Risk Analysis and Insurance Planning

There will be conditions that specify the conditions under which the insurer will not be honouring his liability under the contract, such as breach of conditions or warranties specified, breach of principle of utmost good faith etc. These are given under ‘forfeiture clause'. Whenever some special restrictive conditions have been imposed at the time of accepting the risk due to some factor affecting the mortality of the life to be insured, such clauses are also made part of the policy conditions. Limitation Policy conditions provide for limitation to apply to claims. For example, the fire policy provides that in no case whatsoever the company shall be liable for any loss or damage after the expiration of 12 months from the happening of loss or damage unless the claim is subject to pending action or arbitration. It is expressly agreed and declared that if the company shall disclaim liability for any claim thereunder and such claim shall not within 12 calendar months from the date of the disclaimer have been made the subject matter of a suit in a court of law then the claim shall for all practical purposes be deemed to have been abandoned and shall not therefore be recoverable thereunder. Similar condition is generally provided in other classes of insurance. In the absence of this condition, it would be possible for the Insured to reopen claims after a considerable lapse of time whereas it is not possible for the Insurers to keep their accounts and records open for an indefinite period. 3.5.6 Suicide Clause Death due to suicide is not covered under any life insurance policy for the first year. However, subsequently it is covered provided there are no other disputes regarding the policy. Analysis of Non Forfeiture Options S. Non Forfeiture Meaning Implication No. Options 1 Paid Up Value The policy will continue The paid up value without payment of further (reduced sum assured + premiums but for a bonuses declared) will be proportionately reduced payable on death or on amount. expiry of the ORIGINAL tenure of the policy. 289

2 Surrender Discounted value of the On payment of the Value surrender value. surrender value, the policy ceases to exist with immediate effect. 3 Extended Term Substitution of the original All maturity / survival Insurance policy with a pure protection related benefits cease to policy of the original sum exist with immediate assured. effect. 4 Automatic Taking a loan from the policy The policy acquires an Premium Advance to pay the premiums of the outstanding loan and a risk Clause same policy. of foreclosure. APRIL 2014: LATEST CHANGES IN LIFE INSURANCE POLICIES Over the past couple of years Insurance Regulatory and Authority had been driving the agenda of customer centricity in Indian life insurance industry. Regulations related to products have been undertaken not only to change product design but to also bring a positive change in sales practices. The new guidelines issued by The Insurance Regulatory and Development Authority (IRDA) for life insurance products especially traditional products, is an attempt at making life insurance true to its core value, more transparent and customer friendly. The guidelines follow overarching themes of providing transparency, protection and customer centricity to the policy holders and long term focus to the industry intermediaries. 1. Transparency In order to bring transparency, the regulator has ensured that all insurance products provide the prospective policyholder a customised benefit illustration on guaranteed and non-guaranteed benefits at gross investment returns of 4% and 8% respectively for all products. This benefit illustration should be signed by the customer and the agent as apart of the policy contract. Another step to ensure transparency is setting up of a \"With Profit Committee\", at the board level of every insurance company. This committee will approve asset mix and expense allocated for and investment income earned on the fund. This in turn will lead to improved and more transparent corporate governance in the administration of participating or ‗with profit' policies. 290

2. Protection Orientation The regulator has directed that the minimum sum for all policies will now be 10 times of the annual premium for people below 45 years and above 7 times for 45 years and above. At any point the death benefit will have to be at least 105% of all premiums paid till date. 3. Customer Centricity As per the new rules, one will become eligible for a surrender value after paying premiums for two years in case the premium-paying term is less than 10 years. For policies where premium-paying term is more than 10 years, the insured is eligible to a surrender value after three years. The traditional policies will now have better surrender value after the completion of 5 years. The minimum guaranteed surrender value will be 30% of all premiums paid going up to 90% of the premiums paid in the last two policy years. 4. Long Term Focus In order to re-emphasize the long term nature of the life insurance business the guidelines have also correlated agents' compensation to the policy terms. In case of regular premium insurance policies, a policy with a premium paying term (PPT) of five years will limit commissions to 15% in the first year, 7.5% in the second and third year and 5% subsequently. Products with PPT of 12 years or more will have first year commissions up to 35% in case the company has completed 10 years of existence and 40% for the company in business for less than 10 years. Sums on Paid-Up Value: 1. Calculate the Paid-up value Endowment 20 Years Plan and Term Yearly Mode of Premium ₹1,00,000 Sum Assured 18.03.2009 Date of Commencement 18.03.2018 Last Premium Paid ₹35,000 Vested Bonus Solution: No. of Premiums Paid = 10 Paid up value = {SA X (Premiums Paid/ Premiums Payable)} + Vested Bonus= {1,00,000 X (10/ 20)} + 35,000 = ₹85,000 291

Sums on Surrender Value: 2. Calculate Surrender Value from the given information: Sum Assured ₹25,000 Plan & Term Endowment (without profits) & 20 years Mode of payment Half Yearly Date of Commencement 10/08/2003 Date of first unpaid premium 10/02/2018 Vested Bonus ₹20,750 Surrender value factor ₹70.90 per ₹100 Solution: No. of Premiums Paid = {(10.02.1997-10.08.1982) X 2} = 29 Paid up value = {SA X (Premiums Paid/ Premiums Payable)} + Vested Bonus= {25,000 X (29/ (20X2)} = ₹18,125 Surrender value = (Paid Up Value X Surrender Value Factor) / 100 = (18,125 X 70.90)/ 100 = ₹12,850 Sums on Loan: 3. Find out loan available at 90% of surrender value as on 01.09.2013: Sum Assured ₹50,000 Date of Commencement 13/07/2012 Plan & Term Endowment (without profits) & 25 years Due date of last premium paid 13/01/2018 Mode of payment Half Yearly Additional Information: S.V. Factors: 7 years = 23.91%, 8 years = 24.63%, 9 years = 26.48% Solution: No. of Premiums Paid = 12 Paid up value = {SA X (Premiums Paid/ Premiums Payable)}= {50,000 X (12/50)}= ^ 12,000 Duration = 18D 1M 8Y 292

Surrender value = (Paid Up Value X Surrender Value Factor) / 100 = (12,000X24.63)/100 = ^ 2,955.60 Loan amount = (Surrender Value X Loan Rate) / 100 = (2,955.60X90)/100 = ^ 2,660.04 4. Find out loan available at 90% of surrender value on the basis of the following data: Sum Assured = 50,000 Date of Commencement = 19.02.2014 Plan & Term = Endowment (without profits) & 20 years Due date of unpaid premium = 19.02.2018 Mode = Yearly Surrender Value Factor = 32% Solution: No. of Premiums Paid = 4 Paid up value = {SA X (Premiums Paid/ Premiums Payable)}= {50,000 X (4/20)}= ^ 10,000 Surrender value = (Paid Up Value X Surrender Value Factor) / 100 = (10,000X32)/100 = ^ 3,200 Loan amount = (Surrender Value X Loan Rate) / 100= (3,200X90)/ 100 = ^ 2,880 293

QUESTIONS Q1. A policy that requires no further premium payments is said to be a. (a) paid-up policy (b) single premium whole life policy (c) modified premium whole life policy Q2. Cash surrender value of a deffered annuity =____________________. (a) accumulated value - surrender charges (b) accumulated value + surrender charges (c) accumulated value / surrender charges Q3. If suicide clause is operative in a policy (a) The policy will provide for payment of capital sum assured on death due to suicide. (b) The Insurance Company will not pay any sum, in case of death due to suicide (c) The Claim by death due to suicide will be considered for 50% of SA (d) Payment will be limited to refund of premium. Q4. Revival of a lapsed policy can be (a) Declined (b) Allowed on revised condition (c) Allowed on existing conditions (d) All the above Q5. Lapsed policy can be revived (a) At any time after lapse (b) Before date of maturity of the policy (c) Only after the expiry of a year from lapsation (d) None of the above Q6. Surrender value will not be paid under (a) Term Insurance Policies (b) Immediate Annuity Policies (c) Deferred Annuity Policies after Annuity has commenced (d) All the above. 294

Q7. Policy cannot be surrendered if (a) Policy is absolutely assigned (b) Policy is lapsed (c) Policy is assigned and if assignee is a minor (d) None of the above Q8. Loans under policies are granted (a) Up to full sum assured (b) Up to twice the sum assured (c) Within the surrender value of the policy (d) Up to 50% of the sum assured Q9. Is revival of a policy a Novatio of the contract (a) True (b) False Q10. A person \"X\" has taken a policy for sum assured of Rs.10000 term insurance coverage for 10 years. After five years the payment of premium was stopped and policy lapsed. Whether \"A\" is entitled for surrender value of the policy (a) Yes, he is entitled (b) No, he is not entitled for surrender value (c) Can't be decided Q11. While taking out a life insurance proposal, the proposer disclosed that a few years back he had suffered form pain in his liver but now at the time of the proposal, he was free from the complaint. The insurer accepted the assurance at ordinary rates as proposed. Subsequently the assured passed away within about two years of taking out the policy. On investigation of the death claim it was discovered that the assured died of cirrhosis of the liver. The insurance company repudiated the claim. The claimant sought legal redress and the court set aside the insurance company's action of repudiation on the grounds of a legal principle as argued by the claimant. It was the principle of: (a) Representation (b) Warranty (c) Utmost good faith (d) Waiver and estoppel 295

Q12. The time limit granted by the IRDA to the proposer to review the terms and conditions of the policy after receipt of the policy bond is: (a) 21 days (b) 15 days (c) 7 days (d) None of the above ANSWERS 1 A5 D9 A 2 A 6 D 10 B 3 B 7 D 11 D 4 D 8 C 12 B 296

