Business Studies | Unit-13 | Risk Management and Insurance | Class-12

Class-12 Business Studies Unit-13: Risk Management and Insurance Concept of Risk Management:- Answer: Risk management process of identifi...

Class-12

Business Studies

Unit-13: Risk Management and Insurance

Concept of Risk Management:-

Answer: Risk management process of identification of reasons of loss of assets and selecting the measure to minimize threatening of such loss. The example of loss exposure involves manufacturing plants that may be damaged in an earthquake, flood or other accidental events. Insurance helps to minimize risk of loss due to unexpected events, because it indemnifies the sum of insured loss of properties and assets.

According to Holyoake and Weepers, “Risk management can be defined as the identification, analysis, and economic control of those risks that can threaten the assets or earning."

Risk management, according to the above definition, is the process of identifying asset loss, analyzing the causes of the loss, selecting effective approaches for treating the cause of the loss, and implementing risk management programs. Risk management programs entail taking preventative measures to reduce loss, which are incorporated into insurance contracts.

Concept of Insurance:-

Answer: Insurance protects life and property from risks. Risk is the chance of financial loss as a result of unknown future events. Death, illness, or accidents can all result in the loss of life. Property loss can occur as a result of fire, flood, earthquake, terrorism, theft or bad debts. Insurance protects against financial loss as a result of a risk. It gives you a feeling of safety. It is a useful tool for company.

Insurance is a legal contract between the insurance the insurer and the insured. It transfer risk to insurer from insured for a premium. Insurer is the insurance company. Insured is eh taking insurance. Premium is the amount of money paid by insured to the insurer.

1. Explain the Importance of Insurance?

Answer: Insurance is an important auxiliary of business. It reduces the danger of financial loss in professional, personal, and social situations. Under the following topics, the significance of insurance can be studied:-

• For Individual and Family:- The following are the advantages of insurance for individuals and family:
• Economic Safeguard: - Insurance provides economic safeguard to individuals and family. It protects against the risk of loss of property, assets, and loss to the insured's family as a result of the insured's death. The insurance company compensates the victim based on the terms of the policy,
• Provides Scope for Employment: - Insurance is the better scope for employment. Individuals might find work in the insurance industry based on their skills and knowledge. They might also be indirectly involved in agency functions, which is also an element of part-time work. Individual participation in insurance will benefit the entire family.
• Incentive to Economy: - Insurance facilitates to save money, specially, in life insurance policy, insured is to be paid a fixed lump-sum amount of money after certain fixed time period. This encourages the individuals to save their surplus revenue. The surplus of today will be fruitful in future, especially, in old age.
• Profitable Investment: - Insurance in directly or indirectly a profitable investment. If insurance is a direct profitable investment since it generates capital by returning the entire deposited premium amount plus a specified bonus rate. Other types of insurance on the other hand, are an indirect lucrative investment because they assume the risk of indemnity.
• Maintain Living Standard: - Insurance facilitates to maintain living standard of individuals and also to the family. In the first, insurance indemnifies the loss of properties and assets on the basis of policy. This helps to maintain the living standard of the family.
• For Business Organization: - The following are the importance to the business organizations:-
• Safeguard against Risk of Loss: - It is more difficult to predict future unanticipated business losses. Insurance protects you from future company losses that are unforeseeable. Business organizations enter into insurance policy by depositing certain amount of premium.
• Stability in Business: - Insurance ensures stability in business activities. Insurance policy contracts are only entered into by businesses. The insurance provider then assumes full responsibility for the risk of business loss. Businessmen can conduct their operations without concern of losing money. This promotes corporate stability as well as the development of industry, trade, and commerce.
• Increases Efficiency: - Insurance facilitates to increase working efficiency of the employees. When all the resources of the organization like human, material and machines are insured, it helps to develop working efficiency. Employees can perform their work without fear or risk of loss or accident.
• Loan facility: - Insurance indirectly facilitates to obtain loan from banks and financial institutions. A businessman can acquire a loan from a bank or financial institution by submitting a life insurance policy as collateral. In the event of properties and assets, banks and financial institutions only lend money after receiving proof of insurance.
• Promotion of Commerce and Trade: - Insurance is one of the important auxiliaries of commerce and trade. It facilitates for the development of commercial and trading activities. Specially, foreign trade is more risky and therefore, there its more probability of loss of properties through many factors like heavy storm, sea perils, floods, accidents etc.
• For Society and Nation: -  The following are the importance of insurance for the society and nation at large:-
• Maintain Living Standard: - Insurance provides facility for the development of living standard of the society. It ensures the loss of property and assets due to natural disasters and other disasters. Life insurance pays a full payment to the insured at the end of the policy period or to the nominee in the event of the insured's death. This ensures that the family's level of living is maintained and that no financial loses.
• Reduce Social Evils: - Insurance helps to alleviate social evils and traditional religion in an indirect way. It compensates the insured in the event of a loss caused by natural disasters. With the help of rewarded money, people can engage in any vocation. Similarly, life insurance returns sum of money to the nominee when insured accidently died.
• Employment Opportunity: As a business, insurance requires a variety of skilled and efficient staff. People can work in insurance companies based on their skills and knowledge. Furthermore, people might work in agency services, which offers them with part-time work,
• Formation of Capital: - Insurance is the important source of capital formation. It aggregates people's tiny premium savings and invests them in constructive purposes. Huge sums of money are invested in the development of industry and commerce. Finally, it contributes to the country's economic prosperity.
• Economic Development: - Firstly, insurance contributes indirectly in economic activities by protecting industries, commercial concerns and service institutions from unexpected loss due to calamities or accidents. Second, it collects sums of money from the public as a premium and invests them directly in industrial and commercial businesses.

