Classification Of Insurance Policy

Insurance policy can be categorized into indemnity insurance and non-indemnity insurance.

What is indemnity insurance?

This is a guarantee for providing security or protection against possible hurt, damage, loss or liability. Here, an agreed lump sum (as stated inside the policy) is paid as compensation on the risk insured against any incurred loss or damage.

Indemnity insurance is broadly divided into three forms, as follows:

1. Marine

2. Aviation, and

3. Others (other indemnity insurance)

Marine insurance

This includes all vessels designed for aquatic transportation, both on marine and freshwater territories. This includes the huge commercial insurance on hull s and cargo, sailing dinghies, yachts, motor boats, and small crafts generally.

Marine insurance covers these areas of the ship:

· Hull insurance

· Cargo insurance

· Freight insurance

· Others such as insurance of liability

The marine insurance can be insured in different policy forms such as:

· Voyage policy

· Time policy

· Valued policy

· Un-valued policy

· Floating policy

Aviation insurance

This guarantees hulls of aircraft, third party liability, and legal liability to passengers. Compensations, or rather claims, often reach extremely vast amount, although liability to passengers is limited by international conventions.

All the above marine insurance coverage areas and policy are also applicable to aviation industry, with little or no exception.

Other indemnity insurance

These are listed as follows:

· Fire

· Theft and burglary

· Insurance of liability (including third party)

· Insurance of interest

· Consequential loss of profit

· Agricultural

· Bad debts

· Export credits, etc.

What is non-indemnity insurance?

Non-indemnity insurance is different from indemnity. In case of death, sickness or personal accident, no amount of compensation can equate the emotional disruption being experienced from the death of a loved one through sickness or accident, neither can being compensated counter-balance the pain experienced from a sickness, nor monetary payment from any insurance company compensate for the loss of a leg or an arm in an accident.

Here, the logic of compensation, no matter how large it may be, is to present the monetary payment to the insured as a form of “consolation” or “benefit” payment.

Let’s take it this way, if Mr. Adam takes non-indemnity insurance and after some years of paying faithfully the premiums, he has an accident and dies. The insurance company will pay Mr. Adam’s family, or whoever is the beneficiary, the sum-assured. The money being paid to Mr. Adam’s family cannot bring back Mr. Adam, his love for his family, neither can the money redeem the emotional pain being experienced by his loved ones nor compensate for Mr. Adam’s presence and his actions.

In case of loss of any of his limbs, no amount of compensation can erase the pains being experienced by Mr. Adam from the limbless-ness or the emotional imbalance resulting from becoming a physically challenged person. Any compensation paid to Mr. Adam by the insurance company in this case is in form of “benefit” or “consolation” payment.

Non-indemnity insurance consists of both life insurance and non-life insurance.

Non-indemnity life insurance exists in three forms:

Whole life insurance,

Term Insurance, and

Endowment insurance

Non-indemnity non-life insurance policies exist in two forms of:

· Sickness

A non-indemnity non-life insurance policy is the insurance policy taken because of any eventuality of any form of sickness. Let’s assume Mr. Adam takes a non-indemnity non-life insurance and he suddenly falls sick. The insurance company will pay his medical bills, and some other compensation as covered in his insurance policy. This may include, but not limited to, payment for the loss of remuneration during the period of sickness, etc.

· Personal accident resulting in death or disability

An insurance policy may also be taken as a protection against any personal accident. In a situation where a policy-holder has an accident and, as a result, loses a limb or dies, the insurance company will pay the insured amount (as in the insurance policy) to the benefactor i.e. the person (in case of personal accident resulting in losing of limb(s)) or the relative/person whose name is on the policy (in case of death).

However, apart from personal accident insurance, accident insurance includes and is sub-divided into:

· Burglary and ‘all-risks’

· Employer’s liability and public liability

· Contractors’ all-risks

· Motor

· Fidelity guarantee and contingency

· Livestock

· Glass

· Weather

· Engineering

· Travel, and so on.