SECTION - IV General Insurance- Property, Health and Liability Insurance 297

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4.1 HEALTH INSURANCE AND ACCIDENT INSURANCE Learning outcomes At the end of this topic, students will be able to:  Understand the concept and importance of health insurance as a risk mitigation tool for health risks.  Explain the scope of coverage offered by health insurance policies.  Describe the provisions of Family Floater Insurance and Group Insurance.  List down the provisions of the Critical Illness Policy.  Understand the concept of long-term care insurance and income assurance. 4.1.1 Individual Health Insurance ―Health insurance is an insurance, which covers the financial loss arising out of poor health condition or due to permanent disability, which results in loss of income.‖ A health insurance policy is a contract between an insurer and an individual or group, in which the insurer agrees to provide specified health insurance at an agreed upon price (premium). It usually provides either direct payment or reimbursement for expenses associated with illness and injuries. The cost and range of protection provided by health insurance depends on the insurance provider and the policy purchased. A Health Insurance Policy would normally cover expenses reasonably and necessarily incurred under the following heads in respect of each insured person subject to overall ceiling of sum insured (for all claims during one policy period). a) Room, Boarding expenses b) Nursing expenses c) Fees of surgeon, anesthetist, physician, consultants, specialists d) Operation theatre charges, surgical appliances, diagnostic tests and materials, and similar expenses. Health insurance policy can be obtained by an individual for herself / himself, her / his family, or by a group. An individual health insurance is a cover for an individual that takes care of the hospitalization expenses of the individual covered subject to maximum of overall limit of the policy sum insured.  Sum Insured The Sum Insured offered may be on an individual basis or on floater basis for the family as a whole.  Eligibility The eligibility as per the age factor varies from insurer to insurer, from as young as 3 months to 80 years and above.  Cumulative Bonus (CB) 299

Health Insurance policies may offer Cumulative Bonus wherein for every claim free year, the Sum Insured is increased by a certain percentage at the time of renewal subject to a maximum percentage (generally 50%). In case of a claim, CB will be reduced by 10% at the next renewal.  Cost of Health Check-up Health policies may also contain a provision for reimbursement of cost of health check up.  Minimum Period of stay in Hospital In order to become eligible to make a claim under the policy, minimum stay in the Hospital is necessary for a certain number of hours. Usually this is 24 hours. This time limit may not apply for treatment of accidental injuries and for certain specified treatments. Portability Portability is the right accorded to an individual health insurance policyholder (including family cover), to transfer the credit gained for pre-existing conditions and time bound exclusions, from one insurer to another insurer or from one plan to another plan of the same insurer, provided the previous policy has been maintained without any break. Moving between policies of the same company itself has been excluded.  Cashless Facility Insurance companies have tie-up arrangements with a network of hospitals in the country. If policyholder takes treatment in any of the net work hospitals, there is no need for the insured person to pay hospital bills. The Insurance Company, through its Third Party Administrator (TPA) will arrange direct payment to the Hospital. Expenses beyond sub limits prescribed by the policy or items not covered under the policy have to be settled by the insured direct to the Hospital. The insured can take treatment in a non-listed hospital in which case he has to pay the bills first and then seek reimbursement from Insurance Co. There will be no cashless facility applicable here.  Pre and Post Hospitalization Expenses Expenses incurred during a certain number of days prior to hospitalization and post hospitalization expenses for a specified period from the date of discharge may be considered as part of the claim provided the expenses relate to the disease / sickness.  Additional Benefits and Other Stand Alone Policies Insurance companies offer various other benefits as ―Add-ons‖ or riders. There are also stand alone policies that are designed to give benefits like ―Hospital Cash‖, ―Critical Illness Benefits‖, ―Surgical Cash Benefit‖, etc. These policies can either be taken separately or in addition to the hospitalization policy. The Hospital Daily Cash Benefit Policy, provides a fixed daily sum insured for each day of hospitalization. There may also be coverage for a higher daily benefit in case of ICU admissions or for specified illnesses or injuries. A Critical Illness benefit policy provides a fixed lumpsum amount to the insured in 300

case of diagnosis of a specified illness or on undergoing a specified procedure. There are also other types of products, which offer lumpsum payment on undergoing a specified surgery (Surgical Cash Benefit), and others catering to the needs of specified target audience like senior citizens. A few companies have come out with products in the nature of Top Up and Super Top Up policies to meet the actual expenses over and above the limit available in the basic health policy.  Tax Benefits In order to promote health insurance, the Government gives certain tax incentives to policyholders. These benefits could be in the form of a tax rebate or by allowing the premium paid to be deducted from the income for tax calculations. An important incentive is that the premium paid for health insurance policy qualifies for tax benefit under section 80D of Income Tax Act upto the limits specified.  Domiciliary Hospitalization Certain insurance products offer domiciliary hospitalization benefits. This generally refers to medical treatment for a period exceeding three days for such illness / injury which in the normal course would require treatment at the hospital / nursing home, but was actually taken whilst confined at home in India under any of the following circumstances namely: (i) The condition of the patient is such that she / he cannot be moved to the hospital / nursing home or (ii) The patient cannot be moved to hospital / nursing home for lack of accommodation therein It excludes certain chronic diseases like asthma, diabetes, hypertension, or common diseases like cough, cold, flu, dysentery etc. Many companies feel that domiciliary hospitalisation covers are not of much practical use and have withdrawn this cover. Domiciliary hospitalization limit is fixed at a certain percentage of the total sum insured. This amount is within the overall limit of sum insured. The premium is related to the age of the person and the sum insured selected. It is based on assessment of risk status of the consumer (or of the group of employees) and the level of benefits provided, rather than as a proportion of consumer‘s income.  Factors that Affect Health Insurance Premiums Age is a major factor that determines the premium. Health insurance premiums increase with ageas in older age one is more prone to illness. Previous medical history is another major factor that determines the premium. If no prior medical history exists, premium will automatically be lower. Claim free years can also be a factor in determining the cost of the premium as it might benefit you with certain percentage of discount. This will automatically help you reduce your premium. 4.1.2 Family Floater Policy Family Floater is one single policy that takes care of the hospitalization expenses of the entire family. The policy has one single sum insured, which can be utilised by any/all 301

insured persons in any proportion or amount subject to maximum of overall limit of the policy sum insured. Quite often Family floater plans are better than buying separate individual policies. Family Floater plans take care of all the medical expenses during sudden illness, surgeries and accidents. Family Floater health insurance policy is a comprehensive health insurance for covering the family members with one sum insured. Floater benefit means the Sum Insured as specified for the proposer under the policy, is available for any or all the members of his /her family for one or more claims during the tenure of the policy. Family includes Self, Spouse, Dependent Children (91 days to 21years), Parents. Some policies also include parents-in-law and siblings. The coverage under the policy is the same as under Individual Health Insurance. Floater policy is suitable for young family with lower health risk. It is less expensive than Individual Policy. For example, a family consists of self, spouse and two children purchases health insurance of ₹5 lakh. Under the floater policy, any or all family member(s) can avail the medical expense claim of upto₹5 lakh. In case of only one claim per year, the family member gets a greater claim amount compared to what he might have on an individual cover in an Individual Health Insurance Plan. But, if there is more than one claim in a family in a year, the other family members are left with little cover. Floater Policy can be renewed only till the senior most member of the family reaches the maximum age of renewability allowed by the particular insurance company, which is usually 65 to 70 years. 4.1.3 Critical Illness Policy Critical illness insurance or critical illness cover is an insurance product, where the insurer is contracted to typically make a pre-determined lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed on an insurance policy. The policy may also be structured to pay out regular income and the payment may also be on the policyholder undergoing a surgical procedure, for example, having a heart bypass operation. The contract terms contain specific rules that define when a diagnosis of a critical illness is considered valid. This policy can be either taken as a standalone policy or in addition (as a rider) with a health or life insurance policy. 4.1.4 Group Health Insurance Policies The Group Health Insurance Policy is available to any Group / Association / Institution / Corporate body of more provided it has a central administration point and subject to a minimum number of persons to be covered. The group policy is issued in the name of the Group/Association/Institution/Corporate Body (called insured) with a schedule of names of the members including his/her eligible family members (called insured persons) forming part of the policy. The details of insured person are required to furnish a complete list of Insured Persons in the prescribed format according to sum insured. Any additions and deletions during the currency of the policy should be intimated to the company in the same format. However, such additions and deletions will be incorporated in the policy from the first day of the following month subject to pro-rata premium adjustment. 302

No change of sum insured for any insured person will be permitted during the currency of the policy. No refund of premium is allowed for deletion of insured person if he or she has recovered a claim under the policy. The coverage under the policy is the same as under Health Insurance Policy with the following differences:-  Cumulative bonus and Health Check up expense are not payable.  Group discount in the premium is available  Renewal premium is subject to claims made during the previous policy .  Maternity benefit extension is available at extra premium. Group Discount The group discount is allowed according to scale depending upon the total number of insured persons covered under the group policy at the inception of the policy. Low Claim Ratio Discount (Bonus) Low Claim Ratio Discount is allowed on the total premium at renewal only depending upon the incurred claims ratio for the entire group. High Claim Ratio Loading (Malus) On the same basis of incurred claims ratio, loading is applied to the renewal premium for adverse claims experience. 4.1.5 Pre-Existing Disease Clause and Other Provisions Pre-existing Disease Clause It is a medical condition/disease that existed before you obtained health insurance policy, and it is significant, because the insurance companies do not cover such pre-existing conditions, within 48 months of prior to the 1st policy. It means, pre-existing conditions can be considered for payment after completion of 48 months of continuous insurance cover. Exclusions The following are generally excluded under health policies: a) All pre-existing diseases (the pre - existing disease exclusion is uniformly defined by all non-life and health insurance companies). b) Under first year policy, any claim during the first 30 days from date of cover, for sickness / disease. This is not applicable for accidental injury claims. c) During first two year of cover – cataract, Benign prostatic hypertrophy, Hysterectomy for Menorrhagia or Fibromyoma, Hernia, Hydrocele, Congenital Internal diseases, Fistula in anus, piles, sinusitis and related disorders. 303

d) Circumcision unless for treatment of a disease e) Cost of specs, contact lenses, hearing aids f) Dental treatment / surgery unless requiring hospitalization g) Convalescence, general debility, congenital external defects, V.D., intentional self- injury, use of intoxicating drugs / alcohol, AIDS, Expenses for Diagnosis, X-ray or lab tests not consistent with the disease requiring hospitalization. h) Treatment relating to pregnancy or child birth including cesarean section i) Naturopathy treatment. The actual exclusions may vary from product to product and company to company. In group policies, it may possible to waive / delete the exclusions on payment of extra premium. 4.1.6 Personal and Group Accident Insurance Personal accident insurance is an insurance cover that provides fixed compensation for death or disablement resulting from accidental bodily injury. The personal accident insurance policy provides that, if at any time during the currency of this policy, the insured (person who has taken the policy) shall sustain any bodily injury resulting solely and directly accident caused by external violent and visible means, then the insurance company shall pay to the insured or his legal personal representative(s), as the case may be, the sum or sums set, forth, in the policy, if resulting in specified contingencies such as death, permanent disablement etc. Let us understand the ords highlighted in bold above:  Bodily injury: Any disease due to accident is known as bodily injury but does not include any disease due to natural cause. Mental shock or grief does not amount to accident unless and until some physical injury is caused. However, it is noticed that due to grief if some disablement i.e paralysis is taking place and the same is covered under this policy.  Solely & Directly: The bodily injury shall have been caused solely and directly by an accident and the bodily injury must directly and independent of any other cause result in death or disablement. Example: (i) A person while riding a horse, fell on the ground and had his leg broken, he was lying on the wet ground for a long time before he was taken to hospital. Because of lying on the wet ground, he had fever that developed into pneumonia and he died. Though he died because of pneumonia but the actual cause was an accident and it covered under personal accident insurance policy. 304