1. Explain the Essentials of Insurance Contract

Answer: insurance is a contract between an insurer and an insured in which the insurer assumes the risk of loss recompense in the case of an accident. Parties must be legally competent to engage into an insurance contract in order to do so. The following essential factors need to be considered for taking risk and entering into insurance contract:

• Two Parties
• Legal Relationship Free Consent
• Sum Assured/Insured
• Premium Insurance Policy
• Two Parties: - There must be two parties. They are the insurer and the insured, respectively. Insurer is a term used to describe a person who insures risk. The person whose risk is insured is referred to as the insured. It is necessary for the insured to have an insurable interest. Both parties must be legally capable of entering into a contract. There must be a valid insurer offer and a valid insured acceptance.
• Legal Relationship: - There must be legal relationship between the parties to the contract. It should bind both parties to perform their contract by fulfilling their duties mentioned in the contract.
• Free Consent: - The contract must be made with the free consent of both the parties. Both parties should give their permission out of their own free choice and conscience.
•  Sum Assured/Insured: - The amount for which the insurance policy is taken should be specified. In the case of life insurance, it's known as the sum assured, and in the case of fire and marine insurance, it's known as the sum insured.
• Premium: - The consideration for the insurance contract is premium. Both sides in a deal must get and provide something. The amount in exchange for which the insurer undertakes to make good the loss if a specific event occurs is referred to as the insurance premium. The premium amount is stated.
• Insurance Policy: - The insurance contract is a written contract. The document which contains all the terms and conditions of insurance and risks covered under insurance is known as insurance policy.

2. Explain the Principle of Insurance?

Answer: The concept of insurance is founded on a few fundamental principles, and any breach of those principles, whether by the insurer or the insured, renders the concept of insurance useless. The principle of indemnity is not applicable in life insurance policy. Brief descriptions of principles of insurance are as follows:-

