CLASSES OF INSURANCE

• Any risk that can be quantified can potentially be insured.

Specific kinds of risk that may give rise to claims are known as
"perils". An insurance policy will set out in detail which perils
are covered by the policy and which are not.
• A single policy may cover risks in one or more of the
categories set out below. For example, motor insurance would
typically cover both property risk (covering the risk of theft or
damage to the car) and liability risk (covering legal claims
from causing an accident). A homeowner's insurance policy
typically includes property insurance covering damage to the
home and the owner's belongings, liability insurance covering
certain legal claims against the owner, and even a small
amount of coverage for medical expenses of guests who are
injured on the owner's property.
 CLASSES
• Business insurance can be any kind of insurance that protects
businesses against risks. Some principal subtypes of business
insurance are
a. The various kinds of professional liability insurance, also
called professional indemnity insurance, which are discussed
below under that name.
b. The business owner's policy (BOP), which bundles into one
policy many of the kinds of coverage that a business owner
needs, in a way analogous to how homeowners insurance
bundles the coverages that a homeowner needs.
 Life and Health
• Life insurance provides a monetary benefit to a decedent's
family or other designated beneficiary, and may specifically
provide for income to an insured person's family, burial,
funeral and other final expenses. Life insurance policies often
allow the option of having the proceeds paid to the
beneficiary either in a lump sum cash payment or an annuity.
• Annuities provide a stream of payments and are generally
classified as insurance because they are issued by insurance
companies and regulated as insurance and require the same
kinds of actuarial and investment management expertise that
life insurance requires.
 Life and Health
• Annuities and pensions that pay a benefit for life are
sometimes regarded as insurance against the possibility that a
retiree will outlive his or her financial resources. In that sense,
they are the complement of life insurance and, from an
underwriting perspective, are the mirror image of life
insurance.
• Certain life insurance contracts accumulate cash values, which
may be taken by the insured if the policy is surrendered or
which may be borrowed against. Some policies, such as
annuities and endowment policies, are financial instruments
to accumulate or liquidate wealth when it is needed. The tax
law provides that the interest on this cash value is not taxable
under certain circumstances. This leads to widespread use of
life insurance as a tax-efficient method of saving as well as
protection in the event of early death.
 Life and Health
• Under life and health, there are various types of (assurance)
as follows:
• Term Assurance – It provides for payment of the sum assured
on death occurring within a specified term. If the life assured
survives to the end of the term, cover ceases and nothing is
payable by the life office.
• Decreasing Term Assurance – It is designed to cover the
outstanding balance of a debt. It is common with mortgage
institutions like HFCK and Saccos.
• Convertible Term Assurance - This is synonymous with term
assurance but has a clause which allows the life assured to
convert the policy into an endowment or whole life contract
at normal rates, without medical evidence.
 Life and Health
• Family Income benefits – The benefits on death within the
term is paid out by installments every month or quarter as
opposed to lump sum.
• Whole Life Assurance – The sum assured is payable on the
death of the assured whenever it occurs. Premiums are
payable throughout life or till retirement but benefits are
payable on death whenever it occurs.
• Endowment Assurance – The sum assured is payable in the
event of death within a specified period but if the life assured
survives up to the end of the period, the sum assured will also
be paid. For a given level of cover, it has the highest premium
because payment will be at a given date or before if the
assured dies, the end of the period is called the maturity date.
The shorter the term of an endowment, the more expensive it
becomes.
 Life and Health
• Group Life Assurance – Employers sometimes arrange special
terms for life assurance for their employees, the sum assured
is payable on death of an employee during his term of service
with the employer. The policy is issued to the employer as
sponsor.
• Permanent Health Insurance – It was designed to overcome
the limitations of 104 weeks maximum benefit under personal
accident and sickness cover. Cover is provided to assureds’
disabled for longer periods who due to accident or illness may
not engage in any occupation or change to a lower paid
occupation. The cover usually excludes say the first six or
twelve months since many employees under such
circumstances may remain on payroll for such period before
being struck off. The maximum benefit is usually 75% of
previous earnings less any other disability benefits payable.
