Fire Insurance Under Indian Insurance Law

A contract of Insurance comes into being when a person seeking insurance protection enters into a contract with the insurer to indemnify him against loss of property by or incidental to fire and or lightening, explosion, etc. This is primarily a contract and hence as is governed by the general law of contract. However, it has certain special features as insurance transactions, such as utmost faith, insurable interest, indemnity, subrogation and contribution, etc. these principles are common in all insurance contracts and are governed by special principles of law.

FIRE INSURANCE:

According to S. 2(6A), "fire insurance business" means the business of effecting, otherwise than incidentally to some other class of insurance business, contracts of insurance against loss by or incidental to fire or other occurrence, customarily included among the risks insured against in fire insurance business.

According to Halsbury, it is a contract of insurance by which the insurer agrees for consideration to indemnify the assured up to a certain extent and subject to certain terms and conditions against loss or damage by fire, which may happen to the property of the assured during a specific period.

Thus, fire insurance is a contract whereby the person, seeking insurance protection, enters into a contract with the insurer to indemnify him against loss of property by or incidental to fire or lightning, explosion etc. This policy is designed to insure one's property and other items from loss occurring due to complete or partial damage by fire.

In its strict sense, a fire insurance contract is one:

1. Whose principle object is insurance against loss or damage occasioned by fire.

2. The extent of insurer's liability being limited by the sum assured and not necessarily by the extent of loss or damage sustained by the insured: and

3. The insurer having no interest in the safety or destruction of the insured property apart from the liability undertaken under the contract.

LAW GOVERNING FIRE INSURANCE

There is no statutory enactment governing fire insurance, as in the case of marine insurance which is regulated by the Indian Marine Insurance Act, 1963. the Indian Insurance Act, 1938 mainly dealt with regulation of insurance business as such and not with any general or special principles of the law relating fire of other insurance contracts. So also the General Insurance Business (Nationalization) Act, 1872. in the absence of any legislative enactment on the subject , the courts in India have in dealing with the topic of fire insurance have relied so far on judicial decisions of Courts and opinions of English Jurists.

In determining the value of property damaged or destroyed by fire for the purpose of indemnity under a policy of fire insurance, it was the value of the property to the insured, which was to be measured. Prima facie that value was measured by reference of the market value of the property before and after the loss. However such method of assessment was not applicable in cases where the market value did not represent the real value of the property to the insured, as where the property was used by the insured as a home or, for carrying business. In such cases, the measure of indemnity was the cost of reinstatement. In the case of Lucas v. New Zealand Insurance Co. Ltd.[1] where the insured property was purchased and held as an income-producing investment, and therefore the court held that the proper measure of indemnity for damage to the property by fire was the cost of reinstatement.

INSURABLE INTEREST

A person who is so interested in a property as to have benefit from its existence and prejudice by its destruction is said to have insurable interest in that property. Such a person can insure the property against fire.

The interest in the property must exist both at the inception as well as at the time of loss. If it does not exist at the commencement of the contract it cannot be the subject-matter of the insurance and if it does not exist at the time of the loss, he suffers no loss and needs no indemnity. Thus, where he sells the insured property and it is damaged by fire thereafter, he suffers no loss.

RISKS COVERED UNDER FIRE INSURANCE POLICY

The date of conclusion of a contract of insurance is issuance of the policy is different from the acceptance or assumption of risk. Section 64-VB only lays down broadly that the insurer cannot assume risk prior to the date of receipt of premium. Rule 58 of the Insurance Rules, 1939 speaks about advance payment of premiums in view of sub section (!) of Section 64 VB which enables the insurer to assume the risk from the date onwards. If the proposer did not desire a particular date, it was possible for the proposer to negotiate with insurer about that term. Precisely, therefore the Apex Court has said that final acceptance is that of the assured or the insurer depends simply on the way in which negotiations for insurance have progressed. Though the following are risks which seem to have covered Fire Insurance Policy but are not totally covered under the Policy. Some of contentious areas are as follows:

FIRE: Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. For e.g., paints or chemicals in a factory undergoing heat treatment and consequently damaged by fire is not covered. Further, burning of property insured by order of any Public Authority is excluded from the scope of cover.

LIGHTNING : Lightning may result in fire damage or other types of damage, such as a roof broken by a falling chimney struck by lightning or cracks in a building due to a lightning strike. Both fire and other types of damages caused by lightning are covered by the policy.

AIRCRAFT DAMAGE: The loss or damage to property (by fire or otherwise) directly caused by aircraft and other aerial devices and/ or articles dropped there from is covered. However, destruction or damage resulting from pressure waves caused by aircraft traveling at supersonic speed is excluded from the scope of the policy.

RIOTS, STRIKES, MALICIOUS AND TERRORISM DAMAGES: The act of any person taking part along with others in any disturbance of public peace (other than war, invasion, mutiny, civil commotion etc.) is construed to be a riot, strike or a terrorist activity. Unlawful action would not be covered under the policy.

STORM, CYCLONE, TYPHOON, TEMPEST, HURRICANE, TORNADO, FLOOD and INUNDATION: Storm, Cyclone, Typhoon, Tempest, Tornado and Hurricane are all various types of violent natural disturbances that are accompanied by thunder or strong winds or heavy rainfall. Flood or Inundation occurs when the water rises to an abnormal level. Flood or inundation should not only be understood in the common sense of the terms, i.e., flood in river or lakes, but also accumulation of water due to choked drains would be deemed to be flood.

IMPACT DAMAGE: Impact by any Rail/ Road vehicle or animal by direct contact with the insured property is covered. However, such vehicles or animals should not belong to or owned by the insured or any occupier of the premises or their employees while acting in the course of their employment.

SUBSIDENCE AND LANDSLIDE INCULUDING ROCKSIDE: Destruction or damage caused by Subsidence of part of the site on which the property stands or Landslide/ Rockslide is covered. While Subsidence means sinking of land or building to a lower level, Landslide means sliding down of land usually on a hill.

However, normal cracking, settlement or bedding down of new structures; settlement or movement of made up ground; coastal or river erosion; defective design or workmanship or use of defective materials; and demolition, construction, structural alterations or repair of any property or ground-works or excavations, are not covered.

BURSTING AND/OR OVERFLOWING OF WATER TANKS, APPARATUS AND PIPES: Loss or damage to property by water or otherwise on account of bursting or accidental overflowing of water tanks, apparatus and pipes is covered.

MISSILE TESTING OPERATIONS: Destruction or damage, due to impact or otherwise from trajectory/ projectiles in connection with missile testing operations by the Insured or anyone else, is covered.

LEAKAGE FROM AUTOMATIC SPRINKLER INSTALLATIONS: Damage, caused by water accidentally discharged or leaked out from automatic sprinkler installations in the insured's premises, is covered. However, such destruction or damage caused by repairs or alterations to the buildings or premises; repairs removal or extension of the sprinkler installation; and defects in construction known to the insured, are not covered.

BUSH FIRE: This covers damage caused by burning, whether accidental or otherwise, of bush and jungles and the clearing of lands by fire, but excludes destruction or damage, caused by Forest Fire.

RISKS NOT COVERED BY FIRE INSURANCE POLICY

Claims not maintainable/ covered under this policy are as follows:

o Theft during or after the occurrence of any insured risks

o War or nuclear perils

o Electrical breakdowns

o Ordered burning by a public authority

o Subterranean fire

o Loss or damage to bullion, precious stones, curios (value more than Rs.10000), plans, drawings, money, securities, cheque books, computer records except if they are categorically included.

o Loss or damage to property moved to a different location (except machinery and equipment for cleaning, repairs or renovation for more than 60 days).

CHARACTERICTICS OF FIRE INSURANCE CONTRACT

A fire insurance contract has the following characteristics namely:

(a) Fire insurance is a personal contract

A fire insurance contract does not ensure the safety of the insured property. Its purpose is to see that the insured does not suffer loss by reason of his interest in the insured property. Hence, if his connection with the insured property ceases by being transferred to another person, the contract of insurance also comes to an end. It is not so connected with the subject matter of the insurance as to pass automatically to the new owner to whom the subject is transferred. The contract of fire insurance is thus a mere a personal contract between the insured and the insurer for the payment of money. It can be validly assigned to another only with the consent of the insurer.

(b) It is entire and indivisible contract.

Where the insurance is of a binding and its contents of stock and machinery, the contract is expressly agreed to be divisible. Thus , where the insured is guilty of breach of duty towards the insurer in respect of one subject matters covered by the policy , the insurer can avoid the contract as a whole and not only in respect of that particular subject mater , unless the right is restricted by the terms of the policy.

(c) Cause of fire is immaterial

In insuring against fire, the insured wishes to protect him from any loss or detriment which he may suffer upon the occurrence of a fire, however it may be caused. So long as the loss is due to fire within the meaning of the policy, it is immaterial what the cause of fire is, generally. Thus , whether it was because the fire was lighted improperly or was lighted properly but negligently attended to thereafter or whether the fire was caused on account of the negligence of the insured or his servants or strangers is immaterial and the insurer is liable to indemnify the insured. In the absence of fraud, the proximate cause of the loss only is to be looked to.

