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Overview of Insurance and Annuity

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Estimated time: 13 minutes
Maharashtra State Board: Class 12

Definition: Insurance

Insurance is a legal contract between an insurance company (insurer) and a person covered by the insurance (insured), which creates security or monetary protection against possible damage or loss.

Maharashtra State Board: Class 12

Definition: Fire Insurance

Fire insurance is property insurance that covers damage and losses caused by fire to property like buildings, godowns 
containing goods, factories, etc. 

Maharashtra State Board: Class 12

Definition: Marine Insurance

Insurance that covers goods or cargo against loss or damage during transit by sea, road, rail, or air.

Maharashtra State Board: Class 12

Definition: Accident Insurance

Insurance that provides compensation for injury, disability, death, or vehicle damage due to accidents.

Maharashtra State Board: Class 12

Formula: Premium

Primium = Rate of Premium × Policy Value

Maharashtra State Board: Class 12

Formula: Claim

\[\mathrm{Claim}=\mathrm{Loss}\times\frac{\text{PolicyValue}}{\text{PropertyValue}}\]

Maharashtra State Board: Class 12

Definition: Annuity

An annuity is a series of payments at fixed intervals, guaranteed for a fixed number of years or the lifetime of one or more individuals.

Maharashtra State Board: Class 12

Key Points: Annuity

Phase:

Phase Meaning
Accumulation Phase Period during which money is invested/deposited.
Distribution Phase Period during which payments are received.

Types of Annuities:

Type Meaning
Annuity Certain Payments for a fixed number of years.
Contingent Annuity Payments depend on an event (e.g., death).
Perpetual Annuity (Perpetuity) Payments continue forever.

Classification of Annuities:

Type Payment Time
Immediate (Ordinary) Annuity Payment at the end of each period.
Annuity Due Payment at the beginning of each period.
Deferred Annuity Payment starts after a certain period.
Maharashtra State Board: Class 12

Formula: Immediate Annuity

Amount of accumulated (future) Value:

\[P^{\prime}=\frac{C(1+i)}{i}[1-(1+i)^{-n}]\]

Present value P:

\[:P=\frac{C}{i}[1-(1+i)^{-n}]\]

Maharashtra State Board: Class 12

Formula: Annuity Due

Accumulated (Future) Value:

\[A^{\prime}=\frac{C(1+i)}{i}[(1+i)^n-1]\]

Present Value:

\[P^{\prime}=\frac{C(1+i)}{i}[1-(1+i)^{-n}]\]

Maharashtra State Board: Class 12

Formula: Relation between Future Value and Present Value

\[A=P(1+i)^n\]

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