• Utmost Good Faith
• Insurance Interest
• Indemnity.
• Subrogation
• Proximate Cause
• Contribution
• Mitigation of Loss
• Utmost Good Faith: - Insurance contract is based on utmost good faith. Both the insured and the insurer should supply complete and accurate information. All facts about the insurance subject should be disclosed by the insured. This is used to calculate risk and premium rates. The terms and conditions of the insurance contract should be made explicit by the insurer. If the facts are not provided, the contract may be void. This rule prevents cheating.
• Insurance Interest: - The insured should have insurable interest in the subject matter of insurance. Insurable interest means interest of ownership or financial interest. There should be a connection between the insurance subject and the insured. There should be an insurance interest:
• At the time of contract in life insurance.
• At the time of contract and at the time of loss in fire insurance.
• At the time of loss in marine insurance.
• Indemnity: - Insurance is a contract is indemnity. It compensates for actual lass up to the amount of contract. No profit should be made from the insurance contract. This principle is not applicable to life insurance. Indemnity requires following conditions:-
• The actual loss should be estimated in terms of money.
• The loss must be the result of an insured risk.
• The insurer's compensation should not exceed the actual loss.
• Life insurance is exempt from this principle.
• Subrogation: - The rights of the subject of insurance get transferred from insured to insurer after indemnity. The damaged item is transferred to the insurer. After compensating for loss, this principle assures that the insured does not receive more than the actual loss, but instead receives all rights and remedies to damaged property. This principle is not applicable to life insurance.
• Proximate Cause: - The nearest cause of loss should be considered for compensation. Insurance should pay for the damaged caused by the insured risk only. If there is more than one cause for loss, the insured should prove that the loss was cause by the proximate cause.
• Contribution: - This principle applies in cases of double insurance. Contribution is distribution of actual loss among coinsurers. The insured can cover the same property with more than one insurance company. However, all insurers will compensate him for actual loss in proportion to the premium paid. This principle makes it impossible for the insured to profit from insurance. This principle is not applicable to life insurance.
• Mitigation of Loss: - Mitigation is to make the loss harmful. It is the duty of insured to take necessary steps to minimize the loss of subject matter of insurance. The insured should make reasonable efforts to minimize the loss. But it should not be at the risk of life.
• This principle is not applicable to life insurance.

4. What is Life insurance? Describes the Procedures of Affecting Life insurance. (18)

Answer: Life insurance is the most important among all insurance policies. Life insurance is expected to account for 80% of the total insurance market. It began in the sixteenth century in England and other European countries. Life insurance as we know it today began in the eighteenth century.

Life insurance is a contract between insurer and insured where insurer undertakes the risk of compensation of financial loss either at the termination of policy period or at the death of insured. Life insurance contract is not a contract of indemnity because life of a person cannot be compensated in terms of money. The insurance company promises to pay a certain fixed amount of money to the insured on the termination of a certain time period or to the nominee on the death of the insured whichever is earlier.

Procedures of Life Insurance Affecting:-

Answer: It is essential to complete some of the procedures for getting life insurance policy. Brief descriptions about some common procedures are as follows:-

• Submission of Proposal From: - It is the first step of life insurance policy. A person who wants to purchase a life insurance coverage must fill out a proposal. This proposal serves as the foundation for the insurance contract. The proposal form can be obtained at the insurance company's office. A person who wants to purchase a life insurance policy must fill out the following information on the form.
• Name, address and occupation
• Family background, health, date of birth
• Detail about income, life and habit
• Mode of payment of premium, etc.

It is to be noted that information mentioned in proposal form must be actual and true. This is a must because insurance is based on the principle of utmost good faith. The insurer may reject the proposal if any false and untrue information is given.