The cause of the fire however becomes material to be investigated

(1). Where the fire is occasioned not by the negligence of, but by the willful

(2) Where the fire is due is to cause falling with the exception in the contract.

LIMITATION OF TIME

Indemnity insurance was an agreement by the insurer to confer on the insured a contractual right, which prima facie, came into existence immediately when the loss was suffered by the happening of an event insured against, to be put by the insurer into the same position in which the accused would have had the event not occurred but in no better position. There was a primary liability, i.e. to indemnify, and a secondary liability i.e. to put the insured in his pre-loss position, either by paying him a specifying amount or it might be in some other manner. But the fact that the insurer had an option as to the way in which he would put the insured into pre-loss position did not mean that he was not liable to indemnify him in one way or another, immediately the loss occurred. The primary liability arises on the happening of the event insured against. So, the time ran from the date of the loss and not from the date on which the policy was avoided and any suit filed after that time limit would be barred by limitation.[2]

WHO MAY INSURE AGAINST FIRE?

Only those who have insurable interest in a property can take fire insurance thereon. The following are among the class of persons who have been held to possess insurable interest in, property and can insure such property:

1. Owners of property, whether sole, or joint owner, or partner in the firm owning the property. It is not necessary that they should possession also. Thus a lesser and a lessee can both insure it jointly or severely.

2. The vender and purchaser have both rights to insure. The vendor's interest continues until the conveyance is completed and even thereafter, if he has an unpaid vendor's lien over it.

3. The mortgagor and mortgagee have both distinct interests in the mortgaged property and can insure, per Lord Esher M.R."The mortgagee does not claim his interest through the mortgagor , but by virtue of the mortgage which has given him an interest distinct from that of the mortgagor"[3]

4. Trustees are legal owners and beneficiaries the beneficial owners of trust property and each can insure it.

5. Bailees such as carriers, pawnbrokers or warehouse men are responsible for there safety of the property entrusted to them and so can insure it.

PERSON NOT ENTITLED TO INSURE

One who has no insurable interest in a property cannot insure it. For example:

1. An unsecured creditor cannot insure his debtor's property, because his right is only against the debtor personally. He can, however, insure the debtor's life.

2. A shareholder in a company cannot insure the property of the company as he has no insurable interest in any asset of the company even if he is the sole shareholder. As was the case of Macaura v. Northen Assurance Co.[4] Macaura. Because neither as a simple creditor nor as a shareholder had he any insurable interest in it.

CONCEPT OF UTMOST FAITH

As all contracts of insurance are contracts of utmost good faith, the proposer for fire insurance is also under a positive duty to make a full disclosure of all material facts and not to make any misrepresentations or misdescreptions thereof during the negotiations for obtaining the policy. This duty of utmost good faith applies equally to the insurer and the insured. There must be complete good faith on the part of the assured. This duty to observe utmost good faith is ensured b requiring the proposer to declare that the statements in the proposal form are true, that they shall be the basis of the contract and that any incorrect or false statement therein shall avoid the policy. The insurer can then rely on them to assess the risk and to fix appropriate premium and accept the risk or decline it.

The questions in the proposal form for a fire policy are so framed as to get all information which is material to the insurer to know in order to assess the risk and fix the premium, that is, all material facts. Thus the proposer is required too give information relating to:

o The proposer's name and address and occupation

o The description of the subject matter to be insured sufficient for the purpose of identifying it including,

o A description of the locality where it is situated

o How the property is being used, whether for any manufacturing purpose or hazardous trade.etc

o Whether it has already been insured

o And also ant personal insurance history including the claims if any made buy the proposer, etc.

Apart from questions in the proposal form, the proposer should disclose whether questioned or not-

1. Any information which would indicate the risk of fire to be above normal;

2. Any fact which would indicate that the insurer's liability may be more than normal can be expected such as existence of valuable manuscripts or documents, etc, and

3. Any information bearing upon the more; hazard involved.

The proposer is not obliged to disclose-

1. Information which the insurer may be presumed to know in the ordinary course of his business as an insurer;

2. Facts which tend to show that the risk is lesser than otherwise;

3. Facts as to which information is waived by the insurer; and

4. Facts which need not disclosed in view of a policy condition.

Thus, assured is under a solemn obligation to make full disclosure of material facts which may be relevant for the insurer to take into account while deciding whether the proposal should be accepted or not. While making a disclosure of the relevant facts, the

DOCTRINE OF PROXIMATE CAUSE

Where more perils than one act simultaneously or successively, it will be difficult to assess the relative effect of each peril or pick out one of these as the actual cause of the loss. In such cases, the doctrine of proximate cause helps to determine the actual cause of the loss.

Proximate cause was defined in Pawsey v. Scottish Union and National Ins. Co.,[5]as "the active, effective cause that sets in motion a train of events which brings about a result without the intervention of any force started and working actively from a new and independent source." It is dominant and effective cause even though it is not the nearest in time. It is therefore necessary when a loss occurs to investigate and ascertain what is the proximate cause of the loss in order to determine whether the insurer is liable for the loss.

PROXIMATE CAUSE OF DAMAGE

A fire policy covers risks where damage is caused by way of fire. The fire may be caused by lightening, by explosion or implosion. It may be result of riot, strike or on account of any, malicious act. However these factors must ultimately lead to a fire and the fire must be the proximate cause of damage. Therefore, a loss caused by theft of property by militants would not be covered by the fire policy. The view that the loss was covered under the malicious act clause and therefore .the insurer was liable to meet the claim is untenable, because unless and until fire is the proximate cause f damage, no claim under a fire policy would be maintainable.[6]

PROCEDURE FOR TAKING A FIRE INSURANCE POLICY

The steps involved for taking a fire insurance policy are mentioned below:

1. Selection of the Insurance Company:

There are many companies that offer fire insurance against unforeseen events. The individual or the company must take care in the selection of an insurance company. The judgment should rest on factors like goodwill, and long term standing in the market. The insurance companies can either be approached directly or through agents, some of them who are appointed by the company itself.

2. Submission of the Proposal Form:

The individual or the business owner must submit a completed prescribed proposal form with the necessary details to the insurance company for proper consideration and subsequent approval. The information in the Proposal Form should be given in good faith and must be accompanied by documents that verify the actual worth of the property or goods that are to be insured. Most of the companies have their own personalized Proposal Forms wherein the exact information has to be provided.

3. Survey of the Property/ Consideration:

Once the duly filled Proposal Form is submitted to the insurance company, it makes an "on the spot" survey of the property or the goods that are the subject matter of the insurance. This is usually done by the investigators, or the surveyors, who are appointed by the company and they need to report back to them after a thorough research and survey. This is imperative to assess the risk involved and calculate the rate of premium.

4. Acceptance of the Proposal:

Once the detailed and comprehensive report is submitted to the insurance company by the surveyors and related officers, the former makes a thorough perusal of the Proposal Form and the report. If the company is satisfied that their is no lacuna or foul play or fraud involved, it formally "accepts" the Proposal Form and directs the insured to pay the first premium to the company. It is to be noted that the insurance policy commences after the payment and the acceptance of the premium by the insured and the company, respectively. The Insurance Company issues a Cover Note after the acceptance of the first premium.

PROCEDURE ON RECEIPT OF NOTICE OF LOSS

On receipt of the notice of loss, the insurer requires the insured to furnish details pertaining to the loss in a claim from relating to the following information-

1. Circumstances and cause of the fire;

2. Occupancy and situation of the premises in which the fire occurred;

3. Insured's interest in the insured property; that is capacity in which the insured claims and whether any others are interested in the property;

4. Other insurances on the property;

5. Value of each item of the property at the time of loss together with proofs thereof , and value of the salvage ,if any; and

6. Amount claimed

Furnishing such information relating to the claim is also a condition precedent to the liability of the insurer. The above information will enable the insurer to verify whether-

(1) The policy is in force;

(2) The peril causing the loss is an insured peril;

(3) The property damaged or lost is the insured property.

Rules for calculation of value of property

The value of the insured property is-

1) Its value at the time of loss, and

2) At the place of loss, and

3) Its real or intrinsic value without any regard for its sentimental vale. Loss of prospective profit or other consequential loss is not to be taken into account.

FILING OF CLAIMS

How a claim arises?

After a contract of fire insurance has come into existence, a claim may arise by the operation of one or more insured perils on an unsecured property. There may in addition one or more uninsured perils also operating simultaneously or in succession of the property. In order that the claim should be valid the following conditions must be fulfilled:

1. The occurrence should take place due to the operation of an insured peril or where both insured and other perils operated , the dominant or efficient cause of the loss must have been an insured peril;

2. The operation of the peril must not come within the scope of the policy exceptions;

3. The event must have caused loss or damage of the insured property;

4. The occurrence must be during the currency of the policy;

5. The insured must have fulfilled all the policy conditions and should also comply with requirements to be fulfilled after the claim had arisen.