(ii) If a person meets with an accident and was taken to hospital where he contracts an infectious disease from another patient which results in to death and the same will not be covered under the personal accident insurance policy.  Accident: An accident is an event which is wholly unexpected not intended or designed. For eg: Snake biting, drowning suicide and unprovoked murder are covered under this policy.  External, violent and visible means: The cause of accident i.e. the means must be within the definitions as a whole but the result may not be external. In other words the means or cause of accident must be within the definitions but the result or effect need not be external or visible so long as it is bodily injury e.g. injury may be internal i.e. inside the body but the result must be death or disablement.  Disablement: When a person is prevented by an accidental bodily injury from engaging in any occupation or business he is said to be disabled and his ability to attend to any occupation or business is call disablement. Scope of Cover Personal Accidental policy covers accidental death, loss of limbs, permanent total and partial disablement as selected and granted by the insurance companies based on the underwriting norms.  Permanent Total Disablement: Disablement is of permanent and irrecoverable nature and is absolutely total, in the sense that the insured person is prevented from engaging in gainful employment of any kind (e.g. paralysis).  Permanent Partial Disablement: This is similar to permanent total disablement with the difference that, the disablement is not total but is only partial (e.g. loss of a toe or a finger).  Temporary total disablement: This is a disablement which is total but for a temporary period only (e.g. fractures). Sum Insured Sum insured is based on various factors such as income from gainful employment, type of occupation, age as on date of proposal, period of insurance, Conditions prevailing at the place from where the proposal is made etc. The sum insured offered by a company can be a fixed amount like ₹5 lacs for death or ₹2 lacs for loss of both legs. It can also be based on the insured‘s income. Some insurance companies may give a benefit equal to 60 times or 100 times of the insured‘s monthly income for a particular disability. Some other policies may instead give 8 to 10 times of yearly income. There could be an upper limit or cap on the maximum amount payable. The dependant family members can also be covered for [a certain percentage of the total sum insured could be fixed]- dependent child / dependant spouse. The terms of P.A. policies and compensations can vary from company to company and 305

policy to policy. It is very difficult to put a value to human life; hence the principle of indemnity cannot be strictly applied in PA policies. However it becomes necessary to apply some yardstick for fixing the sum insured so that human lives are not overvalued for ulterior motives. Being a benefit plan, principal of contribution does not apply to PA policies. Thus, if a person has more than one policy with different insurer, in the event of accidental death, PTD, PPD, claims would be paid under all the policies. As the value of a lost life or a lost limb cannot be estimated or indemnified, the amounts payable for such disabilities are termed as `benefits‘ or ‘compensations‘. Premium The premium calculation may depend on various factors like age, number of family members and occupation of the insured which may be classified as low, medium and high risk levels by the insurers depending on the hazard involved. For instance, doctors and office executives are considered low risk while someone working on a construction site would be considered as high risk. Medical Expense Extension Policy can be extended to cover medical expenses on payment of additional Premium. Special Features The cover is for 24 hours and on a worldwide basis. Additional Benefits without Additional Premium  Education Fund: in case of death or permanent total disablement of the insured person due to accident, in addition to the compensation certain percentage of the sum insured is paid towards the education of the dependent children.  Expenses for Carriage of dead body: in case of the death of the insured away from his/her place of residence due to accident, such expenses for carriage of the dead body to the place of residence are paid upto the specified maximum limit.  Cumulative bonus: at the time of renewal of the policy, in case of no claim having been reported under the earlier policy, then the policyholder is entitled to an increase in the compensation payable for death and permanent disablement by 5% each year up to a maximum of 50% of CSI. Exclusions (Not Covered Under Personal Accident Insurance Policy)  No compensation is payable in respect of death, injury or disablement of the insured  From intentional self-injury, suicide or attempted suicide.  Whilst under the influence of intoxicating liquor or drug 306

 Whilst engaging in Aviation or Ballooning whilst mounting into, dismounting from or traveling in any balloon or aircraft other than as passenger (fare paying or otherwise) in any duly licensed standard type of aircraft anywhere in the world  Directly or indirectly caused by venereal diseases or insanity  Arising or resulting from the insured committing any breach of law with criminal intent.  From service in the armed forces  Resulting directly or indirectly from child birth or pregnancy. Group Personal Accident Policy Personal Accident Policies are also issued to group of persons that are already in existence for a common purpose, which is other than insurance. These groups must have a centre that can administer the cover. For instance, employees of a company are a group that has been constituted for a purpose other than insurance. The employer is the administrator of the policy. In such group policies, the insured is usually an entity like an employer, a bank, a society or the like. Insured persons would be employees, deposit holders, registered members etc. For example, a bank may take a personal accident cover for all its account holders. For group policies, the sum insured is fixed separately for each insured person. The coverage, exclusions, provisions are usually similar to that of individual covers except cumulative bonus and education grant do not apply. However, medical expenses and war risks extensions are available. Many insurers give group discounts to group policies, depending on the size of the group. 4.1.7 Long-term Care Insurance Long-term care insurance (LTC) is an insurance product that provides for the cost of nursing-home care, home-health care, personal or adult day care for individuals above the age of 65 or with a chronic or disabling condition that needs constant supervision. Long- term care insurance policies reimburse policyholders a daily amount (up to a pre-selected limit) for services to assist them with activities of daily living such as bathing, dressing, or eating. Individuals who require long-term care are generally not sick in the traditional sense, but instead, are unable to perform the basic activities of daily living (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking. LTC is designed to cover individuals who have reached a stage in life in which they are dependent on others for social, personal and medical needs. It is usually associated with the very old, but, in fact, could begin at any age depending on the reasons for their disability – perhaps a road accident, a mental or a congenital condition. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid. Long term care insurance product is a popular insurance product in the United States, United Kingdom and Canada. However, Long term care insurance cover is not available in India. 307

4.1.8 Income Assurance- Hospitalization and Temporary Disability Income Assurance - Temporary disability insurance is a form of insurance that insures the individual's earned income against the risk that a disability creates a barrier for the individual to complete the core functions of his/her work. This insurance product basically provides income protection to individual who are not able to work for a short period of time due to sickness or injury. These policies generally pay a percentage of weekly salary for few weeks which basically depend on the insurance provider and the policy purchased. Exclusions:Many policies will not cover disabilities caused by suicide attempts, drug abuse, war, or attempts to commit a crime. Pre-existing conditions are also frequently excluded. On-the-job injuries, which are covered by workers‘ compensation insurance, also are not covered. One can either purchase this disability insurance directly from an insurance company or through an employer, union, or other professional organization. This insurance product is not available in India. However, as per Workmen‘s Compensation Act, India, the employer is liable to pay compensation if the worker is injured by accident that arises out of (i.e. while engaged in work), and in the course of his employment (i.e. during work hours) and such an injury results in disablement of the worker. Personal Accident Insurance discussed above is available in India which covers temporary total disablement (in addition to permanent total and partial disablement and death) resulting from accidental injury. 308

SUMMARY  Health insurance is an insurance, which covers the financial loss arising out of poor health condition or due to permanent disability, which results in loss of income.  Family Floater health insurance policy is a comprehensive health insurance for covering the family members with one sum insured.  Critical illness insurance or critical illness cover is an insurance product, where the insurer is contracted to typically make a pre-determined lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed on an insurance policy. This policy can be either taken as a standalone policy or in addition (as a rider) with a health or life insurance policy.  The Group Health Insurance Policy is available to any Group / Association / Institution / Corporate body of more provided it has a central administration point and subject to a minimum number of persons to be covered.  Pre-existing Disease is a medical condition/disease that existed before you obtained health insurance policies which are covered after completion of 48 months of continuous health insurance cover.  Personal accident insurance is an insurance cover that provides fixed compensation for death or disablement resulting from accidental bodily injury. These policies are also issued to group of persons that are already in existence for a common purpose, which is other than insurance.  Long-term care insurance (LTC) is designed to provide for the cost of nursing-home care, home-health care, personal or adult day care for individuals who have reached a stage in life in which they are dependent on others for social, personal and medical needs. Long term care insurance cover is not available in India.  Temporary disability is a form of insurance which provides income protection to individual who are not able to work for a short period of time due to sickness or injury. 309

