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Fundamental Legal Principle of Insurance

In all kinds of insurance, the fundamental legal principle is that one man agrees to take the risk of another man’s life and business in consideration of certain small payments which are called premiums. Insurance, General Concept : The most general concept of Insurance is a provision made by a group of persons, each singly in danger of some loss the incidence of which cannot be foreseen, that when such loss occurs to any of these it shall be distributed over the whole group, Its essential elements, therefore, are foresight and co-operation. Insurance, General Insurance, Classification by Type of Insurance Cover : General Insurance business is traditionally divided into Fire, Marine and Miscellaneous classes. As per Sec. 2 of the Indian Insurance Act, 1938 “General Insurance business”: means “Fire, Marine or Miscellaneous Insurance business, whether carried on singly or in combination with one or more of them.” “Fire Insurance Business ” means the business of effecting otherwise than incidentally to some other class of Insurance business, contracts of Insurance against loss by or incidental to Fire or other occurrence customarily included among the risks insured against in Fire Insurance policies. ” “Marine Insurance Business” means “The business of effecting contracts of Insurance upon vessels of any description, including cargoes, freights and other interests which may be legally insured, in or relation to such vessels, cargoes and freights, goods wares, merchandise and property of whatsoever description insured for any transit by land or wear. or both, whether or not including ware-house risk or similar risks in addition or as incidental to such transit and includes any other risk customarily included among the risks insured against in marine Insurance policies.” “Miscellaneous Insurance Business” means the business of effecting contracts of Insurance which is not principally or wholly of any kind or kinds included in Clause (6a and 3a).” (Note: Clauses 6a and 13a define Fire and Marine Insurances respectively). Miscellaneous Insurance includes in its scope all non-Fire and non-Marine business, namely Motor, Burglary, Personal Accident, Fidelity Guarantee, Cattle, Agricultural Pump Set, Crop, Workmen’s Compensation, Liability, Aviation, Engineering, Guarantee, Professional Indemnity, Cash, Bankers Blanket, Health and all such other Insurances.

Fundamental Risk

Affects either society in general or groups of people, and con not be controlled even partially by any one person. Such risks are present in the forces of nature and the economy, since the outcomes, of say, the weather or inflation or mass unemployment are beyond individual influence.

Fundamental risks

Risks of potentially wide-ranging effect on society as a whole or large segments thereof rather than individuals. They are of a catastrophic nature, e.g. war, famine, earthquake, widespread pollution and unemployment. They are generally outside the scope of private enterprise insurance with responsibility being accepted by governments. Compare with particular risks.

Funded basis

accounting for general insurance business on the basis that premiums, claims and expenses are related to the underwriting year in which the policy incepts and recognition of profits is deferred until a subsequent accounting period, receipts and payments being carried forward in a fund; not permitted with effect for accounting periods beginning on or after 1 January 2004.

Funded Cover

See: Rating
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UK: Prospective excess of loss treaty under which the cedant pays high premiums to the reinsurer for the purpose of paying later losses. The reinsurer deducts charges from the fund and, at the end of the contract, returns the balance to the cedant as profit commission.

Funded life insurance trust

Trust established to distribute life insurance proceeds. Because insurance companies cannot act as trustees or guardians, the policy proceeds are paid to a trust company and distributed under the terms of a trust agreement creating greater flexibility in distribution of the proceeds. The trustee has control over both the policy proceeds and also securities or other property to provide funds out of which to pay the premiums. This type of arrangement is a funded life insurance trust.

Funding

In regard to pension schemes it is the advance provision for future liabilities by the accumulation of assets that are normally external to the employer’s business.
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Setting aside assets to meet an eventual obligation.