MATERIAL FACTS IN FIRE INSURANCE: PREVIOUS CONVICTION OF THE ACCUSED

The criminal record of an assured could affect the moral hazard, which insurers had to assess, and the non-disclosure of a serious criminal offence like robbery by the plaintiff would a material non-disclosure.

INSURED'S DUTY ON OUTBREAK OF FIRE, IMPLIED DUTY

On the outbreak of a fire the insured is under an implied duty to observe good faith towards the insurers and the in pursuance of it the insured must do his best to avert or minimize the loss. For this purpose he must (1) take all reasonable measures to put out the fire or prevent its spread, and (2) assist the fire brigade and others in their attempts to do so at any rate not come in their way.

With this object the insured property may be removed to a place of safety. Any loss or damage the insured property may sustain in the course of attempts to combat the fire or during its removal to a place of safety etc., will be deemed to be loss proximately caused by the fire.

If the insured fails in his duty willfully and thereby increases the burden of the insurer, the insured will be deprived of his right to revive any indemnity under the policy.[7]

INSURER'S RIGHTS ON THE OUTBREAK OF FIRE

(A) Implied Rights

Corresponding to the insured's duties the insurers have rights by the law, in view of the liability they have undertaken to indemnify the insured. Thus the insurers have a right to-

o Take reasonable measures to extinguish the fire and to minimize the loss to property, and

o For that purpose, to enter upon and take possession of the property.

The insurers will be liable to make good all the damage the property may sustain during the steps taken to put out the fire and as long as it in their possession, because all that is considered the natural and direct consequence of the fire; it has therefore been held in the case of Ahmedbhoy Habibhoy v. Bombay Fire Marine Ins. Co [8] that the extent of the damage flowing from the insured peril must be assessed when the insurer gives back and not as at the time when the peril ceased.

(B) Loss caused by steps taken to avert the risk

Damage sustained due to action taken to avoid an insured risk was not a consequence of that risk and was not recoverable unless the insured risk had begun to operate. In the case of Liverpool and London and Globe Insurance Co. Ltd v. Canadian General Electric Co. Ltd., [9] the Canadian Supreme Court held that "the loss was caused by the fire fighters' mistaken belief that their action was necessary to avert an explosion , and the loss was not recoverable under the insurance policy, which covered only damage caused by fire explosion., and the loss was not recoverable under the insurance policy, which covered only damage caused by fire or explosion."

(C) Express rights

Condition 5- in order to protect their rights well insurers have prescribed for better rights expressly in this condition according to which on the happening of any destruction or damage the insurer and every person authorized by the insurer may enter, take or keep possession of the building or premises where the damage has happened or require it to be delivered to them and deal with it for all reasonable purposes like examining, arranging, removing or sell or dispose off the same for the account of whom it may concern.

When and how a claim is made?

In the event of a fire loss covered under the fire insurance policy, the Insured shall immediately give notice thereof to the insurance company. Within 15 days of the occurrence of such loss, the Insured should submit a claim in writing, giving the details of damages and their estimated values. Details of other insurances on the same property should also be declared.

The Insured should procure and produce, at his own expense, any document like plans, account books, investigation reports etc. on demand by the insurance company.

HOW INSURANCE MAY CEASE?

Insurance under a fire policy may cease in any of the following circumstances, namely:

(1) Insurer avoiding the policy by reason of the insured making misrepresentation, misdescription or non-disclosure of any material particular;

(2) If there is a fall or displacement of any insured building range or structure or part thereof , then on the expiry of seven days wherefrom, except where the fall or displacement was due to the action of any insured peril; notwithstanding this, the insurance may be revived on revised terms if express notice is given to the company as soon as the occurrence takes place;

(3) The insurance may be terminated at any tie at the request of the insured and at the option of the company on 15 days notice to the insured

CONCLUSION

Tangible property is exposed to numerous risks like fire, floods, explosions, earthquake, riot and war, etc. and insurance protection can be had against most of these risks severally or in combination. The form in which the cover is expressed is numerous and varied. Fire insurance in its strict sense is concerned with giving protection against fire and fire only. So while granting a fire insurance policy all the requisites need be fulfilled. The insured are under a moral and legal obligation to be at utmost good faith and should be telling true facts and not just fake grounds only with the greed to recover money. Further all insurance policies help in the development of a Developing nation. Hence insurance companies have a burden to help the insured when the insured are in trouble.

REFERENCE:

1. (1983) VR 698 (Supreme Court of Vienna)

2. Callaghan v. Dominion Insurance Co. Ltd. (1997) 2 Lloyd's Rep. 541 (QBD)

3. Small v. U.K Marine Insurance Association (1897) 2 QB 311

4. (1925) AC 619

5. (1907) Case.

6. National Insurance Company v. Ashok Kumar Barariio

7. Devlin v. Queen Insurance Co, (1882) 46 UCR 611.

8. (1912) 40 IA 10 PC

9. (1981) 123 DLR (3d) 513 (Supreme Court of Canada)

Books Referred:

1. The Economics of Fire Protection by Ganapathy Ramachandran

2. Modern Insurance Law, by John Birds

3. The Handbook of Insurance Regulatory and Development Authority Act and Regulations with Allied Laws ,by Nagar

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Free Insurance Quotes - Cheap and Simple Way to Manage Our Savings

Have you checked your insurance for better insurance rate quotes lately? Many people ignore this just because they don't want to go through all the troubles looking for insurance rate information or comparing rates, and decide to stick with the old companies which they think have already given them the best rates and coverage even if the rates are raised by the companies. If that is what happen, they might have missed the chance of getting better rates and coverage offered by other insurance companies on the market.

In every insurance company, insurance rate is dynamically changed through time. There are so many aspects that can influence the rate changing whether it is an external or internal factor.

Government rules and policies, political and economic situation, business atmosphere such as number of competitors, or even a natural disaster could be considered as external factors that give effect to an insurance rate as well as the coverage. For example when the political situation is getting hot which might trigger some riots or civil commotions insurance companies will raise their rates since the risk factors are increasing, and they might lessen the extend coverage for RSCCTS (riot, strike, civil commotion, terrorism, and sabotage) or give an extra charge for the items. But if an insurance company finds a lot of competitors on the market selling the same insurance product, this could make the company lower their rate and sometimes offers a better coverage and service.

While the internal factors usually have something to do with the loss and profit of an insurance company. Let's say insurance company A provides auto insurance and homeowner insurance. Due to a catastrophic in one area, they have to pay out a large amount of homeowner insurance claims. To cover the loss over the homeowner insurance claims, the company may raise premiums for their auto insurance customers. But if the company is in a profitable year they might lower their rates to attract more customers. Beside that, certain record of costumers might also affect the insurance rate like credit history or driving record in the case of auto insurance.

Since there are so many factors that could affect the raise or decrease of insurance rates, we can be sure that there is no guarantee we will continue to receive the best rates from the time we signed with an insurance company. Like I said before, insurance rate is dynamically changes through time, so even if we still pay the same rate like the first time we signed with an insurance company or even lower than that, we still have a chance of getting a better insurance deal on the market.

To ensure we are getting the best rate, best is to make a regular review of our policy and then make a comparison against the offerings from other competing insurance companies. Not like in the past, when to obtain insurance quotes could take a lot of time and waste so much energy since we have to spend hours on the phone and having lots of meetings with different insurance agents, today we can easily get free insurance quotes from the internet. This could be done in a very short time, only by filling out the online questionnaire and without lifting the phone or leaving home, we already can obtain free insurance quotes from many different insurance companies.

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To obtain sufficient information from free insurance quotes to be able to help us in making comparisons and determine which insurance company will we choose, here are some things should be noted:

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o Fill the questionnaire form with accurate data, if we do not feel confident about what we have to fill in one column, it's better to ask or look for documents that can help us fill, in case of auto insurance maybe we can prepare the vehicle documents, driver license, and any related documents. If the insurance object is under insured, the policy's declarations page can help you a lot in filling the form. Answer all the questions in the form truly and don't hide anything, this is the only way for us to obtain an accurate quote.

o Ask free insurance quotes from at least three different companies to be able to get more alternatives. If we ask for quotes from different sites, make sure to enter exactly the same information so that we can get a balanced comparison.

o Do some experiments by changing information or value in various fields that can affect insurance rates and consider the results of the calculation to see which one best suits our needs and budget, then do the same thing with quotes from other insurance companies in order to make comparisons. For example, generally if we increase the deductible value and decrease the amount coverage then we shall have a lower rate. Or in case of auto insurance, number of drivers and average mileage can also affect the rate. But please notice that there are some fields which also affect the rate that we cannot change like driving record in case of auto insurance or health record in case of health insurance otherwise we won't get an accurate quote.