4.2 PERSONAL DISABILITY INSURANCE Learning Outcomes At the completion of this unit, students will be able to:  Understand the concept of disability insurance.  Understand the meaning of Permanent and Temporary Disability; Partial and Total Disability.  Understand the scope of benefits of Short Term and Long Term Disability Insurance plans. 4.2.1 Disability- Permanent and Temporary There are two distinct types of disabilities that are recognized: Permanent Disabilities and Temporary Disabilities. A temporary disability is a type of disability that only affects an individual for a short period of time. The disabling condition may last for a few days, a few weeks, or a few months, however, eventually the individual who is suffering from this condition will recover. The term temporary disability is often used to describe illnesses or injuries that prohibit an individual from taking part in routine activities, such as working. On the other hand, a permanent disability is a type of disability that an individual is not expected to recover from. He/she will likely live with this disability for the remainder of his/her life. A permanent disability can result from a number of different circumstances or situations. For example, an individual can be born with a permanent disability, or it may be caused by an accident. Both a temporary disability and a permanent disability can hinder an individual's ability to support himself/herself. In the event that an individual is suffering from a temporary disability, he/she may not be able to work for an extended period of time, thereby negating his/her income for that time period. An individual who has a permanent disability may not be able to work for the duration of his/her life. These disability benefits are offered in developed countries like US through Social Security, through a state government, or through a private insurer. 4.2.2 Disability- Partial and Total Partial disability is defined as any type of disability in which the workers is unable to perform at full physical capacity. This is usually due to an on the job injury or due to illness. A total disability is one where the employee is prevented from performing any work at all on account of the injury or condition. This is generally defined as the loss of the use of both legs, arms, hands, or eyes, or any two such parts like a leg and arm. Total disability can also involve impairment due to a serious occupational disease. 310

The following types of eventualities that are normally covered by Disability Insurance:  Temporary Total Disability The injured worker's wage-earning capacity is lost totally, but only on a temporary basis.  Temporary Partial Disability The wage-earning capacity is lost only partially, and on a temporary basis.  Permanent Total Disability (PTD) The employee's wage-earning capacity is permanently and totally lost. There is no limit on the number of weeks payable. In certain instances, an employee may continue to engage in business or employment, if his/her wages, combined with the weekly benefit, do not exceed the maximums set by law.  Permanent Partial Disability Part of the employee's wage-earning capacity has been permanently lost. There are two types of permanent partial disability benefits, depending on the body part affected and the nature of the permanent disability. 4.2.3 Scope of Benefits- Short-Term and Long-Term Disability Disability Insurance, often called DI or disability income insurance, or income protection, is a form of insurance that insures the beneficiary's earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. It includes paid sick leave, short-term disability benefits, and long-term disability benefits. There are two types of disability policies: Short-Term Disability (STD) and Long-Term Disability (LTD): (i) Short-Term Disability policies (STD) have a waiting period of 0 to 14 days with a maximum benefit period of no longer than two years. (ii) Long-Term Disability policies (LTD) have a waiting period of several weeks to several months with a maximum benefit period ranging from a few years to the rest of life. Short-Term Disability Insurance Short-term disability insurance pays a percentage of an employee‘s salary for a specified amount of time, if they are ill or injured, and cannot perform the duties of their job. Coverage usually starts anywhere from one to 14 days after a covered employee suffer a condition that leaves him or her unable to work. Many times, employees are required to use sick days before short-term disability insurance begins. There is usually a different policy for short-term disability for sickness versus an injury. 311

A typical short-term disability insurance benefits package may include:  Percentage of weekly salary paid out (typically between 50% - 70% of weekly salary)  Duration of short-term disability benefits (typically between 10 to 26 weeks)  Maximum amount of time covered under this disability program Long-Term Disability Insurance Long term disability insurance (LTD) is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time. Long term disability insurance (LTD) begins to assist the employee when short term disability insurance (STD) benefits end. Once the employee's short term disability insurance benefits expire (generally after three to six months), the long term disability insurance pays an employee a percentage of their salary, typically 50-70%. Long term disability payments to the employee, in some policies have a defined period of time, for example, two-ten years. Others pay an employee until he or she is 65 years old, this is the preferred policy. In India, a separate Disability Insurance policy is quite unheard of. However, normally life insurance policies haveriders' and personal accident policies have add-ons, that compensates in case of death or disablement resulting from accidental bodily injury. Disability insurance policies in countries like the United States cover several perils, and give policyholders up to the age of 65 an amount of between 50 and 60 per cent of the monthly income they earned prior to the disability. This income is given over a period of six months or more, and the policies generally have special features like inflation-linked benefits. In India, however, the insured gets a lump sum benefit and the policies cover only accidents, and not illnesses like a paralytic stroke that results in disability. 312

SUMMARY  A temporary disability is a type of disability that only affects an individual for a short period of time.  A permanent disability is a type of disability that an individual is not expected to recover from  Partial disability is defined as any type of disability in which the workers is unable to perform at full physical capacity. This is usually due to an on the job injury or due to illness.  A total disability is one where the employee is prevented from performing any work at all on account of the injury or condition  Disability Insurance, often called DI or disability income insurance, or income protection, is a form of insurance that insures the beneficiary's earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work.  Short-term disability insurance pays a percentage of an employee‘s salary for a specified amount of time, if they are ill or injured, and cannot perform the duties of their job.  Long term disability insurance (LTD) is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time.  Long term disability insurance (LTD) begins to assist the employee when short term disability insurance (STD) benefits end. 313

4.3 PROPERTY AND LIABILITY INSURANCE Learning Outcomes: At the completion of this topic, students will be able to:  Examine the basis of insuring property - Reinstatement, Book or Market Value.  Understand the types of insurance policies available for insuring House, Household Items, Business Unit, Plant and Machinery.  Describe the nature and scope of Overseas Travel Insurance.  Examine the use of excess/deductible and franchise clauses in insurance policies.  Describe the nature and scope of Motor Insurance.  Understand the implications of third party liability as covered under a motor insurance policy. 4.3.1 Basis of Property Cover - Reinstatement, Book or Market Value The buildings are generally insured on one of the following basis by the insured:  Original cost basis  Book value basis  Market value basis  Reinstatement value basis Sum insured will be different under each basis  Original Cost Basis: This is the historical cost at which the building was acquired / constructed and capitalized. This can be the basis of sum insured during the first year of its acquisition / construction. With the passage of time this value has to be adjusted for depreciation due to its age and appreciation in value due to inflation.  Book value basis: The book value represents the written down value of assets after providing for depreciation on the original cost from year to year basis. This will lead to heavy under insurance with the passage of time except in case of new building in its first year of insurance. In this first year, this represents the actual cost of the asset and with each passing year appropriate depreciation is charged and the value of the asset is accordingly reduced. Over a period of time, the asset value becomes so low that it will not reflect the true worth of asset.  Market value basis: This represents the amount at which property of the same age and condition can be bought or sold. This value takes into account both depreciation to the physical asset and appreciation due to inflation. The current cost of construction of similar building is taken and to this is applied depreciation for age, usage, maintenance, wear & tear, etc. For determining the sum insured for buildings, apart 314

from excluding the value of land and plinth, the present cost of construction of similar building should be taken and then the depreciation for age and usage deducted. The generally accepted method currently in use for building is to apply unit cost rate to the gross external areas of the building or cubic measurement of building and adjust subsequently to suit particular circumstances (built up area and construction specification).  Reinstatement Value Basis: This represents the value of similar new property – No depreciation is charged and hence if the fire policy is taken under ―reinstatement values‖ clause the property will be replaced without financial strain to the insured. From the above it is clear that for a new building during its first year any valuation method would do for the purpose of insurance. But in subsequent years, it has to be preferably on reinstatement value basis. In case of reinstatement value policy, the basis of loss settlement is the value of new property without taking any depreciation into account. This type of insurance enables the owner to replace his property without any financial strain on his own resources and is quite commonly taken by industrialists and building owners. Asset Valuation for Fixing Sum Insured For insurance purpose generally market value concept is employed. However, it should be noted that in its first year the book value and the market value may be the same. Market value represents the amount at which assets of the same age and specification can be bought and sold. It generally takes into account both depreciation because of use and appreciation because of inflation. It should be appreciated that the purpose of insurance is to get complete indemnity in case of claim and hence any valuation method of assets used for insurance purpose (i.e. fixing of sum insured) must take this important concern into account. For insurance of building –  Value of the land is to be excluded.  The plinth and foundation do not get damaged in fire and hence may be excluded. Value of compound wall is to be included.  But for earthquake extension, the same is to be insured as a separate item without corresponding insurance against fire perils.  Sum insured for above the ground level building should be the same for both earthquake extension and the main fire policy.  The value of embedded items either underground or in the walls/roofs should form part of the valuation and by way of suitable wordings in the policy this intent should be reflected and made clear. 315

Question: Ravi Kumar purchased a piece of land in 2001 for ₹1.5 cr and got a specialized construction done in 2008 for ₹85 lakh. The land prices have appreciated at 14% per annum in the period and the construction cost has escalated at 12% per annum since 2005. A. At what value the premises should be insured in April, 2016 on Market Value basis if the depreciation on premises is charged at 10% per annum on straight line method? Cost of land will not be insured. Construction cost in 2005 = ₹85,00,000 Reinstatement value of the premises (in 2016) = ₹21,045,687 (Using FC 200V calculator, CMPD function; i=12%; n=8 (2016-2008);PV =85L; FV(Solve) = 21,045,687) Depreciation on straight line method = 21,045,687 * 10% *8 = 16,836,549.60 Sum Insured (on market value basis) = 21,045,687 - 16,836,549.60 = ₹4,209,137.40 = 42.09 lakhs Note: 1. In straight line method of depreciation, equal amount of depreciation is charged each year. 2. To calculate sum insured using market value basis, depreciation is allowed on current replacement value (reinstatement value) of the asset for the number of years it has been in use to arrive at market value B. At what value the premises should be insured in April, 2016 on Market Value basis if the depreciation on premises is charged at 15% per annum on written down value method? Construction cost in 2005 = ₹85,00,000 Reinstatement value of the premises (in 2016) = ₹21,045,687 (Using FC 200V calculator, CMPD function; i=12%; n=8 (2016-2008);PV =85L; FV(Solve) = 21,045,687) Sum Insured on market value basis can be directly calculated using the FC-200V calculator. Using FC 200V, CMPD function I= -15% (rate of interest is negative here as it is depreciation) N=8 PV = 21,045,687 FV (solve) = 5,734,750.30 (this value is the market value of the premises after adjusting for depreciation) Sum Insured (on market value basis) = 5,734,750.30 = 57.35 lakhs Note: In written down value method, we calculate the depreciation on the remaining balance after deducting previous year depreciation. In this method, depreciation of the asset is done at a constant rate and depreciation charges reduce each successive period. 316

