd.	Yes

Not to forget, Insurable Interest is definitely necessary but not sufficient to obtain a policy. Moral hazard and character of the person are some of the other matters that are considered when issuing a policy.

TRANSFERABILITY

Is the request of the original insured or change of interest in the subject matter, sufficient to transfer the policy in the name of the new interest?

Life Insurance Policy: It can never be transferred. At most it can be assigned (Assignment is transfer of rights under the policy to another at the request of the original insured), that too only if the insurer agrees. Under assignment, the covered person remains the same, only the proceeds become payable to someone else.

Motor Insurance Policy: When a vehicle is sold, the Third Party (compulsory) portion of the Insurance is automatically transferred to the new owner to take care of his liability. But if the Policy also has “Own Damage” insurance, this part of the policy has to be specifically transferred by way of endorsement within 14 days of official transfer at the RTO, in case of sale and within 90 days in case of transfer due to death of original insured by paying transfer charges. Though the old policy itself is transferred, the contract with the new owner is totally distinct and even the no claim bonus which was allowed to the original insured is recovered proportionately from the new policyholder. 

Marine Insurance Policy: Only if the terms of sale is CIF or CIP (Cost, Insurance, Freight or Paid), Marine cargo policies are freely assignable. Otherwise it cannot be transferred/assigned.

Property Insurance : Different insurers follow different practices when handling such transfers. Generally an endorsement is passed when transferring the policy to the new insured.

Never Risk Your Risk

Many people in India think that paying Insurance Premium is a waste of money. So much so that some even stop paying premiums for compulsory insurance – Motor Insurance. Lesson needs to be learned from cases that happen not just in our nation but worldwide.

The following is a true incident that happened in China in May, 2011. The moral from it is self explanatory. Wu Yuanbi, a 53-year-old migrant worker living in Chongqing municipality, had declined for years to buy medical insurance because she wanted to save money. Result - Rather than pay medical bills, she cut into her own belly with a kitchen knife to perform self surgery.

Wu, who moved with her family to Chongqing in 1989 in search of better-paying jobs, has been suffering for about 13 years from Budd-Chiari syndrome, a chronic condition that caused her stomach to fill with fluid. In 2002, she and her family pooled their savings to pay for a procedure that resulted in the removal of 25 kilograms of water from her midsection. But a relapse of the condition followed and the family found itself too poor to pay 50,000 yuan ($7,686) for a second operation.

It was once common for poor rural families to go bankrupt after they had paid high medical costs. But not anymore. With the introduction of health insurance policies, some being highly subsidized by the government, basic healthcare has become more accessible to rural people.

Most of us can hardly afford to bear the full cost of medical treatment. Whereas the premiums charged by most policies are very reasonable. Hope lessons are learned!!

Tying – Untying the Insurance Bundle

Tired of hassles connected with buying multiple products, opening extra mails, maintaining separate records, making separate payments for each policy and possibly overpaying for your combined insurance premiums? Bundled products are what you need.


A bundled insurance product (combinations such as term plans and critical insurance policies, disability covers with regular health plans, motor policies and personal accident covers, etc) has lower price tag and convenience of tracking thus catching the eyes of customers. It’s also a standard marketing strategy of insurers as it helps to reduce distribution costs and apply economies to scale.


Price  Bundling  and  Product  Bundling  are  the prominent types. Inseparable  and  dependent supplementary benefits such as accelerated death  benefit  or  premium  waiver  represent  Product Bundling offering increased value to the base insurance component,  whereas  additional  Riders  like  accidental death  benefit  and  critical  illness  represent Price Bundling offering multiple related products at a lesser price.
Packaged covers can help not only reduce your insurance bill like the health insurance floaters but also get some uncommon covers which the insurance company may not be willing to underwrite as a standalone policy. For e.g. A personal accident policy of Rs 1 lakh for your driver or a cover for your exclusive music system will merely cost you around Rs 100 annually, however, the insurance company may not be interested in issuing a policy with that small a premium. In a bundled insurance, you can buy it along with your home insurance.