After getting a rate quote that suits our needs and budget, we can continue to do a further check to the insurance company and the insurance plan. Remember, that the cheapest quote doesn't necessarily mean you will get the best value on your coverage and good coverage doesn't always come from a big company. Here are what we have to do after getting rate quotes:

o Look beyond the amount of money to what the coverage actually covers. Pay attention to the several other factors that could affect the claim process and payment as well as the length of the claim process, also find out what is not covered in the policy exclusions. We can get the information on the website if it's available there or best is to contact the insurance agent to get more sufficient comprehensive information.

o Check the history and reputation of the company, since having insurance covers from an experienced and reputable company can give us peace of mind. Find out whether they provide high quality costumer care or if there were complains about the company performance. we can find testimonials or experts review on an insurance company concerning these issues.

o There's nothing wrong to follow our instinct as long as we also use common sense in deciding which insurance company we should choose. We can go with the company that makes us feel most comfortable as long as it gives a nice rate and coverage based on the insurance quote. Pay attention if the agent or company representative able to answer all our coverage and policy questions or whether the agent treat you with courteous and respect. After all, we always want to have insurance protection with the best rate and service.

After we have made our mind and choose one insurance company to insured us, we shouldn't stop trying to get more discounts or lower rate. Besides raising up the deductible amount which can give us up to 15-30% lower rate, there are still many other things that can lower the insurance rate such as:

o If the insurance company handles a wide range of insurance products consider having all our insurance provided by this company, this will give us a great discount on our premiums.

o In the case of auto or homeowners' insurance, ask the company about multi-family price reductions for coverage. If there is a price reduction, consider to purchase multi-family over a single type of insurance from the company. We can also get discount by having well-security system for the vehicle / house.

o We can also choose to make annual premium payment to save money. That's because most insurance companies do charge a service fee if we make quarterly or monthly payments since this increases the risk that we won't pay the next month. Some insurance companies don't charge these fees but do give us a discount if we pay our entire premium in one lump sum. While that might seem too expensive of a bill to pay at once, we could always put back the amount of the monthly premiums into a savings account each month then we'd have the full amount to pay the yearly premium

After we have got the best coverage with the best rate, all we have to do is to keep it that way by avoiding things that can cause us to lose some protection and rate increases. For example, in case of auto insurance, we should be a safe driver, avoid accidents, and try to avoid making too much claims. As for homeowners' insurance, we can try to minimize our liability risks by placing fence around the pool or having adult supervision when anyone is at home. We might also consider small repairs yourself without making a claim.

This way we can maintain the coverage and the low rate we already have although it's not 100% guarantee it will stay that way for a very long time. That's why we still have to make a regular review of our policy especially at the end of an insurance period to get the best deal on the market by taking advantage of free insurance quotes available, since the rate might easily changed every time.

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Insurance In Tort Laws

INTRODUCTION

This project has been an eye opener for me. It is extremely relevant to the modern times and as the future of India we should understand that it is the common mass that runs the country. Consumer protection rights are an important issue in modern days. The law can be effectively used to stop any abuse of the common people especially illiterate masses who do not understand the rules and regulations which is to be followed while buying particular item. It is law, the controller of the entire society which can stop this abuse from taking place. It can place effective standards guiding a product's genuinity and the proper verification of its price. No extra taxes should be issued according to the seller's wish. I have proceeded by referring to the books written by Avtar Singh, Venkat Rao and others. It has been a wonderful and educational delight in going about this topic and making a project which is of greatest importance in the present day scenario.

DEFINITION OF CONSUMER

The words "consumer", "consumed", "consumption" is all cognate, and when one is defined, the contents of the definition go into all of them wherever they occur in the same act.

Section 2 of the act wherein 'consumer' is defined. According to him, the definition of the consumer will not take a client who engaged the advocate for professional services.

Consumer means any person who-

- Buys any goods for a consideration which has been paid or promised or partly paid and partly promised or under any system or deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly promised or under any system of deferred payment when such use is made with the approval of the person, but does not include a person who obtains such goods for resale or for any commercial purpose

- Hires or avails of any services for a consideration which has been paid or promised or partly paid or partly promised or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for the consideration paid or promised or partly paid or partly promised or under any system of deferred payment when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial support

In Black's Law Dictionary it is to mean:

One who consumes. Individuals who purchase, use, maintain or dispose of products and services. A member of that broad class of people who are influenced by pricing policies, financing practices, quality of goods and services, credit reporting debt collection and other trade practices for which the state and federal consumer laws are enacted.

OBJECTVES OF THE ACT

The act is dedicated, as its preamble shows, to provide for better protection of rights of consumers and for that purpose to make provisions for the establishment of consumer councils and other authorities for settlement of consumer disputes and for other connected matters. In the statement of objects, reasons it is said that and the act seeks to provide speedy and simple redressal to consumer disputes. Quasi judicial body machinery has been set up at the district, state and central levels. These quasi judicial bodies have to observe the principle of natural justice and have been empowered to give relief to a specific nature and to award, wherever appropriate, compensation to consumers. Penalties for non compliance of orders given by quasi judicial bodies have also been provided.

The object and purpose of rendering the act is to render simple, inexpensive and speedy remedy to consumers with complaints against defective goods and deficient services and for that quasi judicial machinery has been sought to be set up at the district, state and national levels. These quasi judicial bodies are required to apply the principle of natural justice and have been empowered to give relief of specific nature and appoint wherever necessary, compensation to consumers.

INSURANCE

An operational definition of insurance is that it is

- the benefit provided by a particular kind of indemnity contract, called an insurance policy;

- that is issued by one of several kinds of legal entities (stock company, mutual company, reciprocal, or Lloyd's syndicate, for example), any of which may be called an insurer;

- in which the insurer promises to pay on behalf of or to indemnify another party, called a policyholder or insured;

- That protects the insured against loss caused by those perils subject to the indemnity in exchange for consideration known as an insurance premium.

The influence of insurance on the law of torts has been significant, both on theoretical level and on practice. Insurance has undermined one of the two main functions of awarding of damages, and it has in cast doubt on the value judgements made by the courts in determining which particular test of liability is appropriate in the given circumstances.

Regardless of whether in the particular circumstances the appropriate principle of liability is intention is malice, fault or strict liability, the purpose of common law damages remains the same. The primary purpose of an award of damages is to compensate the victim for his loss, with view to restoring him as near as possible to the position he would have been in but for the tort of the wrongdoer. But damages have another: by making the wrongdoer responsible for meeting an award of damages, the courts are trying to deter others from committing similar tortuous wrongs.

Insurance vitiates the secondary purpose of damages, at the same time incidentally ensuring that the primary purpose is more often achieved.

It can scarcely be realistically asserted that insured defendants are deterred by the prospect of losing no-claims bonus or by increasing of premium on renewal of their policies. Once it is conceded that insurance renders compensation for the sole purpose of damages but then the tort action itself becomes vulnerable to attack, for there are many ways-some perhaps fairer and administratively cheaper than tort- of compensating a victim for a loss he has suffered.

Prima facie, where a person suffers loss of recognized kind as the result of another's act, then the latter should have to make good that loss. But for valid reasons, the courts have held that, in certain circumstances, the actor will have to compensate his victim only if he is at fault. The victim's right to compensation is, therefore curtailed in an attempt to be fair to both the parties. The courts have made a policy decision that, in the circumstances, it is right to reward a defendant who has been careful by protecting him from liability for the consequences of his actions and that, as a corollary the plaintiff must forego his compensation. The policy decision is made on the supposition that the wrongdoer would himself have to pay for the damages but for this protection; it by no means follows that the same decision would be made if there were no risk of the wrongdoer having to provide the compensation.

It is difficult to judge the victim's right to compensation should be curtailed when that curtailment is not justified by a corresponding benefit to the wrongdoer. The requirement of fault ceases to play its role as the leveler between the victim's legitimate expectations and the wrongdoer's legitimate expectations, and becomes simply a hurdle to the victim's progress to compensation. If it is accepted that no one can insure against liability for harm caused by intentionally to another , then similar arguments can be made by the inappropriateness of the victim's having, in certain circumstances to prove an intention to do him wrong or harm, when it is irrelevant to the wrongdoer whether he had such an intention or not.

Again the victim's right to compensation is being curtailed without any corresponding benefit to the wrongdoer.

However, insurance has influenced the law of tort on a much more practical level as well. While the fact of insurance is not of itself a reason for imposing liability , there can be no doubt that it does add "a little extra tensile strength" to the chain which a wrongdoer to his responsibilities.

As well it has given new horizon to damages ; it is true that traditionally it was considered to inform the court that a defendant was insured , but "those days are long past" and now it is frequently openly recognized that the defendant would be insured.

The policy of insurance constitutes a contract of insurance between Life Insurance Corporation or a subsidiary of General Insurance Company of India, as the case may be, such services such has been undertaken to render under the contract of insurance. However as a rule, occasion to render services arise only when insured surrenders his policy, or the policy matures for payment or the insured dies or any other contingency which gives rise to render service occurs.

Breach of contract of insurance may give rise to a cause of action to file a civil suit, but such breach of contract may itself constitute deficiency in service, so as to give a cause of action to file a complaint under the consumer protection act for one such more relieves awardable hereunder.

Section 13(4) of the act vests in a redressal agency powers of the Civil Court, while trying a suit in respect of such matters as examination of witnesses on oath and production of documents. Declining to exercise jurisdiction in a case before it only because it involves examination and cross examination of facts, witnesses and production and consideration of documents would amount to abdication of its jurisdiction.