•  Submission of Medical Examination Report: - It is the report regarding health of the proposer. This report is written by a well-known doctor from the insurance company. Along with the proposal form, this report is also included. For insurance premium valuation, a medical checkup report is required. This report is critical in life insurance since the doctor's report is used by the insurance. Company to determine the risk of death.
• Submission of Agent's Report: - This is one the important documents of life insurance because insurance contract comes into account only through agent. Agent prepares report of the proposer in detail and confidential manner mentioning health, family background, character and other information. Agent's report is also attached with the proposal form. Insurance policy contract, basically, depends upon the agents report.
• Submission of Age Certificate: - This is another important evidential document of life insurance policy. A proposer must present a certificate proving his exact age. The age of the proposer determines the level of risk and the amount of premium. The higher the proposer's age, the higher the risk of life insurance. As a result, the proposer must submit a document that proves his or her age. In most cases, a birth certificate or a citizen certificate should be given as proof of age.
• Acceptance of Proposal: - Insurance company, after receiving proposal form along with medical examination report, agent's report and age certificate, makes process for necessary inspection. In case, information is in accordance of the requirement of the insurance company, it accepts the proposal and demand for first premium. A letter of regret is to be sent to the proposer if proposal is rejected.
• Payment of first Premium: - On the basis of demand of the insurance company, proposer should pay the first premium amount. After receiving the premium payment, the firm issues a receipt as proof of payment. This receipt serves as proof of the insurance company's and insured person's agreement.
• Issue of Insurance Policy: - After completion of essential documentation and payment of first installment of the premium, insurance company issues insurance policy certificate to the insured. Insurance policy certificate is issued to insured through post office or any other means. Insurance, policy certificate contains name of the policyholder, sum assured, number and amount of premium installment, maturity period and other information. After accepting insurance policy, insurer also takes the risk of financial compensation.

5. Describes the various Types of Life Insurance Policy?

Answer: Life insurance contract provides protection against the risk of financial loss. The insured feels safe since he will receive a specific amount of money at the end of the specified time period, or his nominee will receive it if he dies before the end of the period. Life insurance plans are classified into several categories based on their purpose. The following are some of them:-

• A) Whole Life Policy: - In whole life policy, sum assured will be paid only on the death of insured to legal nominee. The whole life policy again may be classified into the following three types:-
• Ordinary Whole Life Policy: - Ordinary whole life policy is issued for the whole life of the insured. After the policyholder's death, the policy amount will be paid out. A policyholder cannot receive the policy amount throughout his or her lifetime, under this policy. At his death, his dependent or designee will get the policy amount.
• Limited Payment Whole Life Policy: - In this policy, the payment of premium is limited to a fixed period. However, the policy amount will be paid to the dependent or nominee only on the death of policyholder. Generally, the amount of premium payable under this policy is higher than the premium under ordinary whole life policy.
• Convertible Whole Life Policy: - Under this whole life policy, the policyholders are given option to convert their whole life policy into endowment policy after termination of a fixed period like 5 years, 6 years and so on. If this option is considered, policyholders will no longer be considered whole life policy holders.
• B) Endowment Policy: - In endowment policy, sum assured will be paid either at the termination of policy period or on the death of insured whichever is earlier. The endowment policy may be of following types:-
• Ordinary Endowment Policy: - This policy is a combination of both the family protection and investment. The assured sum in this policy is to be paid to the insured at the end of the policy period or to the nominee at the end of the insurance policy, whichever comes first. The acquisition of this policy allows for the payment of old age benefits and protects the family in the future.
• Pure Endowment Policy: - Pure endowment policy is for the benefit of the policyholder. The covered sum is only paid to the insured at the end of a specified time in this policy. The insurance company does not pay the money to the nominee if the insured died before the period's end. Only the insured who has no nominee or dependent accepts this sort of policy.
• Double Endowment Policy: - In this policy, insurance company pays double of the assured sum to the insured at the maturity of fixed period. But if insured died before the maturity period, the basic sum assured is payable to nominee or dependent of insured. The premium is payable throughout the endowment terms or till the death of the insured.
• Joint Life Endowment Policy: - This Policy covers more than one life under a single policy. The sum assured is paid to the live insured at the end of the policy term or on the death of one of the insured during the endowment period. The insurance premium is due for the duration of the policy or until one of the lives assured dies.
• Anticipated Endowment: - In this policy, a part of sum assured is paid to the insured before maturity period and balance amount is to be paid at the maturity period. In the event of death of insured before the maturity date, full assured sum is payable without any deduction of installment paid earlier.
• Deferred Endowment Policy: - In this policy, the assured sum is to be paid to the insured or to his nominee only after termination of policy period. Even if insured died before the maturity of fixed period, insurance company will pay the sum assured to his nominee only after the termination of policy period.
• C) Term Policy: - This is short term, from 3 to7 years, life insurance policy sum assured amount would be paid only on the death of insured. The following are some of the term policies.
• Straight Term (Temporary) Policy: - In this policy, a single premium is required to be paid. Only in the case of the insured's death will the assured money be paid. This type of policy is typically used in business transactions. For example, if the buyer died during the term time, the seller could get an insurance coverage.
• Renewal Term Policy: - This term policy can be renewed at the expiry of a fixed period an earlier insurance policy. Medical examination of the insured is not required for renewal of the term policy. However, the premium amount will be set according on the age at the time of renewal.
• Convertible Term Policy: - This policy gives option to convert term policy into whole life policy or endowment policy. For the conversion of term policy into other life insurance policies, it is essential to complete some of the documentation with insurer.
• Decreasing Term Policy: - This policy is also known as mortgage redemption policy. In this sort of coverage, the amount of insurance premium that must be paid is gradually reduced More premiums will be paid at first, but they will be reduced in one-by-one installments.

