Insurance

It is a system by which the losses suffered by a few are spread over many, exposed to similar risks. Insurance is a protection against financial loss arising on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. A loss is paid out of the premiums collected from the insuring public and the Insurance Companies act as trustees to the amount collected.

Agent is the representative of Insurance Company whereas broker is the representative of the consumer or policyholder.

World over insurance brokerage houses are large, sometimes even larger than the insurance companies themselves. They provide reinsurance to insurance companies. In many markets, brokers provide non-life insurance as well as group life and group mortgage insurance. In countries like Japan, the broker is not empowered to conclude contracts, accept representations, and to receive insurance premiums. In such cases minimum capital requirements and solvency margins are not needed. In general an insurance broker would provide the following services:

• Pre sales and after sales service to the customers.
• Provisions of relevant information to the underwriters to assess the risk and decide the premium.
• Design covers that meet the client requirements.
• Recommend risk improvement and loss minimisation measures
• Provide risk management and insurance education
• Collection of Premiums

The very fundamental principle of spreading of the risk is actually practised by the insurance companies by reinsuring the risks that they have insured.

Underwriting of a risk involves consideration of material facts on the basis of which a decision will be taken whether to accept the risk and if so at what rate of premium.

The policy has to be renewed before the expiry of the period and any delay in renewal of the policy attracts a penalty for renewal. There are other hassles involved too, like a surveyor (inspector) from the insurance company will inspect the vehicle again. Besides, most importantly, it is an offence by law to drive an uninsured car.

Complete damage or total loss (as it is popularly known) occurs in the event of the vehicle being beyond repair after an accident or fire etc. In such cases, the insurance company declares the car as a ‘total loss’.

Typically, one can claim total loss damages as follows:

• Inform the insurance company the time, date and place of the accident. You can get a standard form for filling in these details from any insurance company branch.
• File a First Information Report (FIR) at the police station closest to the place of mishap. Documents related to the vehicle like registration book, tax paid receipt, insurance papers, driving licence, etc. are needed while lodging the FIR.
• You will need to surrender the following to the insurance company:
• Original registration certificate book
• Duplicate key
• The ownership of the car is then transferred to the insurance company and documents pertaining to transfer of ownership are filed. A No Objection Certificate (NOC) is required from the Regional Transport Authority (RTO) for the transfer of the vehicle.
• If the vehicle has been damaged by fire, then a report from the Fire Brigade authorities will also be required.

‘Total Loss claims’ could take a long time depending on how quickly or otherwise you are able to arrange for reports from the police and the fire brigade. To enable the process go smoothly, it is advised to keep all documents related to the vehicle handy. However, vehicle surveyors are a moody lot, and one may have to bargain a bit to increase the claim amount from the insurance company.

In the event of an accident, which involves damage to the vehicle, one makes an ‘accident claim’ to the insurance company. An ‘accident claim’ covers the cost of repair to the car and the cost of replacing damaged parts to the extent covered by the insurance policy.

Typically, the procedure to claim ‘accident insurance’ is as follows:

• Inform the insurance company about the accident, the time, date and place of the accident. Insurance companies have forms for filling these details and one can obtain these forms from any branch of the insurance company.
• File a First Information Report (FIR) at the police station closest to the place of mishap. Documents related to the vehicle like registration book, tax paid receipt, insurance papers, driving licence, etc. are needed while lodging the FIR.
• Take the vehicle to a reputed workshop for repair and get a repair estimate from the workshop.
• Submit the estimate to the insurance company.
• A surveyor from the insurance company will come for an inspection of the vehicle, and to assess the cost of restoring the vehicle to its pre-accident condition.
• Based upon the surveyor’s report, the insurance company will make a final settlement of the estimate and the deal is closed.

‘Accident claims’ are normally processed quickly enough. To enable the process go smoothly, it is advised to keep all documents related to the vehicle handy. However, vehicle surveyors are a moody lot, and one may have to bargain a bit to increase the claim amount from the insurance company.