4.3.2 Insuring House, Household Items, Business Unit, Plant and Machinery Property Loss exposures refer to the inherent risks to which the different types of property are exposed. The various risks exposures are natural calamities, fire, floods, theft, etc. All general insurance policies intend to protect the insured from the financial consequences of these risks. Insurance of property means insurance of buildings, machinery, stocks etc. The types of insurance cover will depend upon the type of property that needs to be covered. Package or Umbrella Policies There are package or umbrella covers available which give, under a single document, a combination of covers. For instance there are covers such as Householders Policy, Shopkeepers Policy, Office Package policy etc that, under one policy, seek to cover various physical assets including buildings, contents etc. Such policies, apart from seeking to cover property may also include certain personal lines or liability covers. Package or Umbrella covers could have common terms and conditions for all sections as also specific terms for specific sections of the policy. Fire Insurance The most popular property insurance is the standard fire insurance policy. The fire insurance policy offers protection against any unforeseen loss or damage to/destruction of property due to fire or other perils covered under the policy. The different types of property that could be covered under a fire insurance policy are dwellings, offices, shops, hospitals, places of worship, etc and their contents; industrial/manufacturing risks and contents such as machinery, plants, equipment and accessories; goods including raw material, material in process, semi-finished goods, finished goods, packing materials etc in factories, godowns and in the open; utilities located outside industrial/manufacturing risks; storage risks outside the compound of industrial risks; tank farms/gas holders located outside the compound of industrial risks etc. What a Fire Policy covers: Thought it is called ₹ Fire Insurance‘, apart from the risk of fire, it also offers cover against lightning, explosion/implosion, aircraft damage, riot, strike and malicious damage, storm, cyclone, typhoon, hurricane, flood and inundation, impact damage, subsidence and landslide including rockslide, bursting and/or overflowing of water tanks, apparatus and pipes, missile testing operations, accidental leakage from automatic sprinkler installations, bush fire etc. What a Fire Policy excludes: A fire insurance policy usually does not cover a certain amount known as ―excess‖ under the policy. Loss or damage caused by war and warlike operations, nuclear perils, pollution or contamination, electrical/mechanical breakdown, burglary and housebreaking are excluded. Certain perils like earthquake, spontaneous combustion etc can be covered on payment of additional premium. Fire insurance policies are issued for one year except for dwellings, where a policy may be issued for long term (with a minimum period of three years). 317

Burglary Insurance A Burglary Insurance policy may be offered for a business enterprise or for a house. The policy covers property contained in the premises including stocks/goods owned or held in trust if specifically covered. It also covers cash, valuables, securities kept in a locked safe or cash box in locked steel cupboard if you specifically request for it. Apart from offering cover for the contents in the premises, a Burglary Insurance policy covers damage to your house or premises caused by burglars during burglary or attempts at burglary. The Policy pays actual loss/damage to your insured property caused by burglary/house breaking subject to the limit of Sum Insured. If Sum Insured is not adequate, Policy pays only proportionate loss. Hence, you must ensure that you value the property covered correctly to ensure that there is no underinsurance. A Burglary Insurance Policy can generally be extended to cover Riot, Strike, Malicious Damage and Theft. What is not covered in a Burglary Insurance Policy:Generally, the Policy will not pay for loss/damage to goods held in trust/commission unless specifically covered, jewellery, curios, title deeds, business books unless specifically insured; any amount that is recoverable under Fire/Plate glass insurance policy; loss from a safe using a key or duplicate key, unless it is obtained by violence or threat; Due to shop lifting, acts involving you/your family members/ your employees; due to War perils, Riot & Strike ( covered by payment of additional premium), Acts of God, Nuclear perils. All Risks Insurance All Risks Insurance generally offers cover for jewellery and/or portable equipment etc. This cover is generally offered selectively. The design of the policy may vary from company to company. It is important to note that an All Risks policy is not free from exclusions. So, the term ―All Risks‖ doesn‘t mean that anything and everything is covered. What is generally excluded in All Risks Insurance: Lookout for the exclusions— generally actions of moth, vermin, mildew, wear and tear or repairs, dyeing or bleaching or any gradually operating cause, Mere breaking/ scratching or cracking of fragile items unless caused by accident to the means of conveyance and Any mechanical or electrical breakdown/derangement except due to accidental external means, Over winding, denting or internal damage to watches or clocks Thefts from cars except fully closed saloons Consequential losses, any legal liability, War perils, nuclear risks, any government/ local authority action and Any loss due to insured's action which has contributed to increase in risk are excluded from the scope of the policy. On payment of additional premium mechanical and/ or electrical/ electronic breakdown extension may be offered. Householder’s Policy This is a package policy specially designed to meet the insurance requirements of a householder by combining under a single policy, a number of our standard policies usually taken by householders. Discount in premium is offered depending upon the number of sections of the policy, opted for, by the proposer. The policy comprises of 10 sections as given here under 318

Section – I: Fire & Allied Perils a) Coverage for building b) Covers contents of the dwelling belonging to the proposer and his/her family members permanently residing with him/her. Allied Perils:  Fire, Lightening, Explosion of gas in domestic appliances  Bursting and overflowing of water tanks, apparatus or pipes.  Damage caused by Aircraft  Riot, Strike, Malicious or Terrorist Act  Earthquake, Fire and/or Shock, subsidence and Landslide (including Rockslide) damage  Flood, Inundation, Storm, Tempest, Typhoon, Hurricane, Tomado or Cyclone. Impact damage Section –II: Burglary & House Breaking including larceny and theft. Covers contents of the dwelling against loss due to burglary, house breaking, larceny or theft. Section – III: All Risks (Jewellery & Valuables) Covers loss or damage to your jewellery and valuables by accident or misfortune whilst kept, worn or carried anywhere in India subject to the value declared in the schedule. Section – IV: Plate Glass Loss or damage to fixed plate glass in the insured premises by accidental breakage subject to limit of sum insured Section – V: Breakdown of Domestic appliances Covers domestic appliances against unforeseen and sudden physical damage due to mechanical or electrical breakdown. Section – VI: T.V. Set including VCP/VCR (ALL RISKS) Covers loss or damage to T.V. Set including VCP/VCR by fire and allied perils, burglary, house breaking or theft, breakage due to accidental external means, mechanical or electrical breakdown. Any legal liability arising out of bodily injury or accidental death of any person other than insured's family members or employee as also damage to property not belonging to or in the custody of insured , caused by use of the T.V. Set is also covered upto a limit of ₹ 25,000/-. 319

Section – VII: Pedal Cycles (All Risks) Covers loss or damage to pedal cycles by :  Fire & allied perils  Burglary, housebreaking, theft  Accidental external means  Third party personal injury or Third party property damage for ₹ 10,000/- Section – VII: Baggage Insurance Covers loss or damage to insured's accompanied baggage by accident or misfortune whilst the insured is traveling on tour or holiday anywhere in India. Section – IX: Personal Accident Covers Death or bodily injury by accidental, violent, external and visible means to the insured person named in the schedule and subject to limits specified therein. Section – X: Public Liability Covers Insured's legal liability for bodily injury or loss of or damage to property of third party limited to amount specified in the schedule and workmen's compensation liability to domestic servants engaged in insured's premises. Insurance for Plant and Machinery – Engineering Insurance The rapid industrialization of our country has led to increasing use of machines in industry. Though use of machinery results in increased production capacities, in the event of accident and breakdowns, they can be potential sources of financial loss and could even result in the closure of business. In spite of proper care and maintenance of machinery, mishap may yet occur. Sometimes the extent of damage may be quite high and may also lead to fatal or non-fatal injuries to human beings nearby. The remedy for such losses is offered by means of the pecuniary protection given under engineering insurance policies. The various engineering policies offered by us may be divided under the following three major heads: 1. Project Insurance 2. Operational Machineries Insurance 3. Business Interruption Insurance 1. Project Insurance: Before an industry is set up, it involves project planning, financing, procurement of land, land leveling and earthwork, excavation of land, placing orders and procurement of machineries from various places, storing these machineries and other equipments connected with the project in safe conditions, erecting the equipments as per a planned schedule and finally testing and commissioning the erected plant and 320

machinery for their rated capacity. The engineering policies, recommended at the project stage can be any one of the following three covers: (i) Erection All Risks (also known as Storage Cum Erection Insurance) (ii) Contractors (Construction) All Risks Insurance (iii) Contractor‘s Plant and Machinery Insurance 2. Operational Machineries Insurance After the completion of testing and commissioning and commencement of commercial production, the machineries that are installed and working in a specified premises can be covered under any of the following policies (depending upon the nature and type of plant and machinery): (i) Machinery Breakdown Insurance (ii) Boiler And Pressure Plant Insurance (iii) Electronic Equipment Insurance (iv) Civil Engineering Completed Risks Insurance (v) Deterioration Of Stocks Insurance - Refrigeration Plant (Stock) Policy 3. Business Interruption Insurance (Consequential Loss Insurance) Following property damage, due to break down of the machinery/electronic equipment or explosion of a boiler covered under the respective material damage policies, there may be an interruption in the operations and leading to loss of gross profits during such interruption periods. Such loss of gross profit is covered under business interruption policies: This insurance covers additional cost of working also, to resume production. 4.3.3 Personal Umbrella Policy- Mortgage Cover A personal umbrella policy (PUP) is a type of insurance that provides liability coverage over and above the standard motor or homeowner's policy. It offers protection against large and potentially devastating liability claims or judgments which also covers situations that may not be covered by another policy such as slander or libel. The umbrella policy coverage ―kicks in‖ where the existing coverage ends (motor and household insurance coverage), up to limit of the umbrella policy purchased or when the damages covered under the umbrella are not covered by the underlying insurances It provides an additional layer of security to those who are at risk for being sued for damages to other people's property or injuries caused to others in an accident. The added coverage provided by liability insurance is most useful to individuals who own a lot of assets or very expensive assets and are at significant risk for being sued. It can also be taken by companies which are multinational in character and have autonomous operations in various countries and jurisdictions where liability 321