Such discretion can be exercised only when the gives rise to several issues and necessities taking of voluminous oral and documentary evidence, or otherwise involve complex questions of fact and law which cannot be decided in time bound proceedings under the consumer protection act.

MOTOR VEHICLE INSURANCE

Where the sale of a vehicle is complete, the title therein passes to the purchaser notwithstanding that his name has not been recorded in the R.C.Book. Such owner is entitled to get his vehicle insured and also to maintain a claim on the basis of such insurance. The earlier owner, who has lost insurable insurance on the sold vehicle, cannot advance a claim on the basis of policy of the said vehicle, earlier taken by him, on the ground that he is still the recorded owner of the said vehicle.

Section 157 of the motor vehicles act is only in respect of third party risks and provides that the certificate of insurance described therein shall be deemed to have been transferred in favour of the person to whom the motor vehicle is being transferred. It does not apply to other risks, if any, covered by the policy. If the transferee wants to avail the benefits of other risks covered by it, he has to enter into an agreement thereof with the investor.

FRAUD BY INSURER

If it is established that the discharge voucher was obtained by fraud, misrepresentation, undue influence or coercive bargaining or compelled by circumstances, the authority of the consumer forum may be justified in granting relief. Mere execution of the discharge voucher would not deprive the consumer of his claim in deficiency of service.

DELAY IN SETTLEMENT OF CLAIM

In Sarveshwar Rao v. National Insurance Company Ltd. , it was held that the delay of two or more years in settling the insurance claim would result in inadequacy in the quality, nature and manner of the service which the insurance company has undertaken to render, and amounts to deficiency in service.

In Delkon India Pvt. Ltd. V. The Oriental Insurance Company Ltd. . The National Commission has held that it was a deficiency of service to have delayed the claim by two years on the ground that the final police report was not coming.

INTERPRETATION OF TERMS

In Skandia Insurance Company v. Kokilaben Chandravadan , the honorable Supreme Court ruled that the exclusion terms of the insurance must be read with so as to serve the main purpose of the policy, which is to indemnify the damages caused to the vehicle.

CONDUCT OF THE INSURER

In Oriental Insurance Co. Ltd. V. Mayur Restaurant and bar , the conduct of the insurer was under question. The commission held that deficiency of the service was established on the part of the opposite party on two counts i)delay in settlement of claims and ii) unreasonable and un maintainable reasons for repudiating the claim of the complainant, and the compensation with the interest and cost was awarded.

SUICIDE BY THE ASSURED

In Life Insurance Corporation v Dharma Vir Anand, the national commission refused to hold the insurance commission liable as the insured committed suicide before the expiry of three years from the date of the policy.

BREACH OF TERMS

In B.V.Nagarjuna v Oriental Insurance Company Ltd., the terms of insurance contract permitted the insured vehicle to carry six passengers at a time but the driver allowed two more persons to get in. It was held that merely adding two more persons without the knowledge of the driver did not amount to indemnification by the insurance company.

NOMINEE'S RIGHTS

In Jagdish Prakash Dagar v. Life Insurance Corporation , it was held that a nominee under a policy of life insurance will be a consumer within the meaning of section 2(1) (d) of the Consumer Protection Act. The commission held that the nominee could legislatively maintain an action against deficiency raised in service by the arbitrary decision of the insurer.

REPUDIATION

Repudiation is defined as the renunciation of a contract (which holds a repudiator liable to be sued for breach of contract, and entitles the repudiatee on accepting the repudiation to treat the contract as at an end

This concept of repudiation is needed in the concept of insurance. The concept of repudiation will be dealt hereto a number of times and to provide beneficiary evidence, the definition has been given.

Unilateral repudiation of its liability, under the contact of by the life insurance corporation or an insurance company does not, by itself oust the jurisdiction of a redressal agency, to go into the sustainability of such repudiation, on facts and in law and to decide and to adjudicate if, in the facts of the case, it amounts to deficiency in service or unfair trade practice, and if so, to award to the aggrieved person, such relief or reliefs under Section 14(1) of the said Act as he or she is entitled to. The fact that before such repudiation it obtained a report from a surveyor or surveyors also does not oust the jurisdiction of a redressal agents to into the merits of such repudiation, for otherwise in each case the corporation or such company, and deprived the aggrieved person of the cheap and expeditious remedy under the consumer protection act.

Where, however the corporation or the company conducts thorough investigations into the facts which have given rise to claim and other associated facts, and repudiates the claims in good faith after exercise with due care and proper application of mind, the redressal agency should decline to go into the merits of such repudiation and leave the aggrieved person to resort to the regular remedy of a suit in a civil court.

The law does not require the life insurance corporation or an insurance company to accept every claim good or bad, true or false, but it does require the corporation or the company to make a thorough investigation into such claim and to take decisions on it, in good faith, after exercise of due care and proper application of mind and where it does so it renders the service required by it and cannot be charged with deficiencies in service, even if, in the ultimate analysis, such decisions is wrong on the facts and in law and the redressal agency would be disinclined to substitute its own judgement in the place of the judgement of the corporation or insurance company.

The question as to whether repudiation of its liability does or does not amount to deficiency in service would depend upon the facts of each case.

Where a cheque sent towards a premium is dishonoured by the drawee bank and consequently the policy is cancelled or it lapses or the injured dies before the proposal is accepted and contract of insurance results, no claim can be founded in such a policy, which was cancelled or has since lapsed, or a contract of insurance, which did not materialize at all. Repudiation of such claim can never amount to deficiency in service.

Insurance agent is not entitled to collect premium on behalf of the corporation. Where an insured issues a bearer cheque towards premium and hands it over the insurance agent who encashes it, but does not deposit the premium with the corporation event till the expiry of the grace period and consequently the policy lapses and meanwhile the insured also dies, his nominee has to blame himself or herself for the indiscretion of the insured and cannot blame or fault the corporation.

BASIC PRINCIPLES OF INSURANCE

There are some basic principles concerning the topic of Consumer Protection Law and Insurance.

- Settlement of insurance claim is service, default or negligence therein is deficiency of that service

In the case of Shri Umedilal Agarwal v. United India Assurance Co. Ltd, the National Commission observed as under:

"We find no merit in the contention put forward by the insurance company that a complaint relating to the failure on the part of the insurer to the settle the claim of the insured within a reasonable time and the prayer for the grant of compensation in respect of such delay will not within the jurisdiction of the redressal forums constituted under the consumer protection act.

The provision of facilities in connection with insurance has been specifically included within the scope of the expression "service" by the definition of the said word contained in section 2(i) (o) of the act. Our attention was invited by Mr. Malhotra, learned counsel for the insurance company to the decision of the Queen's Bench in national transit co. ltd. V. customs and central excise commissioners . The observations contained in the said judgement relating to the scope of the expression insurance occurring in the schedule of the enactment referred to therein are of no assistance to all of us in this case because the context in which that expression is used in the English enactment considered in that case is completely different. Having regard to the philosophy of the consumer protection act and its avowed object of providing cheap and speedy redressal to customers affected by the failure on the part of persons providing service for a consideration, we do not find it possible to hold that the settlement of insurance claims will not be covered by the expression insurance occurring in section 2(1)(d).Whenever there is a fault of negligence that will constitute a deficiency in the service on the part of the insurance company and it will perfectly open to the concerned aggrieved customer to approach the Redressal Forums under the act seeking appropriate relief."

- L.I.C. Agent has no authority in collecting the premium

The supreme court held that under regulation 8(4) of life insurance corporation of India (agents) regulation, 1972 which had acquired the status of life insurance corporation agents rules with effect from January 31, 1981, which were also published in the gazette, LIC agents were specifically prohibited from collecting premium on behalf of LIC and that in view thereof an inference of implied authority cannot also be raised.

- Rejection of claim as false after full investigation

The national commission held as follows:

" from the facts disclosed by the record and particularly averments contained in the consumer affidavit filed by the first respondent it is seen that the insurance company had fully investigated into the claims put forward by the complainant that his claim was rejected. Thus it is not a case where the insurance company did not take a prompt and immediate option for deciding the claims against the insurance company. Having regards to the facts and circumstances of this case and the nature of the controversy between the parties we consider that this is a matter that should be adjudicated before a civil court where the complainant as well as the respondent will have ample opportunities to examine witnesses at length, take out the commission for local inspections etc. and have an elaborate trial of the case."

- Unilateral reduction in the insurance amount.

The national commission held that the insurance company is not entitled to make a unilateral reduction of Rs. 4, 29,771 from Rs. 30, 12,549 at which its own surveyor assessed the loss.

- Mere repudiation does not render the complaint not maintainable.

The national commission overruled the objection of the insurance company that merely because the insurer had totally repudiated its liability in respect of the claim, no proceedings could validly be initiated by the insured under the consumer protection act.

- Mere unilateral repudiation does not oust the jurisdiction.