6. What is Fire Insurance? Describes the Procedures Affecting Fire Insurance.

Answer: Fire is a natural gift for living and essential to alive. However, in rare cases, it causes a several calamity in society resulting, in the loss of property and assets. Fire insurance is a contract between an insurer and an insured to compensate for property loss caused by fire or other specified causes. For this reason, the insurer adjusts the premium rate.

In fire insurance, the insured must have to prove that the loss is really due to fire while making claims for the loss. Loss by fire may be of two reasons: fire should be accidental and property should be destroyed by fire. The insurable interest in fire insurance must be presented both at the time of effecting policy and at the time of loss.

• Procedures of Affecting Fire Insurance Policies: - For accepting fire insurance policy, it is essential to complete some evidential documentation and formal procedures. Common procedures of fire insurance policies are as follows:-
• Selection of Insurance Company: - The first step of the policyholder is to select the insurance company. In general, a company that can give rapid service and loss indemnity should be favored. When choosing an insurance company, the financial position of the company is considered.
• Submission of Proposal Form: - After selection of appropriate insurance company, another step of the policyholder is the submission of proposal form. A proposal form can be obtained from an agent or straight from the insurance company's office. It is critical to include information about the properly in the proposal form for insurance purposes. In the proposal form, the policyholder must explicitly disclose, all of the facts. The location of the property, its value, the nature of the risk, and other details are included here.
• Evidence of Respectability (Status): - Respectability is concerned with status and morality. There may be additional risks in a fire insurance coverage, because the insured may set fire to his or her own property. As a result, the insured may be required to present a certificate of respectability in some situations. The insurer is interested in learning about the insured's social and legal status, as well as his nature, intent, and mortality.
• Survey of Property: - In some special cases when the value of insurance is high, insurer makes survey of property and asset of the policyholder before accepting proposal for such survey, insurer takes support of technical employees. The employer will assess the level of risk and the amount of premium based on the employee's technical report. However, if the property's worth is greater than the limit stated on the proposal form, the insurer may accept the plan without requiring a survey.
• Acceptance of Proposal: - The insurer accepts the proposal after getting evidential documents in accordance of requirement. The rate of premium is also mentioned in the acceptance letter. Through acceptance letter, the insurer may ask for the payment to the policyholder. After accepting first premium, the risk of property is taken by the insurer.
• Issue of Cover Notes: - After accepting proposal form and first premium amount, insurance company issues a cover note as an initially evidence of insurance contract. This cover letter serves as proof of insurance coverage. Because the procedures for issuing a fire insurance policy may take some time, the insurance company issues a cover note to the insured as an interim protection note.
• Issue of Fire Insurance Policy: - The insurance company, after completion of documentation and procedures, issues a stamped policy certificate. This certificate contains detail information about subject matter of insurance. It is an evidential document of formal contract between insurer and insured regarding the risk of loss.