exposures differ considerably. 4.3.4 Miscellaneous Overseas Travel Insurance Travel Insurance covers travel related accidents also. While travelling outside India, individuals face risks such as loss of baggage, accidents involving injuries, illnesses and medical emergencies requiring hospitalisation treatment. Unless adequate precautions are taken, these contingencies will pose serious consequences to the overseas traveler. A prudent person should therefore carefully examine the risks that he is exposed to and secure the required coverage before leaving his home country (many countries do not allow people without medical insurance). In India, today, travel insurance has become popular among international travelers. The following are covers that are generally provided under Travel Insurance:  Medical Expenses with or without cashless facility (most travel insurance products offer cashless facility)  Personal Accident  Loss of Baggage  Delay in Baggage arrival  Loss of Passport  Travel Delay  Repatriation  Public liability at the foreign land  Transportation of dead body etc. Overseas travel insurance, provides protection against all risks while travelling abroad. Accidents and mishaps can happen anytime and at any place and therefore it is essential for an individual to identify the travel related risks in advance and insure these risks. Example: When an individual on an overseas tour is hospitalised after an accident, the medical expenses would be so high that an average person cannot meet them. If he is insured under travel accident insurance, the insurer will reimburse the medical expenses up to policy limit. Usually, the coverage is for a specific number of days as required, up to a limit. The cover starts from the time the journey begins and expires on return to India or after the period of cover expires, whichever is earlier. The amount of coverage depends on age, number of days of the trip and the countries being visited. The premium rates are based on type / plan of cover, age, duration of travel. There are specific rules / practices in insurance companies for collecting premium in respect of persons going abroad for employment purpose, for business travelers, tourists and for students. Travel insurance generally excludes: 322

 Pre-existing ailments  Travel against the advice of the physician or for the purpose of obtaining medical treatment.  Claims arising out of suicide, illness / injury due to abuse of drugs or alcoholic drink and for participation in hazardous sports / events. However, insurers may cover trips involving any kind of sporting activities, subject to prior declaration and specific approval with premium loading. Types of travel insurance policies are Individual, Corporate frequent travelers, students, family. Corporate Frequent Traveler's Plans  This is an annual policy whereby a corporate/employer takes individual policies for its executives who frequently make trips outside India.  This cover can also be taken by individuals who fly overseas multiple times during a year. There are limits on the maximum duration of each trip and also the maximum number of trips that can be availed in a year.  An increasingly popular cover today is an annual declaration policy whereby an advance premium is paid based on estimated man hours / days of travel in a year by a company‘s employees.  Declarations are made weekly / fortnightly on the number of days of travel employee wise and premium is adjusted against the advance. Provision is also given for enhancement of man days during the currency of the policy, as it gets exhausted.  This policy is granted only for business and holiday travels. 4.3.5 Use of Excess/Deductible and Franchise In an insurance policy, the deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses. In general usage, the term deductible may be used to describe one of several types of clauses (see below) that are used by insurance companies as a threshold for policy payments. Deductibles are typically used to deter the large number of claims that a consumer can be reasonably expected to bear the cost of. By restricting its coverage to events that are significant enough to incur large costs, the insurance firm expects to pay out slightly smaller amounts much less frequently, incurring much higher savings. As a result, insurance premiums are typically cheaper when they involve higher deductibles. Deductibles are normally provided as clauses in an insurance policy that dictate how much of an insurance-covered expense is borne by the policyholder. They are normally quoted as a fixed quantity and are a part of most policies covering losses to the policy holder. The insurer then becomes liable for claimable expenses that exceed this amount (subject to the maximum sum claimable indicated in the contract). Depending on the policy, the deductible 323

may apply per covered incident, or per year. For policies where incidents are not easy to delimit (health insurance, for example), the deductible is typically applied per year. Deductible vs. Franchise A deductible should not be confused with a franchise. Where a deductible represents a part of the expense for which the insurer is not liable, the franchise is a pure threshold that, when exceeded, transfers liability for the entire expense to the insurer. For example, with a franchise of ₹ 10,000, a claim of ₹ 9,900 is borne entirely by the policy holder and a claim of ₹ 10,500 is borne entirely by the insurer.  Excess/Deductible: A provision whereby an insured may be required to pay part of a loss, the insurance being excess over the amount of the deductible.  Franchise: A provision in which the insurer has no liability if the loss is under a certain amount, but once this amount is exceeded; the entire loss is paid in full. That portion of the claim which is to be borne by the insured is called an excess or deductible. Example:  Franchise: You are transporting goods and your insurance has a Capital Insured for ₹ 50,000. The insurance policy contains the franchise provision that claims must exceed 10% (or ₹ 5000). Say you had an accident while transporting your goods and the total value of your loss is ₹ 4000. Under this circumstance, you are responsible for the entire ₹ 4000 and the insurance company will not pay you anything on this loss. On the other hand, if the total value of the damage to your goods were ₹ 8000, the insurance company is responsible for the entire ₹ 8000, and you will receive this amount if full.  Excess (or Deductible):Following the same example as above, the difference being that your insurance policy contains the excess (deductible) provision that the insurance company will not pay the first 10% (₹ 5000). On the first scenario, you are responsible for the ₹ 4000 in it's entirety and the Insurance Company will not pay you anything (same as franchise). However, in the second example (loss at ₹ 8000), you will be responsible for the first ₹ 5000 (your deductible) and will therefore receive only ₹ 3000 from your Insurer. Deductibles are not used in life insurance because the death of an insured is always a total loss. It is also not used in personal liability insurance because even for a small claim, the insurer must provide a legal defence. Deductibles may be either compulsory or voluntary. Voluntary deductibles will fetch a discount in the premium. (also known as excess‘). The object of these clauses is to eliminate small claims. As the insured is made to pay part of a loss, he is encouraged to exercise more care and to practice loss prevention. 324

4.3.6 Motor Insurance- Comprehensive and Mandatory Third Party Cover Motor insurance covers the loss of vehicles and the damages to them due to accidents and some other reasons. Motor insurance also covers the legal liability of vehicle owners to compensate the victims of the accidents caused by their vehicles. Motor Vehicles Act in 1939 was passed to mainly safeguard the interests of pedestrians. According to the Act, a vehicle cannot be used in a public place without insuring the third part liability. According to Section 24 of Motor Vehicles Act, ―No person shall use or allow any other person to use a motor vehicle in a public place, unless the vehicle is covered by a policy of Insurance.‖ Classification of Motor Vehicles For purpose of insurance, motor vehicles are classified into three broad categories: 1. Private cars - vehicles used only for social, domestic and pleasure purposes 2. Motor cycles and motor scooters 3. Commercial vehicles, further classified into (i) Goods carrying vehicles (ii) Passenger carrying vehicles e.g. Motorized rickshaws, Taxis, Buses 4. Miscellaneous and Special Types of Vehicles, e.g. cranes, ambulances, publicity vans, etc. Types of Motor Insurance Policies 1. Liability Only Policy (Mandatory Third Party Insurance) As per the Motor Vehicles Act, 1988, it is mandatory for every owner of a vehicle plying on public roads, to take an insurance policy, to cover the amount, which the owner becomes legally liable to pay as damages to third parties as a result of accidental death, bodily injury or damage to property. A Certificate of Insurance must be carried in the vehicle as a proof of such insurance. Third-Party Insurance An insurance policy purchased for protection against the legal actions of another party. Third-party insurance is purchased by the insured (first party) from an insurance company (second party) for protection against another party's claims (third party) for liability arising out of the action of the insured. Third party insurance is called ―Liability Insurance‖ as well. Compulsory insurance in respect of motor vehicles comprises the following liabilities:  Liability arising out of bodily injury or death of the third party or arising out of the damage to his property.  Compulsory insurance of passengers carried on hired vehicles.  Compulsory insurance of passengers carried by reason of a contract of employment. 325

 Compulsory insurance of an employee under workmen‘s compensation act considering the factors such as:  Who was driving the vehicle?  Whether working as conductor or ticket examiner/coolies  Nature of goods carried in the goods carriage 2. Comprehensive Policy (Own damage + Third Party Liability) In addition to the above, the loss or damage to the vehicle insured by specified perils (known as own damage to motor vehicles) is also covered subject to the value declared and other terms and conditions in the policy. Some of these perils are fire, theft, riot and strike, earthquake, flood, accident etc. Some insurers may also pay for towing charges from the place of accident to the workshop. A restricted cover is also available covering the risk of fire and / or theft only, in addition to the compulsory cover granted under Act (Liability) Only Policy. The policy can also cover loss or damage to accessories fitted in the vehicle, personal accident cover under private car policies for passengers, paid driver; legal liability to employees and non-fare paying passengers in commercial vehicles. Insurers also provide free emergency services or use of alternative car in case of breakdown. Exclusions Some of the important exclusions under the policies are wear and tear, breakdowns, consequential loss, and loss due to driving with invalid driving license or under the influence of alcohol. Use of vehicle not in accordance with ₹limitations as to use₹ (e.g. private car being used as a taxi) is not covered. Sum Insured and Premium In case of motor insurance the sum insured is the insured's declared value [IDV]. It is the value of the vehicle, which is arrived at by adjusting the current manufacture's listed selling price of the vehicle with depreciation percentage as prescribed in the IRDA regulations. Manufacturer's listed selling price will include local duties /taxes excluding registration and insurance. IDV = (Manufacture‘s listed selling price – depreciation) + (Accessories that are not included in listed selling price-depreciation) and excludes registration and insurance costs. The IDV of vehicles that are obsolete or aged over 5 years is calculated by mutual agreement between insurer and the insured. Instead of depreciation, IDV of old cars is arrived at by assessment of vehicle‘s condition done by surveyors, car dealers etc. IDV is the amount of compensation given in case a vehicle is stolen or suffers total loss. It is highly recommended to get IDV which is near the market value of the car. Insurers provide a range of 5% to 10% to decrease IDV to the insured. Less IDV would mean lesser premium. Rating / premium calculation depends on factors like the Insured's Declared Value, cubic capacity, geographical zone, age of the vehicle etc. 326