The national commission held that merely because the insurer has repudiated the insurance claim under the policy unilaterally, it is difficult to hold that the various redressal forums constituted under the consumer protection act, 1986 will have no jurisdiction to deal with the matter that if such a contention of the insurance company can get a report from the surveyors, repudiate the claim and oust the jurisdiction of the redressal forums, that the redressal forums are, therefore, bound to see whether or not the repudiation was made in good faith on valid and justifiable grounds that if the surveyor or surveyors choose to submit the wrong report and the insurance company repudiates the claims without applying its mind then the repudiation cannot be said to be justified that the report of the surveyor will show that the investigations have been proper, fair and thorough and that it has to be remembered that the surveyors bread comes from the employer.

- Mere unilateral repudiation no ground to oust jurisdiction.

The national commission repelled the objection and observed as under:

"Ordinarily a remedy is available to a consumer in Civil Court but mere repudiation of claim arising out of policy of insurance under section 45 of the insurance act, 1938, cannot take away the jurisdiction of the redressal forum constituted under the act. The avowed object of the act is to provide cheap, speedy and efficacious remedy to the consumers and it is with this object that section 3 of the act lies down as follows:

3. Act not in derogation of the provisions of any other law: - the provisions of this act shall be in addition to and not in derogation of the provisions of any other law for the time being in force."

The national commission overruled the objection in the view of repudiation of contract of insurance by the corporation; the redressal agencies under the act cannot entertain the claim of the insured and reiterated the law laid down by it in the Divisional Manager, Life insurance Corporation of India, Andhra Pradesh v. Shri Bhavnam Srinivas Reddy.

- Removal of insured goods on attachment no theft.

It was ruled in the stated case that attachment of certain items of insured Machinery and goods by the bailiff of a civil court, though later found to be illegal and consequent removal did not amount to theft and or house breaking by force so as to entitle the insured to prefer a claim under the policy.

- When repudiation amounts to deficiency and when it does not?

The national has held:

In M/s Rajdeep Leasing and Finance and others v. New India Assurance Company Limited and others -

That rejection of the claim by the insurance company after examining and considering the two separate survey reports from qualified surveyors and three legal opinions from different oriental counsels could not be said to constitute a deficiency in service so as to give a rise in the cause of action for a complaint under the consumer protection act.

In Oriental Insurance Co. Ltd. V Modern Industries Ltd. , the national commission has held that where the cover note inter alia mentions that the risk is subject to the usual terms and conditions of the standard policy, it is equally the responsibility of the complainant to call for these terms and conditions even if they are not sent by the insurance company, as alleged, to understand the extent of risk covered under the policy and associated aspects.

In Life Insurance Corporation of India v. Dr. Sampooran Singh

The complainant had taken out an insurance policy of 40,000 rupees in 1982, for the purpose of payment of estate duty on his only residential house in chandigarh in the event of his death and paid 5 premia, but with the abolition of estate duty on one residential house owner in 1985, the policy became inoperative due to the act of the state and not due to any deficiency on the part of the corporation any dispute between the parties as to the amount payable there under cannot be construed as deficiency in service on part of the corporation.

In LIC of India v M/s Kanchan Murlidhar Akkalwar

The complainant applied to the opposite party for housing loan, and on the advice of the latter, she took two LIC policies, one for Rs. 90000 and the other for Rs. 20000 entered into an agreement for the purchase of the house with the house with the owner on the advice of the opposite party obtained a fire policy for Rs. 2 lakhs. The opposite party advised the complainant to obtain a release deed from the zilla parishad co operative society in respect of the she proposed to purchase with a certificate that the said plot is not mortgaged therein. The complainant got a certificate from the Maharashtra government that the vendor had re paid the housing loan and interest thereon due to Zilla Parishad Krishi Karmachari Sehakari Gribe Narman Sanstha and that there was nothing outstanding from him towards loan amount or interest. Still the opposite party did not release the loan. On these facts the national commission by its majority judgement observed that:

"We have carefully gone through the records and heard the counsel. Clause 1 (c) of the loan offer letter clearly states that the advance of the loan is subject to the property being free from encumbrances to the satisfaction of the insurance company and a good and marketable title. At the same time it appears that the respondent-complainant had to go through a number of steps, although necessary, having financial implications and causing mental and physical stress to her and at the end of all of which she was told that no dues certificate given by the maharashtra government in respect of the prospective seller of the property in question, was not "release of mortgage" certificate that was obtained. The respondent complainant perhaps also had in her mind the case of Mr. Vaishempayam who got the loan under similar circumstances. Thus the evasion petition is disposed of as above."

CONCLUSION

This project topic is increasingly beneficial in the modern times with the consumer protection rights being redressed with due care. It is being advertised in the mass media in our country. The slogan which our consumer is using is: "JAGO GRAHAK JAGO". The time has come to realize the ideal market situation in which the buyers are not persuaded or coerced falsely into buying items which are of no use to them at all. Besides the relationship between buyer and seller should not be damaged at any cost. The relationship between the buyer and seller is said to be a fiduciary relationship and the trust between them should remain intact. A time has come in which the customer should get his proper position in the market conditions. He has to have proper knowledge about what is going on in the market and the concerned prices and the supply and the different other practices referred to.

Insurance is a very sensitive issue in the modern times. People are being hoodwinked into signing up in companies which are turning out to be frauds in the true sense of the term. This project has been an eye opener to me and I have come to realize the importance of the consumer protection act and insurance.

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Life Insurance Basics

Many of us buy life insurance because we want to make sure that our loved ones, especially dependents, remain financially secure after we die. Income replacement is the No. 1 reason people buy life insurance.

Non-earning caregivers also have an important - and often overlooked - economic value that should be covered by life insurance.

Life insurance is also purchased by those interested in achieving specific business or estate-transfer goals.

There are many types of life insurance policies depending on your goals, and there are huge price differences among different companies offering identical coverage. Policies are available from hundreds of life insurance companies in the United States. Most financial planners recommend that each family income provider carry no less than 10 times their annual income in life insurance.

Here's an orderly way to go about shopping for life insurance:

1) Assess your needed life insurance amount..




2) Decide on the most appropriate policy type for your goals.




3) Choose possible companies by setting high standards for financial stability ratings.



4) Shop until you find the best price.



5) Look at ways to get the best possible life insurance rate.

Life insurance is a long-term proposition, so you should pay particular attention, at time of purchase and throughout the life of the policy, to the financial stability ratings of your life insurance company. Ratings indicate a company's ability to pay claims.

Assessing your life insurance needs

The first step in life insurance planning is to analyze your life insurance needs - meaning the economic needs of dependents left behind. A great way to determine your coverage needs is to use an online calculator like Insure.com's Life Insurance Needs Estimator Tool.

Before purchasing a life insurance policy, consider your financial situation and the standard of living you want to maintain for your dependents or survivors. For example, who will be responsible for your final medical bills and funeral costs? Would your family have to relocate or otherwise change their standard of living after losing your income? The assumption of immediate death is necessary to determine the current life insurance needs for a family or individual.


Add in the longer term financial needs of the remaining family members, such as: children's expenses, income for the surviving spouse, mortgage and other debt payoffs, college education funds and an additional emergency fund.

Because life insurance needs change over time, your life insurance amount should be reevaluated periodically. We recommend a review at least once every five years or whenever you experience a major life event such as a change in income or assets, marriage, divorce, the birth or adoption of a child, or a major purchase such as a house or business.

In theory, you should have a declining need for life insurance as you age because fewer people remain dependent upon you for income support. Exceptions would be protecting a business entity or paying taxes on a large estate for heirs. If the purpose of buying life insurance is to pay estate taxes, then you'll need permanent life insurance, which is in-force as long as you live and pay premiums.

Policy choices

Life insurance policies [http://www.insure.com/quotesmith/controller?REF=99998&reqid=qstermindex&redirx=x] are divided into two main types:

Term life insurance, which provides only death protection without any side funds or "cash values" (offering the least expensive cost per $1,000 of death coverage purchased).




Permanent life insurance, which has "cash value" accounts in which a return-on-investment component becomes an often complex and expensive part of the policy (most expensive cost per $1,000 of coverage).

Term life insurance

The simplest of all life insurance to understand and the cheapest to buy: Term life insurance provides death benefit protection without any savings, investment or "cash value" components for the term of the coverage period.

Term life insurance is available for set periods of time such as 10, 15, 25 or 30 years. With "annual renewable term life," your policy automatically renews each year and premiums increase as you get older. Choose "level term insurance" if you want your premium to stay the same for the duration of the policy. Also available is "decreasing term insurance," where premiums remain level but your death benefit declines over time. This is good if you want to cover only a specific debt that decreases, such as a mortgage or business loan.

As long as you pay your premiums, the company cannot cancel you.

Term life insurance is a popular choice because of the long rate-guarantee periods and because of the ability to get a low cost life insurance policy. However, if you get to the end of your policy term and still need life insurance, you'll need to shop for a new policy, which will then be priced based on your older age and health status.