7. Explain the Various Types of Fire insurance Policies?

Answer: Depending upon agreement and situation, fire insurance may be classified into the following types:

• A) On the Basis of Risk Covered: - The following are the four types of policies on the basis of risk covered:-
• Comprehensive Policy: - This policy is also known as all policy In this insurance, the insurer is responsible for compensation not only for losses caused by fire but also for losses caused by other factors such as theft, accident, explosion, burglary, riot, strike and so on. The term "comprehensive" does not imply that the insurer covers all possible risks. Many other dangers may exist that are not covered by the policy.
• Blanket Policy: - This policy covers various types of assets of different location along with building. An insured can combine his property and assets from multiple places into a single insurance policy. It is not essential to obtain separate policies for properties in various locations. If the covered building is destroyed by fire, the insurance company will pay for all of the damaged property as well as the building.
• Consequential Policy: - The fire insurance is originally obtained to identify the actual loss of property. But the settlement of a loss covering material damage only is not sufficient. The consequential loss is also to be provided. Therefore, this policy provides compensation not only for the value of loss but also value of anticipated loss due to accident and increase, in cost of working capital.
• Sprinkle Leakage Policy: - This policy provides protection against loss of property caused by the accidental leakage of water, gas or other materials. However, the discharge or leakage of water due to heat caused by fire, repairs and maintenance, alternation of plant, earthquake and explosion, etc. are not covered by this policy.
•  B) On the basis of indemnity: - The following are the four types of insurance policy on the basis of indemnity:-
• Valued Policy: - In this policy, the sum amount assured payable is predetermined. The amount of the claim for property or asset loss due to fire is preset. The value of properties is used to determine indemnification rather than the market worth of the item destroyed.
• Average Policy: - In this policy, the amount is determined with reference to the value of the property insured. The claim is calculated as the average amount of actual loss and insured amount by dividing the value of property of the insured. The amount of insurance claim is calculated as:-
• Specific Policy: - In this policy, the chain amount is paid up to the assured sum In the event of a fire, the insured can only make a claim up to the sum guaranteed. Even if the loss of property is greater than the insured sum, he cannot claim more than the assured sum.
• Reinstatement Policy: - This is also known as replacement policy where cash amount is not paid to the insured. The insurance company compensates the loss of properties to the insured. This policy is also known a New for Old- policy where old property is replaced by new property.
• C) On the basis of stock goods: - The following are the five types of insurance on the basis of stock of goods:-
• Floating Policy: - This policy is applicable to store located in different places. It insures one or more types of products under a single sum promised for a single premium paid by a single owner. This policy is useful for covering variable stock levels in various locations. Large-scale producers and traders, whose merchandise may be stored in multiple Go-downs, warehouses, ports, or railway stations, adopt this policy.
• Declaration Policy: - Under the declaration policy, the insured takes out an insurance policy for the maximum amount of stock that the he considers would be at risk during the period of policy, Initially, 75 percent of the premium is paid to the insurer on the basis of maximum stock. If the determined premium is more than the premium already paid, the insured must reimburse the insurer for the difference, and vice versa.
• Adjustable Policy: - Policy is just an ordinary policy for business stock in this insurance, the amount of premium paid to the insurer is adjusted according to the stock's fluctuation. The insured must provide the insurer with a monthly stock valuation report. The monthly changing value of stock is used to calculate the insurance premium. The premium is changed on a regular basis to reflect the risk's fluctuation.
• Excess policy: - This policy is applicable for those business organizations which keep stocks of different items and value of which fluctuate according to time being. This policy has been introduced to minimize the sum of premium and also to minimize the amount of loss on the occurrence of fire. Therefore, two policies are taken i.e. First loss policy Excess policy.
• Maximum Value with Discount Policy: - In this policy, premium is paid to the insurer on the basis of maximum valuation of stock throughout the year. As a result, no policy declaration is required. If there is no loss of property at the end of the insurance period, one-third of the premium paid will be returned to the insured. This type of policy isn't available for all commodities; rather, it's confined to a few specific ones.