4.3.7 Motor Insurance - No Claim Bonus and Claims No Claim Bonus A certain percentage is given as bonus for every claim free renewal year with a limit to the maximum bonus that can be availed. It is allowed by way of deduction on the total premium at renewal only, depending upon the incurred claim ratio for the entire group. No claim bonus is a powerful strategy to improve underwriting experience and forms an integral part of rating systems. This bonus recognises the factor of moral hazard in the insured. It rewards the insured for not lodging claims by adopting better driving skills. Claims Claims arise when:  The insured‘s vehicle is damaged or any loss incurred.  Any legal liability is incurred for death of or bodily injury  Or damage to the third party‗s property. The claim settlement in India is done by opting for any of the following by the insurance company a) Replacement or reinstatement of vehicle b) Payment of repair charges In case, the motor vehicle is damaged due to accident it can be repaired and brought back to working condition. If the repair is beyond repair then the insured can claim for total loss or for a new vehicle. It is based on the market value of the vehicle at the time of loss. Motor insurance claims are settled in three stages. In the first stage the insured will inform the insurer about loss. The loss is registered in claim register. In the second stage, the automobile surveyor will assess the causes of loss and extent of loss. He will submit the claim report showing the cost of repairs and replacement charges etc. In the third stage, the claim is examined based on the report submitted by the surveyor and his recommendations. The insurance company may then authorize the repairs. After the vehicle is repaired, insurance company pays the charges directly to the repairer or to the insured if he had paid the repair charges. Section 110 of Motor Vehicle Act, 1939 empowers the State Government in establishing motor claim tribunals. These tribunals will help in settling the third party claims for the minimum amount. 327

SUMMARY  For determining the sum insured for buildings on market value basis, apart from excluding the value of land and plinth, the present cost of construction of similar building should be taken and then the depreciation for age and usage deducted.  In case of reinstatement value policy, the basis of loss settlement is the value of new property without taking any depreciation into account.  The most popular property insurance is the standard fire insurance policy. The fire insurance policy offers protection against any unforeseen loss or damage to/destruction of property due to fire or other perils covered under the policy.  A Burglary Insurance policy may be offered for a business enterprise or for a house. The policy covers property contained in the premises including stocks/goods owned or held in trust if specifically covered.  Householder‘s Policy is a package policy specially designed to meet the insurance requirements of a householder by combining under a single policy, a number of our standard policies usually taken by householders.  The various engineering policies offered by us may be divided under the following three major heads:(i) Project Insurance, (ii) Operational Machineries Insurance and (iii) Business Interruption Insurance  A personal umbrella policy (PUP) is a type of insurance that provides liability coverage over and above the standard motor or homeowner's policy. It offers protection against large and potentially devastating liability claims or judgments which also covers situations that may not be covered by another policy such as slander or libel.  Overseas travel insurance, provides protection against all risks while travelling abroad such as loss of baggage, accidents involving injuries, illnesses and medical emergencies requiring hospitalisation treatment.  Excess/Deductible: A provision whereby an insured may be required to pay part of a loss, the insurance being excess over the amount of the deductible.  Franchise: A provision in which the insurer has no liability if the loss is under a certain amount, but once this amount is exceeded; the entire loss is paid in full. That portion of the claim which is to be borne by the insured is called an excess or deductible.  Motor insurance covers the loss of vehicles and the damages to them due to accidents and some other reasons. Motor insurance also covers the legal liability of vehicle owners to 328

compensate the victims of the accidents caused by their vehicles. According to the Motor Vehicles Act, a vehicle cannot be used in a public place without insuring the third part liability.  In case of motor insurance, the sum insured is the insured's declared value [IDV]. Rating/premium calculation depends on factors like the Insured's Declared Value, cubic capacity, geographical zone, age of the vehicle etc.  In case of motor insurance, a certain percentage is given as bonus for every claim free renewal year with a limit to the maximum bonus that can be availed which is allowed by way of deduction on the total premium. 329

4.4 OTHER BUSINESS SPECIFIC INSURANCE Learning Outcomes:  Understand the concept of Key Man Insurance Policy and its tax treatment.  Describe the scope of risk coverage available under professional indemnity insurance,  Understand the need for employee state insurance liability and workmen‘s compensation insurance.  Determine the scope and features of Directors‘ and Officers‘ Liability Policy.  Describe the nature and scope of Clinical Trials Liability Insurance.  Describe the nature and scope of Marine Insurance Policy and its Types  Describe the objectives and salient features of crop and poultry insurance.  Explain the objectives and scope of Terrorism and Riot Covers. 4.4.1 Keyman Insurance Keyman Insurance is a life insurance policy taken out by a business firm on the life of key employee(s) to compensate that business for financial losses that would arise from the premature demise or extended incapacity of the Keyman. A key person can be anyone directly associated with the business whose loss can cause financial strain to the business. For example, the person could be a director of the company, a partner, a key sales person, key project manager, or someone with specific skills or knowledge which is especially valuable to the company. As per IRDA circular only Pure Term Assurance Products may be used as a Keyman Insurance. Eligibility for Keyman Insurance The‗keyman insurance (KMI) is allowed to the employee if he satisfies the following condition;  The ‘keyman' should hold less than 51% shares of company.  The total no. of shares of the company held by the keyman and his family should be less then 70%  The keyman should be literate Sum Assured No Maximum Sum Assured limit, however the quantum of cover would be based on the following parameters, underwriting requirements and the maximum Sum Assured should be lower of: 330

 5 times the average net profit of the Company for the past 3 years.  3 times the average gross profit of the Company for the past 3 years. A multiple of the individual remuneration/compensation package that the Keyman receive may also be considered. Tax Treatment Tax treatment of keyman insurance policy can be classified as follows: 1. The premiums paid by companies/employers taking Keyman insurance is an allowable expenditure under section 37(1) of the Income-tax Act. Premiums paid by the company on the life of a keyman would not be treated as perquisites in the hands of such a keyman when the company‘s request is accepted by the assessing authority. 2. The amount received under a Keyman insurance policy will not be exempt from tax under Section 10 (10D) of Income Tax Act. The proceeds of the policy will be treated as income under Section 28 (vi) of Income Tax Act. 3. In the event of the policy being assigned to the Keyman, the proceeds of the policy including bonus will be treated as ―Profit in lieu of salary‖ under Section 17 (clause 17) of Income Tax Act. 4.4.2 Professional Indemnity Insurance Professional Indemnity Insurance policy is meant for professionals to cover liability falling on them as a result of errors and omissions committed by them whilst rendering professional service. The policy is meant for professionals. 'Professional Indemnity' policies are offered to the following group of professionals:-  Doctors and medical practitioners - which covers registered medical practitioners like physicians, surgeons, cardiologists, pathologists etc.  Medical establishments - which covers legal liability falling on the medical establishment such as hospitals and nursing homes, as a result of error or omission committed by any named professional or qualified assistants engaged by the medical establishment.  Engineers, architects and interior decorators.  Lawyers, advocates, solicitors and counsels.  Chartered accountants, financial accountants, management consultants. Scope of Cover The policy covers all sums which the insured professional becomes legally liable to pay as damages to third party in respect of any error and/or omission on his/her part committed whilst rendering professional service. Legal cost and expenses incurred in defence of the case, with the prior consent of the insurance company, are also payable, subject to the 331

overall limit of indemnity selected. Only civil liability claims are covered. Any liability arising out of any criminal act or act committed in violation of any law or ordinance is not covered. Exclusions  Liability arising from any criminal act or act in violation of any law or ordinance.  Services rendered under the influence of intoxicants or narcotics.  Dental treatment under general anaesthesia except in a hospital.  The use of drugs for weight reduction.  Plastic surgery except for repair of scar being the result of previous surgery, or in connection with burns or other traumatic injury.  AIDS related conditions.  Due to intentional non-compliance of statutory provisions.  Personal injuries such as libel, false arrest, defamation, mental injury, shock etc.  Genetic injuries caused by x-ray and radioactive substances.  Caused by intentional disregard of technical or administrative management of the need to take ail care to prevent claims.  Liability to employees/apprentices/contractors/general third party public. 4.4.3 Employee State Insurance Liability The Employee State insurance (ESI) Scheme is a comprehensive social security scheme devised to protect the employees covered under the Scheme against financial distress arising out of events of sickness, maternity, disablement / death due to employment injuries and to provide medical care to the employees and their families. The Scheme is based on the principle of ‘pooling of risks and resources‘, wherein that section of the population which is exposed to risks of the same nature, come together to mitigate the physical and financial distress arising out of such risks. The Scheme is administered by the Employees State Insurance Corporation, set up under the ESI Act, 1948. The Corporation (similar to Board of Governors) the comprises of representatives of the employers, employees, the Central Government, State Governments, eminent medical professionals and that of the Parliament. Applicability  Under Section 2(12) the Act is applicable to non-seasonal factories employing 10 or more persons.  Under Section 1(5) of the Act, the Scheme has been extended to shops, hotels, restaurants, cinemas including preview theatres, road-motor transport undertakings and newspaper establishments employing 10* or more persons. 332