Choosing an initial rate-guarantee period is easy: Match the period of time your dependents need your income to the available rate-guarantee periods. For example, if your children are young and you have decades to go on your mortgage, try 30-year term life. If your children are leaving the nest and your home is paid off or nearly paid off, 10-year term might fit the bill.

Other policy provisions that drive the popularity of term life insurance are guaranteed renewal and guaranteed convertibility.

Guaranteed Renewal. Before you buy a term life policy, ask the agent or company to confirm to you that the policy contains a guaranteed renewable option, which grants you the right to continue coverage beyond the initial rate-guarantee period without a medical exam. This feature, found in most term life policies sold today, is extremely important should you become sick and uninsurable toward the end of your rate-guarantee period.

For example, say that you've been paying $800 per year on a $500,000, 20-year level term life policy and develop cancer near the end of the 20-year period, thus making you uninsurable. Assuming that you want to continue the coverage, a guaranteed renewable clause would allow you to continue the coverage beyond 20 years on an annual renewable basis without an exam, albeit at a much higher annual premium of, say, $8,000 in year 21, $11,000 in year 22, and so on.

You may have sticker shock right now but these premiums don't look so high when you are very sick and uninsurable but still in need of coverage.

Guaranteed Convertible. Another built-in feature of most term life policies is the right to convert your coverage to any cash value policy that the company might offer at current rates without having to take another physical exam. This feature may be of use in the future if you decide you want cash value life insurance.

If you'd like term insurance to cover you for a certain period of time but you're confident you'll outlive the policy, consider a "return of premium" (ROP) term life insurance policy. Under this type of policy, if no death benefit has been paid by the end of your insurance term, you receive all your premiums back (tax-free). Return of premium term life insurance generally costs 50 to 150 percent more than a comparable term policy but it provides a way to hedge your bets no matter what happens.

Term life insurance is widely available on the Internet, from direct-to-consumer life insurance companies and from insurance agents and brokers.

Cash value life insurance

If you want more than a death benefit from your life insurance policy and like the idea of a long-term savings account (not insured by any federal agency) or stock market investment, you might consider cash value life insurance such as whole life, universal life or variable life. But be prepared to pay much higher premiums per $1,000 of coverage precisely because you are now funding a cash value account and paying fees and expenses.

In many cash value policies, the annual premium does not increase from year to year. Universal life policies allow you to fluctuate or even skip premium payments, which in turn adjusts your death benefit amounts.

Unlike term life insurance, which is easily compared online, cash value insurance is often marketed by agents and brokers in a face-to-face setting, where needs and strategies can be discussed.

Because of the complexity and dizzying array of possible outcomes for permanent life insurance, regulators insist that cash value insurance be sold using pre-approved illustration formats. These illustrations can run to 15 or more pages. Cash value life insurance illustrations are divided into two major sections: guaranteed values and projected or "illustrated, non-guaranteed" amounts. Illustrations can be complex and hard to compare in an apples-to-apples way.

Pay particular attention to the guaranteed death benefit and premium-payment sections because these columns contain the actual company promises. If you don't like what you see there, walk away.

Another caveat: Many cash value policies contain harsh penalties for surrendering the policies in the early years. Changing your mind within the first few years is an expensive decision.

Whole life insurance

Ordinary whole life insurance offers "permanent protection" with a cash value account that grows over time. Whole life provides a level death benefit and level premiums throughout your life and for as long as you continue to pay the premiums. For example, a healthy 40 year-old female might pay $4,200 per year for a $500,000 whole life policy. The premium remains level at $4,200 per year for the rest of her life and, in the event of death at any age, the policy will pay $500,000 to her beneficiary.

Whole life also contains a cash value account that builds over time, slowly at first and gaining steam after several years. You can withdraw your cash value or take out a loan against it, but remember, if you die before you pay back the loan, the death benefit paid to your beneficiaries will be reduced. For example: Susan has a $500,000 whole life policy in force and, over the years, has borrowed continually from the cash value. Her total loan amount and accrued interest totals $300,000. When Susan dies, her beneficiary will receive $200,000 because the life insurance company will first pay itself back from the death benefit.

Understand what your beneficiaries will receive upon your death. If you have a traditional whole life policy, your beneficiaries receive only the death benefit no matter how much cash value you've built up. Other payout options available for higher premiums are:

Death benefit plus cash value




Death benefit plus return of premium

Whole life policies can be issued as "participating" or "nonparticipating." Participating policies typically cost more but may return annual dividends if the insurer has a good financial year. Dividends are never guaranteed. Nonparticipating whole life insurance offers no dividends.

Buyers of whole life insurance like the certainty of fixed premiums with a known death benefit for life. They also appreciate the "forced savings" component and watching their cash value account build up.

Universal life insurance

This kind of policy offers greater flexibility than whole or term life. Universal life has many moving parts to understand before you buy.

After your initial premium payment, you can reduce or increase the amount of your death benefit. Also, after your initial payment, you can pay premiums any time and in any amount, as long as you don't miss a minimum payment level. In some cases, there are limits to how much extra you can pay in advance. If you choose to increase your death benefit, you may have to provide medical proof that your health has not deteriorated.

You will need to manage these policies to maintain sufficient funding, especially because the insurance company can increase charges.

Some new universal life policies perform like term life insurance: They can be configured at the time of purchase to provide both level death benefits and level premiums that are guaranteed for life as long as you pay the scheduled premium.

Variable life insurance

Variable life offers a death benefit with a side fund that operates like an investment account. It shifts the uncertainties of investment gains and losses to the policyholder.

The insurance company invests your premiums and offers you a choice of funds in which your money will be invested. Returns are not guaranteed. The amount of money your beneficiaries will receive and the cash value of your policy depend on how well the underlying accounts perform. Theoretically, the cash value can go down to zero and, if so, the policy will terminate. Some variable life policies will guarantee a minimum death benefit.

Other permanent life insurance considerations

When your cash value account grows large enough, it can be used by the insurer to pay your premiums for the rest of your life. This is known as being "paid up." You can still withdraw your cash value, but you'll have to resume premium payments to keep the policy in force or settle for a reduced benefit that the remaining cash value can support. Your policy illustration will show you how long it may take for your whole life policy to be "paid up."

If you no longer want your whole life policy, you can surrender it to receive the current cash surrender value or convert it into an annuity, but keep in mind that cashing in a permanent policy after only a couple of years is an expensive way to get insurance protection for a short time.

Riders add benefits

You can add riders to your life insurance policy that guard against a number of unpleasant situations. Your insurer will have its own list of available riders, but here are a few:

Accelerated death benefit rider (aka living benefits rider): Pays the benefit early if you become terminally ill.




Accidental death benefit rider: Pays an extra benefit if you die as the result of an accident.




Long term care rider: Pays for long term care expenses should you not be able to do some of the "activities of daily living," such as dressing or toileting.




Waiver of premium rider: Waives premium payments should you become totally disabled.

How life insurance is priced

Your life insurance rate is based on your life expectancy, the face amount you request and the length of the policy, whether it's the duration of your life (whole life) or a specific period (term life). Obtaining a low cost life insurance policy depends, in large part, on your current and past health.

Because your current and past health conditions impact your life expectancy, insurers want to know as much as possible about your health condition. Common conditions such as high blood pressure, heart disease, obesity, cancer and depression can all raise your life insurance rate or even result in a declination.

Based on your medical history, you'll be grouped into a category such as "preferred plus," "preferred," "standard" and "substandard." Your category ultimately determines your premiums.

Insurance buyers with severe health conditions or a combination of conditions can find it hard or impossible to find life insurance. They are known as "impaired risks." Local agents may not be experienced enough to find a company that specializes in insuring people with certain medical conditions. Fortunately, impaired-risk specialists have expertise in knowing where to direct applications for folks with medical conditions.

The life insurance buying process

The life insurance applications process is paper-intensive, can take weeks and often seems intrusive for people who value their privacy. A face-to-face paramedical examination is generally required for policies in excess of $100,000, which means, at minimum, giving of both blood and urine samples to the paramedical professional.

Expect questions in detail regarding your lifestyle, intended foreign travel destinations, your family health history and your personal health history. Do you intend to scuba dive? Have you had parents or siblings with heart disease or cancer before age 60? Have you ever taken any medicine for anxiety or depression? These, and more, are the kinds of questions to expect.

Sometimes multiple interviews are required in order to verify your information. The paramed examiner typically asks these questions face-to-face and often insurance companies will conduct follow-up telephone interviews so that you can verify the first set of answers. Regardless of the type of life insurance you buy, most policies require you to meet certain guidelines regarding your lifestyle and health history.

If it sounds tempting to shortcut this process by fudging on an answer or withholding information, don't do it. It's a crime in all 50 states to lie about or conceal information on a life insurance application. Besides, policies obtained through fraud can be voided at claim time.

Insurers will likely report your medical exam results (reported as numbered codes) to the Medical Information Bureau (MIB), which maintains a database of those who have applied for life insurance in the last seven years. If you've given different answers to medical questions in the past, it will raise a red flag with the MIB. The goal of the MIB database is to reduce fraud.