Thefts insurance claims take longer to settle as the RTO and police are required to submit their report stating that vehicle has not been recovered. Now this report gets done only after an investigation by both the authorities, which could take a long time. Six months is the conservative estimate.

Typically, one can claim ‘theft insurance’ by following these steps:

• Inform the nearest police station about the theft and file a FIR
• Inform the insurance company.
• Inform about the stolen car and documents to the concerned registration authority and get duplicate document issued.
• Make the claim for insurance in the prescribed claim form of the insurance company.

Yes, the old policy can be transferred in the name of buyer by submitting the copy of Form 29/30 and copy of Registration book/Owner book. The above process preferably should be done within 30 days.

Whereas the Life insurance coverage are linked to the Life of the Insured Person, the Health Insurance Coverage provide indemnity against hospitalisation expenditure due to illness.

The main purpose of Mediclaim policy is to provide the Insured towards expenditure against illness. This is the only one policy available as on date towards the above cause. In our opinion the tax benefit accruing out of the premium paid should be considered as a bonus.

Under Mediclaim Insurance, the admissiblity of claim is directly depended on opinion of the Medical Practitioner as far as the need hospitalisation is concerned. Therefore, the claim cannot be repudiated on the description on the underwriters. Under Personal Accident Insurance the reimbursement of Medical expenses would be admissible only if a Medical Benefits Extension has been included in the policy by payment of necessary extra premium. If this is the case the admissibility of the claim would be again on the basis of the opinion of the Medical Practitioner regarding hospitalisation.

At present, third party administration in the Insurance is not existing in India. However, under the recently past IRDA bill and with the opening of the Insurance Sector to private organisation it will come into effect in near future.

Rebate under Section 88 is available in respect of life insurance premium only up to Assessment Year 2005-06. From the Assessment Year 2006-07, life insurance premium paid by an individual qualifies for a deduction under Section 80C of Income Tax Act, 1961. An individual can claim deduction on premium paid for a maximum of Rs 100,000 in each financial year. Deduction under Section 80C is a deduction from gross total income. Amount deductible under Section 80C is equal to

• 100% of the "qualifying investment", which includes life insurance premium, or
  
  

• Rs 100,000, whichever is lower.

The tax benefits for premium paid per annum in case of pension plans are eligible for a maximum benefit of Rs 100,000 under Section 80CCC. The said Section 80CCC limit also falls under the overall Section 80C limit of Rs 100,000. In other words, the deduction aggregate, under Section 80C, 80CCC and 80CCD cannot exceed Rs 100,000.

The maturity proceeds of life insurance policies are not taxable. However, under pension plans, upto one-third of the maturity amount can be withdrawn in cash and the same is treated as tax-free. An annuity has to be purchased with the remaining two-third amount. Pension receipts from the same will be treated as income in the hands of the assessee and taxed accordingly.

Tax rebate under Section 88 can be claimed if the premium is paid by an individual on his/her spouse's policy but up to Assessment Year 2005-06. From the Assessment Year 2006-07 life insurance premium paid by an individual on his/her spouse's policy qualifies for a deduction under Section 80C of Income Tax Act, 1961.

If a person stops paying premium amounts on his/her life insurance policy, it amounts to discontinuation of the policy. Hence, he is not entitled to claim any tax benefits.

If a tax-payer discontinues the life insurance policy before premiums have been paid for a period of 2 years from the commencement of the policy, no tax deduction is allowed in respect of any premium paid on that policy in the year in which the policy is terminated.

Further, the amount of tax deduction, allowed for the premium paid in the preceding year, is also treated as the tax payable for the year in which the policy is terminated.

If a person participates in a Unit Linked Insurance Plan (ULIP) and then terminates his participation, he will not be entitled to claim any tax benefits.

The premium paid for medical insurance qualifies for rebate under Section 80D as follows-

• Insurance premium paid or Rs 10,000 whichever is lower.
  
  

• The aforesaid limit is Rs 15,000, where the individual or his spouse or dependant parents or any member of the family (for whom such premium is being paid) is a senior citizen (i.e. one who is resident in India and who is at least 65 yrs of age at any time during the previous year).