Due to the added cost associated with customer turnover, insurance companies wish to have customers who carry multiple lines of insurance and keep these policies in place for years. Moreover, bringing all of the insurance from a particular household slightly diversifies the company's risk. For customers, when one company is handling all of your insurance policies, that's less time that you must spend sorting through and paying each policy.


The no. of customers who bundle insurance products keeps increasing. Insurers are thus seen to continuously revamp their product offerings and leverage opportunities through innovative bundling. Bundling is no more a choice for the insurer, but inevitable to survive in the competitive market.


Caveat: While bundled products offer enhanced coverage, they may not suit everyone’s needs. We may also not be able to customize the size or features of the cover. Further, there may be limitations on renewal and cancellation of riders. Usually, standalone policies offer a more comprehensive protection than riders. Take the case of an accidental death and disability benefit rider. The maximum insurance benefit that one can choose is restricted to the amount allowed under that specific policy, even if you would like to have a higher cover. Moreover, a rider may not provide for loss of income due to temporary disablement. In contrast, a standalone personal accident policy will pay a weekly allowance, linked to the insured’s income.
Do not bundle if you want to customize and desire flexibility, when it complicates the product structure and when it does not give you adequate protection leading to compromising on the quality of cover.


The Bottom Line: Bundle only if it gels with your insurance requirements. When buying, be clear about your goals; otherwise, you may end up paying for unnecessary covers just because they can be easily embedded into other products. Also, do a price comparison before deciding for or against bundled products. 

A Rider Can Help in Modifying Your Insurance Coverage

Riders are added covers, available on an optional basis with most of the insurance products, which protect you against risks. They help you to buy additional cover at a nominal cost. Generally, this cost is low because relatively little underwriting is required. Based on your eligibility and need for protection, they can be mixed and matched. 

When you avail of a simple insurance policy and then add a rider to it, you get additional benefits attached to your policy. Riders help you increase your insurance cover quality and quantity wise. A rider is generally like a mini-insurance policy that is added to your insurance policy because there are chances your original insurance policy might not cover everything, and therefore, you may need additional protection.

Sometimes the basic life insurance policy is not enough to protect you from unexpected expenses like accident and illness. In that case you have to prepare yourself by adding riders. The most common life insurance riders are money back, critical illness, accident benefits, disability riders, waiver of Premium, child Term and terminal illness benefits.

With health insurance riders flooding the market, it is important to choose the right one for essential benefits. Say, hospital cash, patient care, new born baby care, critical illness benefit, E-opinion rider, etc. The health insurance riders may also act as special exceptions to coverage in health insurance plans put in by insurance co.s. Let's say you injured your knee once and had surgery. The underwriters at the insurance company in this case may decide to place a rider on the knee meaning they will cover you for everything EXCEPT for your knee, because they believe they could lose money due to your knee problem. These riders/waivers are sometimes permanent, while other times it may be issued as a two-year, three-year or five-year rider. If the condition does not deteriorate or recur over a period of time, often the insurer will "lift" the rider and give you full coverage.

Home Insurance riders provide better protection and maximum coverage for all your belongings, covering even those items which aren't ideally covered under a home insurance policy. For e.g. for covering your personal possessions, electronic equipments, any additional property that you might have, to cover damage due to a backed up sewer or drain and even a business based home insurance rider.

Auto Insurance Rider, an endorsement, change, or addendum to adjust your car insurance policy by actually deleting potentially unneeded coverage and adding the required ones, will help increase coverage protection and decrease your yearly premium for insurance. For e.g. Waiver of Depreciation rider, Loss of Use rider, Accident Forgiveness rider, Family Protection Coverage rider, etc.