 Further under section 1(5) of the Act, the Scheme has been extended to Private Medical and Educational institutions employing 10* or more persons in certain States/UTs. *Note: 14 State Govts. / UTs have reduced the threshold limit for coverage of shops and other establishments from 20 to 10 or more persons. Remaining State Governments/UTs are in the process of reducing the same. The existing wage limit for coverage under the Act is ₹21,000/- per month (w.e.f. 01/01/2017) The Scheme is funded by the contributions raised from the employees and employers of the covered employers. The rates of contribution, as a percentage of wages paid / payable to the employees, are as under:  Employees‘ contribution – 1.75% of the wages.  Employers‘ contribution – 4.75% of the wages. Thus, in respect of each of the employee, 6.50% of the wages (including overtime allowance) is to be paid as contribution to Scheme. The Scheme does not receive any budgetary support from the Government. The State governments, as per the provisions of the Act, contribute 12.5% of expenditure on medical care on ESI beneficiaries in their respective States within the per capita ceiling. Benefits of ESI Scheme for Employers The various benefits that the employers reap out of the Scheme are: a) No expenditure to be incurred towards administration of medical care to the employees their dependants. b) No requirement for medical insurance policy as all medical facilities, including Super specialty treatment is extended to the beneficiaries, without any ceiling on expenses. c) Employers are exempted from the provisions of / liabilities under:  Maternity Benefit Act  Employees‘ Compensation Act Benefits of ESI Scheme for Employers The benefits available under the Scheme to the employees can be categorised under two broad heads, viz., cash benefits and non-cash benefit, viz., medical care. Cash Benefits: 1. Sickness benefit – for employees during the period of sickness 2. Maternity benefit – for employees during the period of confinement 333

3. Disablement benefit:  Temporary disablement benefit: for employees arising out of employment injury  Permanent disablement benefit: for employees arising out of employment injury 4. Dependants’ benefit – for dependants of employees; in case of death of employee due to employment injury 5. Other benefits: a) Funeral Expenses – to a person who performs the last rites of the deceased employee b) Rehabilitation allowance – for employee who is disabled due to employment injury c) Vocational rehabilitation - for employee who is disabled due to employment injury d) Medical Bonus – for insured woman / wife of employee during confinement Medical Care: Employees and their dependants are administered medical care, through ESI dispensaries, hospitals, etc.; in case the requisite facilities are not available in the ESI hospitals, the employees are referred to premier private / government hospitals for medical treatment on₹cashless‘ basis. The employees / dependants of the employees are also entitled for super specialty treatment, without any ceiling on the cost of medical treatment. Old Age Medical Care:For retired employee and spouse on payment of ₹120 per year; the beneficiaries are entitled to all medical facilities available in ESI hospitals (not eligible for referral to & treatment at tie-up hospitals). 4.4.4 Workers’ Compensation Insurance An employer is exposed to the risk of job related accidents to his workers or employees. According to Workmen‘s Compensation Act, 1923 the employer is liable to pay compensation in respect of:  Death  Permanent or partial disablement temporary disablement of the workmen involved in a work related accident. In India, Workmen‘s Compensation Act was passed in 1923 and amended in 1934 and 1946 (and subsequently also). According to this act, employer is required to pay compensation to his workers who are injured during the employment period. The employer may also be liable for third person injuries caused by an accident whether the person is a workman or any other person under the Fatal Accidents Act, 1855. Insurer covers the employer‘s liability under the Workmen‘s Compensation Act through a policy, which is known as Workmen Compensation insurance. Workmen compensation policy is essential to every employer who employs workmen‘ as defined under the Workmen‘s Compensation Act in order to protect himself against the 334

legal liabilities arising out of death or bodily injury to this workman. Scope of Coverage Workmen‘s compensation insurance provides coverage for all fatal accidents and injuries to workers during the working hours in an organisation. It also extends coverage through reimbursement of medical, surgical and hospitalisation expenses including transportation costs on payment of additional premium. It will pay medical expenses of workers up to policy limit specified. The liabilities arising out of diseases that are defined u/s 3C of the workmen‘s compensation act are also covered. The sum insured is fixed on the basis of annual income employees will earn during the policy period. Exclusions Workmen‘s compensation insurance will not provide coverage for the following losses:  Any accident or injury caused due to war, invasion, nuclear activities etc.  Any employee who is not considered as₹workman‘ under Workmen Compensation Act  Change in the policy provisions after the policy has commenced  Removal of safety guards intentionally  Intentional disobedience of orders, which are meant for employee‘s safety  Accident to a worker who is under the influence of alcohol or drugs  It will not cover risks, which are not as per provisions of Workmen‘s Compensation Act (not during the course of employment. It is not 24 hour cover). 4.4.5 Directors’ and Officers’ Liability Policy With ever-increasing complexities of business and changing economic and legal landscape, demands are mounting on directors in relation to discharge of their duties. Directors and officers are bound by duty towards various stakeholders --- shareholders, employees, creditors, customers, competitors, members of the public, government and other regulatory bodies. Any breach or non-performance in the duties can result in claims against them by reason of any wrongful act, actual or alleged, in their respective capacities. The primary purpose of Directors & Officers Liability insurance is to fill in these gaps, protecting the personal assets of the individual director or officer. Scope of Cover:  Against any loss that the Organization may incur, on account of mistaken actions taken in their individual capacity as Directors & Officers in pursuance of their duties under Memorandum and Articles of Association.  Against loss arising from claims made against them by reason of any wrongful Act in their Official capacity. 335

 Legal costs & expenses incurred with the written consent of the insurers arising out of prosecution (criminal or otherwise) of any Director / officer and attendance at any investigation, examination, inquiry or other proceedings by the authority empowered to do so.  Expenses incurred by any shareholder of the Company in pursuance of a claim against any Director / Officer, which the Company is legally obliged to pay, pursuant to an order of a Court.  Provide indemnity to the estate of, legal heirs or legal representatives of the Director / officer in the event of the Director / officer becoming insolvent. While the policy has different coverage and is subject to various exclusions, it is pertinent to note that unscrupulous behaviour is outside the scope of the policy. However, this exclusion is subject to final adjudication in the matter. Exclusions:  Any bodily injury ,sickness, disease or death of any person or any damage to tangible property  Dishonest, fraudulent, criminal or malicious act.  Personal guarantee.  Libel and slander  Personal injury and damage to property.  Pollution damage  Directly resulting from goods or products manufacture or sold by the company  Fines, penalties, punitive or exemplary damages.  Any circumstances existing prior to inception date of policy Premium: Depends on profile of the client, the Sum Insured selected, present and past functioning of the company, information in the balance sheet and annual report, degree of exposure etc. company, information in the balance sheet and annual report. D&O liability insurance policy is an important and integral part of Corporate Governance, as it protects the directors and officers against personal liabilities and also may ensure relief to the victims of corporate governance failures. 336

4.4.6 Clinical Trials Liability Insurance Pharmaceutical companies invest a lot into research to find solutions or cures to large scale diseases or degenerative conditions. Before a new drug is being released in the market, it needs to be tested for its safety and effectiveness on human subjects who volunteer to participate. The human subject can either be healthy volunteers or patients suffering from a disease for which the medicine is being tested. The test is intended to provide adequate information on drug use - on its safety, efficacy and possible adverse effects. This process is known as clinical trial or bioequivalence test, based on the kind of trial conducted. As per the Indian Council of Medical Research (ICMR) Ethical Guidelines / Good Clinical Practice (GCP) framework, it is obligatory for the pharma company, sponsor or the institution conducting trials to compensate research subjects for serious adverse reactions, disability or death. Participation in clinical trials always carries some risk, such as injuries resulting from the research procedure, injuries caused by the administration of medication or medical procedures or an investigator‘s failure to follow the protocol or to perform the procedures correctly. These potential liabilities have created the need for Clinical Trials Liability Insurance since Products Liability Insurance does not normally include the liability of an unproven, unregulated product in its testing stages. Coverage: Clinical Trial Insurance (CTI) pays for the sums which the Insured shall be liable to pay as damages / compensation (including claimants costs and expenses) arising out of claims which are made by research subjects alleging death, bodily injury or any other adverse reaction in the body causing harm or disability to the body as a result of participation in a clinical trial. The term insured‘ includes a wide group of people involved in the clinical trial, from the sponsor to the investigators & the hospitals, to the contract research organization and even to the ethics committee that approves the trial. The policy can be single trial policy or it may be multi-trial policy covering several trials of the policyholder. No Fault Compensation The Clinical trials insurance policy is based on a no-fault principle which is intended to provide compensation to clinical trial subjects, without proof of fault of the insured, in the event of their suffering an injury which is directly attributable to their involvement in the trial. Premium Rating For the purpose of premium rating, the most important aspect that is looked into is the track record of the sponsoring company and others involved in conducting the trial. The company must establish and maintain a policy of adherence to the required clinical trials protocol and must not stray from safety norms. Fulfillment of informed consent rules must be ensured. The rates of premium are dependent on the type & phase of trial, the drug being tested, the number of trial subjects, age of the subjects and the outcome of the trial. 337

4.4.7 Employees’ Health Insurance Employee's Health Insurance is an employee welfare benefit plan established or maintained by an employer or by an employee organization like union, or both, that provides health care for participants and their dependents through insurance coverage or reimbursement. Most companies now-a-days offer employee health insurance as a part of the benefits package to their employees. When an organization buys a Group Health Insurance Policy, it is the group that becomes the master insured and the insurance company has a contract with the group. In this case each participating individual is issued a membership number which acts as the proof of the policy. Employee's group insurance coverage is in fact a very good investment for corporates. Further, it is good news for the employees too, as employees benefit from affordable healthcare. In addition to that, through group health insurance employees can receive special coverage that may be too expensive/ impossible otherwise for an individual. 4.4.8 Commercial Auto Polices Commercial Vehicle Insurance under the Auto Insurance in India provides cover for all the vehicles which are not used for personal purposes, like the Trucks and HMVs. The amount of premium depends on the showroom price of the vehicle at the commencement of the insurance period, make of the vehicle and the place of registration of the vehicle. The auto insurance generally includes:  Loss or damage by accident, fire, lightning, self-ignition, external explosion, burglary, housebreaking or theft, malicious act.  Liability for third party injury/death, third party property and liability to paid driver  On payment of appropriate additional premium, loss/damage to electrical/electronic accessories The auto insurance does not include:  Consequential loss, depreciation, mechanical and electrical breakdown, failure or breakage  When vehicle is used outside the geographical area  War or nuclear perils and drunken driving. 4.4.9 Marine Insurance A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby agreed, against transit losses, that is to say losses incidental to transit. A contract of marine insurance may by its express terms or by usage of trade be extended so as to protect the insured against losses on inland waters or any land risk which may be incidental to any sea voyage. 338