Definitions [8]
Define fire insurance.
Fire insurance is a contract under which the insurance company (insurer) agrees to identify the insured in return for the premium against damage or loss. To property caused by fire during an agreed period of time and up to a specified amount. A fire insurance policy provides protection against damage or loss to property, i.e., buildings, furniture, goods, etc., caused by fire.
Define Marine Insurance.
Marine insurance is one of the oldest types of insurance. It plays a vital role in foreign trade by providing protection against the perils of the sea. Sea perils include piracy, collision, capture by the enemy, seizure, restraint, jettison, barrage, etc. Jettison means throwing goods overboard in order to avoid sinking a ship, while barratry refers to a fraudulent breach of duty by a master or staff of the ship. Sinking the ship after being hit by a rock and loss of cargo due to seawater or heat are other examples of sea perils. Thus, marine insurance may be defined as a contract whereby the insurer agrees to indemnify the insured in a manner and to the extent agreed upon against marine losses.
Define Life Insurance.
Life insurance is a contract under which the insurance company (called the insurer) agrees to pay the specified amount (called sum assured) on the death of the insured person or upon the expiry of a specified period, whichever is earlier, in consideration of the regular premium. Life insurance is the most popular form of insurance because it plays a vital role in the lives of the public.
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.
Insurance that covers goods or cargo against loss or damage during transit by sea, road, rail, or air.
Insurance that provides compensation for injury, disability, death, or vehicle damage due to accidents.
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.
Fire insurance is property insurance that covers damage and losses caused by fire to property like buildings, godowns
containing goods, factories, etc.
Formulae [5]
Amount of accumulated (future) Value:
\[P^{\prime}=\frac{C(1+i)}{i}[1-(1+i)^{-n}]\]
Present value P:
\[:P=\frac{C}{i}[1-(1+i)^{-n}]\]
Accumulated (Future) Value:
\[A^{\prime}=\frac{C(1+i)}{i}[(1+i)^n-1]\]
Present Value:
\[P^{\prime}=\frac{C(1+i)}{i}[1-(1+i)^{-n}]\]
\[A=P(1+i)^n\]
Primium = Rate of Premium × Policy Value
\[\mathrm{Claim}=\mathrm{Loss}\times\frac{\text{PolicyValue}}{\text{PropertyValue}}\]
Key Points
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. |
Important Questions [4]
- A lady plans to save for her daughter’s marriage. She wishes to accumulate a sum of ₹ 4,64,100 at the end of 4 years. What amount should she invest every year if she gets an interest of 10% p.a.
- A person wants to create a fund of ₹ 6,96,150 after 4 years at the time of his retirement. He decides to invest a fixed amount at the end of every year in a bank that offers him interest of 10% p.a.
- In an ordinary annuity, payments or receipts occur at ______.
- ______ is a series of constant cash flows over a limited period of time.