All standard life insurance policies generally cover death by any cause at any time in any place, except for death by suicide within the first two policy years (one year in some states).

If you don't care to go through the underwriting process, you have two other, more expensive, options:

Simplified issue life insurance can be purchased after answering only a few medical questions. There is no medical exam required. However, if you report health problems, you will likely be declined. Also, if you are healthy, or even if you have some negative medical history, an underwritten policy is still going to be your least expensive.




Guaranteed issue life insurance is sold to anyone who applies (up to an age limit) and is by far the most expensive way to purchase life insurance. This should be considered only by those who are declined for everything else but still need life insurance. These policies have graded death benefits, meaning your beneficiaries won't receive the full death benefit until several years into the policy.

In naming a beneficiary, keep in mind that the life insurance company will want to see only the names of those who are financially dependent upon you. An acquaintance, friend or relative, absent of a financial relationship, will not do.

Working with an agent

After reviewing the various life insurance policies available, you might still be unsure about which best meets your needs. The American Council of Life Insurers (ACLI) recommends consulting an insurance agent. ACLI spokesman Jack Dolan says an agent can recommend policies that will meet your needs. "Look at the recommended policy with care to be sure it fits your personal goals," Dolan says.

Carefully study your agent's recommendations and ask for a point-by-point explanation. Make sure the agent explains items you don't understand. Because your policy is a legal document, it is important that you know what it provides.

Insure.com offers these recommendations for deciding which type of life insurance to purchase:

If your agent recommends a term life policy, ask:

What is the Standard & Poor's, A.M. Best, Fitch, Moody's and Weiss ratings of this insurance company?




What is the initial rate-guarantee period? Is this policy renewable past the initial rate-guarantee period without a physical exam? If so, what are the premiums?




Is this policy convertible to permanent insurance without a physical exam? If so, for what period of time do I have the right to convert?

If your agent recommends a cash value policy, ask:

What is the Standard & Poor's, A.M. Best, Fitch, Moody's and Weiss ratings of this insurance company?




Can you tell me, in writing, why you are recommending cash value insurance for me at this time?




Why should I combine my life insurance protection needs with my investment objectives?




Can you please prepare an analysis for me that shows the true cost of this cash value insurance policy over 5, 10, 15, 20, 25 and 30 years vs. buying term life and investing the difference in long term bonds over those same time periods?




How much is your first-year commission on this proposed cash value policy vs. your commission on an equivalent term life insurance policy?




Are these proposed annual premiums within my budget?




Why do you think that I can commit to paying these premiums over the long term, perhaps decades?




How much will I receive if I surrender the policy?

Additional Resources

Consumer Federation of America's Insurance "Rate of Return" Service



Insurance Information Institute: Learn about life insurance



Your state's department of insurance may also have life insurance buying guides online



For a free life insurance quote or more information on the types of life insurance available, please visit Insure.com.

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Life Insurance - Learn From an Old Agent

Life Insurance is an insurance product that pays at the death of the insured. It really should be called "Death Insurance," but people don't like that name. But it insures the death of an individual. Actually, what is insured is the economic loss that would occur at the death of the person insured.

Those economic losses take a lot of different forms, such as:

- the income stream of either "breadwinner" in a family

- the loss of services to the family of a stay-at-home-mom

- the final expenses at the death of a child

- final expenses of an individual after an illness and medical treatment

- "Keyman" coverage, which insures the owner or valuable employee of a business against the economic loss the business would suffer at their death

- estate planning insurance, where a person is insured to pay estate taxes at death

- "Buy and Sell Agreements," in which life insurance is purchased to fund a business transaction at the untimely death of parties in the transaction

- Accidental death insurance, in which a person buys a policy that pays in case they die due to an accident

- Mortgage life insurance, in which the borrower buys a policy that pays off the mortgage at death - and many more.

Life insurance has been around for hundreds of years, and in some cases, has become a much better product. The insurance companies have been able to develop mortality tables, which are studies of statistical patterns of human death over time...usually over a lifetime of 100 years. These mortality tables are surprisingly accurate, and allow the insurance companies to closely predict how many people of any given age will die each year. From these tables and other information, the insurance companies derive the cost of the insurance policy.

The cost is customarily expressed in an annual cost per thousand of coverage. For example, if you wanted to buy $10,000 of coverage, and the cost per thousand was $10.00, your annual premium would be $100.00.

Modern medicine and better nutrition has increased the life expectancy of most people. Increased life expectancy has facilitated a sharp decrease in life insurance premiums. In many cases, the cost of insurance is only pennies per thousand.

There is really only one type of life insurance, and that is Term Insurance. That means that a person is insured for a certain period of time, or a term. All of the other life insurance products have term insurance as their main ingredient. There is no other ingredient they can use. However, the insurance companies have invented many, many other life products that tend to obscure the reasons for life insurance. They also vastly enrich the insurance companies.

Term Insurance

The most basic life insurance is an annual renewable term policy. Each year, the premium is a little higher as a person ages. The insurance companies designed a level premium policy, which stopped the annual premium increases for policyholders. The insurers basically added up all the premiums from age 0 to age 100 and then divided by 100. That means that in the early years of the policy, the policyholder pays in more money that it takes to fund the pure insurance cost, and then in later years the premium is less than the pure insurance cost.

The same level term product can be designed for terms of any length, like 5, 10, 20, 25 or 30 year terms. The method of premium averaging is much the same in each case.

But this new product caused some problems. Insurers know that the vast majority of policyholders do not keep a policy for life. Consequently the level term policyholders were paying future premiums and then cancelling their policies. The insurance companies were delighted because they got to keep the money. But over time, they developed the concept of Cash Value.

Cash Value Insurance

With Cash Value insurance, a portion of the unused premium you spend is credited to an account tied to your policy. The money is not yours...it belongs entirely to the insurance company. If you cancel your policy and request a refund, they will refund that money to you. Otherwise, you have other choices:

1. Use the cash value to buy more insurance

2. Use the cash value to pay existing premiums

3. You may borrow the money at interest

4. If you die, the insurance company keeps the cash value and only pays the face amount of the insurance policy.

So, does this cash value product make sense? My response is "NO!"

Cash Value Life Insurance comes in lots of other names, such as:

- Whole Life

- Universal Life

- Variable Life

- Interest Sensitive Life

- Non-Participating Life (no dividends)

- Participating Life (pays dividends)

Many life insurance agents and companies tout their products as an investment product. But cash value insurance is not an investment. Investment dollars and insurance premiums should never be combined into one product. And investment dollars should NEVER be invested with an insurance company. They are middle men. They will take your investment and invest it themselves, and keep the difference.

Think about the methods that agents use to sell life insurance, and compare them to any other type of insurance. What you'll see is that life insurance sales tactics and techniques are ridiculous when compared to other insurance products.

Would you ever consider buying a car insurance policy, or homeowners policy, or business insurance policy in which you paid extra premium that the insurance company kept, or made you borrow from them? But, curiously, life insurance agents have been wildly successful convincing otherwise intelligent people that cash value life insurance is a good product to buy.

Care to guess why insurance agents have aggressively sold cash value insurance and eschewed term insurance?

Commissions.

The insurance companies have become vastly wealthy on cash value insurance. So, to encourage sales, they pay huge commissions. Term insurance commissions can range from 10% to 50%, sometimes even 100%. But cash value insurance commissions can be up to 100% of the first year's premium, and handsome renewal commissions for years after.

But it's not just the commission rate that matters. It's also the premium rates that come into play. Term insurance is FAR CHEAPER than cash value insurance.

Here's an example of a 30 year old male, non-smoker, buying $100,000 of coverage:

Term insurance costs $0.50 per thousand for a premium of $50.00. At 100% commission, the commission would be $50.00.

Cash Value insurance costs $12.50 per thousand for a premium of $1,250.00. At 100% commission, the commission would be $1,250.00.

So you see that it would be easy for an agent to place his own financial well-being ahead of the well-being of his client. He would have to sell 25 term policies to make the same commission as only one cash value policy.

But, in my opinion, that agent would have violated his fiduciary duty to the client, which is the duty to place the client's needs above his own. The agent would also have to set aside his conscience.

My opinion is that life insurance agents operate from one of three positions:

1. Ignorance - they simply don't know how cash value insurance works.

2. Greed - they know exactly how cash value insurance works and sell it anyway.

3. Knowledge and Duty - they sell term insurance.

Which agent do you want to do business with?

How do I know this stuff? Because I sold cash value life insurance early in my career.

When I started as an insurance agent in 1973 I knew absolutely nothing about how life insurance worked. The insurance company taught me to sell whole life insurance, and to discourage clients from term insurance. But, after some time of reading and research, I learned that cash value insurance is a bad deal. I began to sell only term insurance. I refused to set aside my conscience. I also went back to some early clients and switched their policies from cash value to term.

The insurance company fired me for that decision.

I found a new insurance company that only sold term insurance and also paid high commissions. I made a good living selling term insurance, so I know it can be done.

So, as you shop for life insurance, please accept the advice of an old agent. Never, never, ever buy cash value life insurance. Buy term insurance.

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