PPT ON GENERAL INSURANCE & TAXATION

Meaning of general insurance Insurance other than ‘Life Insurance’ falls under the category of General Insurance. General Insurance comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errors and Omissions insurance for professionals, credit insurance etc.  

Examples are insuring property like house and belongings against fire and theft or vehicles against accidental damage or theft. Injury due to accident or hospitalization for illness and surgery can also be insured. Your liabilities to others arising out of the law can also be insured and is compulsory in some cases like motor third party insurance.

Why should people buy general insurance?   Anyone who owns an asset can buy insurance to protect it against losses due to fire or theft and so on. Each one of us can insure our and our dependents’ health and well being through hospitalisation and personal accident policies. To buy a policy the person should be the one who will bear financial losses if they occur. This is called insurable interest.

Types of General Insurance Fire Insurance Marine Insurance Health Insurance

Fire Insurance – Fire insurance is a form of property insurance which protects people from the costs incurred by fires. When a structure is covered by fire insurance, the insurance policy will pay out in the event that the structure is damaged or destroyed by fire.

Types of Fire Insurance Policies: Floating policy : This type of policy is subject to average clause and the extent of coverage expands to different properties, belonging to the policyholder, under the same contract and one premium. The floating policy also provides protection of goods kept at two different stores. Replacement or Re-instatement policy: As per replacement or re-instatement policy, the insurance company instead of paying the policyholder the amount of indemnity in cash, replaces the damaged. 

Specific policy: In this type of policy, the insurance company is liable to pay a sum, which may be less than the property’s real value. The insured is called to bear a part of the loss, as the actual value of the property is not considered in deciding the amount of indemnity. Comprehensive policy: Known as “all-in-one” policy, the insurance company indemnifies the policyholder for loss arising out of fire, burglary, theft and third party risks. In this type of policy, the policyholder also gets paid for loss of profits incurred, due to fire, till the time the business remains shut. Valued policy: In this type of policy, the value of the commodity is already set and actual loss is not taken into consideration. The policy follows a standard contract of indemnity, wherein the policyholder gets paid a specific amount of indemnity, without considering the actual loss.

Fire Insurance Claim Procedure Individuals/corporate must inform insurer as early as possible , in no case later than 24 hours. Provide relevant information to the surveyor/claim representative appointed by the insurer. The surveyor then analyzes the extent/ value of loss or damage. The claim process takes anywhere between one to three weeks.

 Health Insurance Health insurance, like other forms of insurance, is a form of collectivism by means of which people collectively pool their risk, in this case the risk of incurring medical expenses.

Types of Health Insurance Individual Health Plans Largely, an individual health insurance plan (IHIP), or ‘mediclaim’, would cover expenses if you are hospitalised for at least 24 hours. These plans are indemnity policies, that is, they reimburse the actual expenses incurred up to the amount of the cover that you buy. Some of the expenses that are covered are room rent, doctor’s fees, anaesthetist’s fees, cost of blood and oxygen, and operation theatre charges.

SOME PLANS OF HEALTH INSURANCE : Family Floater Plans This is a fairly new entrant in the health insurance firmament. It takes advantage of the fact that the possibility of all members of a family falling ill at the same time or within the same year is low. Under a family floater (FF) health plan, the entire sum insured can be availed by any or all members and is not restricted to one individual only as is the case in an individual health plan.

Senior Citizens’ Plans : Insurance is considered a form of long-term savings for senior citizens. This money provides financial stability and also helps them in times of need. Medical insurance enables senior citizens to pay for health checkups, emergency medical costs and long-term treatment.

Critical Illness Plans : A Critical Illness plan means to insure against the risk of serious illness. It will give the same security of knowing that a guaranteed cash sum will be paid if the unexpected happens and one is diagnosed with a critical illness. The purpose of a critical illness plan is to let you put aside a small regular amount now, as an insurance against all this happening.

Unit-linked health plan (ULHP) : All ULHPs offer one or more combination of the other benefits (for which risk premium is deducted from fund value). Also, charges such as premium allocation charge and policy administration charge are deducted from the fund value.

 Marine Insurance Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination

Two Broad Categories Ocean Marine Insurance Hull Cargo Freight Protection and indemnity insurance  Inland Marine Insurance Extension of Ocean marine insurance Domestic goods in transit Property held by Bailees Mobile equipment and property Block Policies- “all-risks” basis Means of transport and communication

Two types of risks are covered by ocean marine insurance The first type is the perils of the sea that include both natural calamities and fortuitous accidents. The second type of risks covered is extraneous risks. These risks include ordinary risks such as theft, pilferage, rain damage, shortage, breakage, etc and special risks such as strike, war, failure to deliver, etc.

Hull Insurance Covers : physical damage to ship or vessel Always written with a deductible Contains collision liability clause Covers owner’s legal liability Cargo Insurance Covers the loss to the shipper if the goods are damaged or lost Policy can be single or open cargo policy Salvage loss Follows forced sale of badly damaged cargo Freight Insurance Insures the profit made by a ship owners out of ships used to carry cargo, both their own and others Loss occurs when cargo is not deliverable

Major Types of Policy Time policy Voyage policy Mixed policy Open policy Time Policy A time policy is one that runs for a period of time usually not exceeding 12 months. In using a time policy, the most important question is whether the loss occurred at a time in which the policy was running because sometimes it is difficult to prove in case where it is alleged that the conditions giving rise to the loss.

Voyage Policy This is a policy that operates for the period of the voyage. For cargo, the cover is from warehouse to warehouse. The policy will not apply if the actual voyage and/or ports are different from those in the policy. Mixed Policy This is a policy that covers the subject matter for the voyage within a time period.It is used to cover the cargo from warehouse to warehouse with a time limit. The cargo has to be warehoused within 60 days after discharge or the policy will no longer cover the cargo.  Open Policy This is an arrangement in which terms such as types of risks to be covered, validity of the insurance contract, rate, premium, maximum value of each shipment and geographical limits, etc

SERVICE TAX ON GENERAL INSURANCE SERVICES General Insurance Business  means fire, marine or miscellaneous insurance business, whether carried on singly or in combination of one or more of them but does not include capital redemption business and annuity certain business. Insurer – Means any person carrying on the general insurance business and includes a re- insurer. Policy holder – It includes a person to whom the whole of the interest of the policy holder in the policy is assigned once and for all, but does not include an assignee thereof whose interest in the policy is defensible or is for the time being subject to any condition.

Date from which such service is taxable – 1st July, 1994 In this context, the details in respect of tax payment are as under: Date from which such service is taxable – 1st July, 1994 Service provider – An insurer including re- insurer carrying on general insurance business Service receiver –  A policy holder or any person Scope of taxable service – Any service provided or to be provided to a policy holder or any person, by an insurer, including re – insurer carrying on general insurance business in relation to general insurance business.