8. What is Marine Insurance? Describes the various Types of Marine Insurance Policies.

Answer: Marine insurance has been defined as a contract between insurers and insured where insurer undertakes the risk of loss of properties in sea transportation in return of certain amount of premium. The concept of marine insurance arose as a result of the increased risk of loss associated with maritime travel. The water or ocean is where the majority of commercial transactions, particularly foreign or international business, take place. Property damage is more likely owing to a variety of factors such as major cyclones, sea pirates, accidents, heavy rain, explosions, and so on. The major thing that can reduce the risk is marine insurance.

• Types of Marine Insurance Policies: - On the basis of requirement and contract different types of marine, insurance is taken into practice. The following are the common policies used in marine insurance:-
• Time policy
• Voyage policy
• Mixed policy
• Valued policy
• Unvalued policy
• Floating policy
• Blanked policy
• Block policy
• Port policy
• P.P.I. policy
• Currency policy
• Time policy: - When a policy is taken for definite period of time, it is known as time policy. For the purposes of this regulation, time is taken into account rather than the destination. In general, policies are purchased for one year, while they can be purchased for shorter periods of time, such as one week, one month, or less. For hull insurance, this policy is often utilized. This policy is followed when the ship is being navigated from one location to another or while it is being built.
• Voyage policy: - This policy is taken to cover a particular voyage from one point to another point of destination. The time of maturity is not taken into account here, but the distance between the place of departure and the point of destination is the major subject of insurance. As a result, this policy is better suited to cargo insurance, Even if the vessel is stationed at an intermediate site for a short time, the commodities are protected.
• Mixed policy: - The policy is converts both time and distance. The combination of time policy and voyage policy is known as mixed policy. In other words, this policy covers both time and distance. This policy is generally taken on sailing between certain fixed routes. This policy may be beneficial both to hull and cargo insurance.
• Valued policy: - In this policy, the subject matter to be insured is predetermined, such insured value may be cost of goods, freight and shipping charge and a marine of anticipated profit. The insurer and the insured, on the other hand, agree on the subject matter of insurance when they engage into a contract. The loss is paid based on the agreed-upon value of the products.
• Unvalued policy: - The value of policy is not determined at the time of entering into contract but is left to determine when the loss takes place. Generally, the invoice cost, freight, shipping and insurance are taken into consideration while making valuation of goods and no margin for anticipated profit is added.
• Floating policy: - In this policy, one policy is accepted for shipment and continues till the shipment of goods is made to the amount of insurance policy. Within a certain amount of time, the insured must notify the insurance company of the shipment of cargo and the name of the vessel, this process continues until the products are shipped to the amount of the insurance coverage.
• Blanked policy: - This policy covers the risk of various types of properties in lump sum within a time limit and within a geographical region. The policy is premium is paid in full at the start of the policy and then readjusted at the conclusion of the term based on the actual amount of risk. The excess premium amount is returned to the insured when the real level of risk is less than the whole amount of insurance.
• Block policy: - This policy covers other incidental risk along with the risk of sea routes. These risks are other than the sea voyage like risks of transportation from place of origin to the port. This policy is, especially, needed to the land locked countries like in Nepal. Therefore, such policy protects to carry goods and mines from place of origin to the place of destination.
• Port policy: - This policy is concerned with the risk of subject matter, when it is unloaded on the port. It assumes the risk of goods being lost within the port's barrier. It means that the insurer is responsible for the loss from the time the goods are unloaded until they are dispatched from the port. This policy is usually implemented for a short period of time.
• P.P.I. Policy: - This policy is concerned with insurable interest. This policy known by 'policy proof of interests’. Even if there is no insurable interest, the insurer honors the contract in this case. This policy was created to avoid the complication of the principle of insurable interest. It is based on mutual understanding between insurers and insureds.
• Currency Policy: - This policy is issued in foreign currency. Because the assured total is determined in a certain amount of foreign currency, the sum assured is indicated in foreign currencies in this policy. Because foreign trade involves dealing with foreign currencies, this approach is suited for businessmen and organizations involved in foreign trade.