The option of using "riders" is good for the insurance companies as well as for the general public because it enables the companies to insure people/products whom/which they would otherwise decline to cover. When a claim for the benefits of a rider is made, it can result in the termination of the rider, while the original policy continues to insure you as usual. Note that the insurance coverage, premium rates, terms and conditions of riders differ from one insurer to another. Since riders empower you with much-needed control over your ever-changing life situations, it is imperative that you sit down with your insurance broker to evaluate the benefits of the rider and buy the one that is best-fitted for you and your family before taking out an insurance policy.

History of Insurance

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular. Some important years in the history of insurance:

1818: The very first insurance company named Oriental Insurance Company was started in Calcutta; however, it discriminated between the British and the Indian community. The first Indian insurance company was the Bombay Mutual Life Assurance Society which came into existence in 1870.

1956: An Ordinance was issued nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

For General Insurance:

1850: It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year in Calcutta by the British.

1907: The Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business.

1957: Formation of the General Insurance Council, a wing of the Insurance Associaton of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices.

1968: The Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then.

107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1st 1973.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

 Source: wiki

DID YOU KNOW?

• Did you know that the first Life Insurance Company, Oriental Life Insurance, Kolkata started by the Europeans discriminated in the premiums charged - Higher premiums were charged for Indian lives as they were considered in the high risk category?
• Did you know that in most cases your landlord's insurance policy will not cover your personal property if it's stolen or damaged?
• Did you know that even if you had purchase a house-holder's insurance policy for your house or building, your tenants will need to buy a separate policy?
• Did you know that you may be paying two or more times more than you should for that old term life insurance policy that you bought years ago and put away in a drawer or safety deposit box?
• Did you know that your insurance company is not going to tell you if you are paying too much and there could be better priced coverages available, maybe even from the same company?
• Did you know that your general life or health insurance policy may not protect against illnesses, thefts and other unexpected occurrences that can impact your travel?
• Did you know that money alone can't buy you Insurance?
• Did you know that your Homeowner's Insurance also covers liability for accidents like someone visiting your house tripping and falling on your garden hose or stumbling over a low spot on your property?
• Did you know that you can buy insurance for Alien Abduction?
• Did you know that your locality or the area in which you reside would also play an important part while deciding the health insurance premium amounts?
• Did you know that you can buy Health Insurance & get tax benefit on the premium paid under section 80D of the Income Tax Act?
• Did you know that you can cover multiple dependents including your parents/ or in-laws in a single Floater Policy?
• Did you know that you can save up to 25% by comparing plans offered by different companies?
• Did you know that only an Insurance Broker can give you unbiased opinions and answers to all of the questions above and many more?
• Did you know that Our Service is completely free & we are paid by insurance companies directly?
• Did you know that you can always contact us for any insurance query, even if you haven't bought insurance policy from us?

Some stats about our Indian consumer....

Are people yet not aware of the benefits of insurance? Or majority of the population has become risk takers? I feel, former is the more justified reason in case of our country….yes, people are yet not aware about the long term benefits of the insurance products, they are not even aware of the benefits of starting early. Statistics have highlighted that in India penetration level of insurance is only 5.1% out of which 4.4% has been contributed by Life Insurance and 0.7% by non-life.

There should be a match between the requirements of the customer and the insurance products, and that should be explained to the customer.  

The survey conducted by Swiss Re. It was conducted across 11 Asia Pacific markets, covering 13,800 consumers between the 20 and 40 age group. People between 20 and 40 age group in India are the most willing to take risk in their lifestyle, such as pursuing danger sports and working for longer hours.

“But, 83% of Indian respondents still consider capital preservation as their top priority in making an investment. This proposition is the highest in the region,” said Mr. Amit Kalra. The insurable population in India would be 250 million by 2020. Hence, the insurance products should be innovative enough to satisfy the requirements.

Life insurance is not as expensive as people may perceive and Indians can afford it, the study finds. For a term life insurance cover, 80% of respondents in India are willing to pay at or above the market price range.