 Liability Insurance
• Liability insurance is a very broad superset that covers legal claims against
the insured. Many types of insurance include an aspect of liability
coverage. For example, a homeowner's insurance policy will normally
include liability coverage which protects the insured in the event of a
claim brought by someone who slips and falls on the property; automobile
insurance also includes an aspect of liability insurance that indemnifies
against the harm that a crashing car can cause to others' lives, health, or
property.
• The protection offered by a liability insurance policy is twofold: a legal
defense in the event of a lawsuit commenced against the policyholder and
indemnification (payment on behalf of the insured) with respect to a
settlement or court verdict. Liability policies typically cover only the
negligence of the insured, and will not apply to results of wilful or
intentional acts by the insured.
 Liability Insurance
• There are types of liability insurance namely:-
• Employer’s Liability - This arises where an employee is injured by the fault
of the employer and the injured employee can claim compensation or
“damages” from the employer.
• In the past before introduction of this, an industrial injury was very much a
“particular” risk and not responsibility of the employer. The principle was
“volenti non fit injuria” i.e. the employee has concerted to run the risk of
injury by being employed. It was also extremely difficult for an ordinary
employee to succeed in any claim. When an employer is held legally liable
to pay damages to an injured employee he can claim against his
employer’s liability policy which will provide him with the amount paid
out. The cover would include lawyer’s and doctor’s fees.
• The policy is in respect of injury or death and not applicable where the
property of an employee is damaged. This insurance is compulsory at law.
 Liability
• Public Liability – Is designed to provide
compensation for those who have to pay
damages and legal costs for injury or property
damage in respect of members of the public.
• Products Liability – Where a person is injured
by a product he has purchased and can show
that the seller or manufacturer was to blame
he can claim for damages.
 Liability
• Professional Indemnity Insurance - This is liability to other
parties arising out of professional negligence e.g. A lawyer
may give advice carelessly that results in a client losing
money. Therefore, professional indemnity insurance would be
cover for various professional e.g. Lawyers, Accountants,
Doctors, Brokers etc.
• Directors’ and Officers’ Liability – Shareholders, creditors,
customers and employees can take action against directors as
individual for negligence in operating a company. This recent
development has been aided by legislation to make
individuals accountable. The policy therefore will cover
defense costs and compensation for which a director may be
liable to pay.
 Property Insurance
• Property insurance provides protection against risks to
property, such as fire, theft or weather damage.
• There are various covers for property depending with the
cause or way in which it is damaged:
• Fire Insurance –The basic fire policy provides compensation
to the insured person if the property is damaged as a result of
fire, lighting or explosions, where the explosion is brought
about by gas or boilers not used for any industrial purpose.
• Theft Insurance – This covers theft which within the meaning
of the policy is to include force and violence either in breaking
into or out of the premises of the insured.
 Property
• All Risks Insurance – Uncertainly of loss may not only be due
to fire or theft, this led to the design of a wider cover known
as all risks. The term all risks is a misnomer as there are a
number of risks that are excluded but it is an improvement on
the traditional scope of cover that was available on the
market. The policy can cover expensive items like jewellery,
cameras etc. The objective of the cover being to cover a
whole range of accidental loss or damage.
• Goods in Transit – It provides compensation, if goods are
damaged or lost while in transit, this would cover modes of
transport like road, railway etc. The cover can be effected by
the owner of the goods or the carrier if he is responsible for
them while in his custody.
 Property
• Contractors All Risks – When new buildings or civil
engineering projects are being constructed, a great deal of
money is invested before the work is finished. There is a risk
that the building or bridge may sustain severe damage –
prolonging construction time and delaying eventual
completion date. This may entail the contractor to start
building again or repair the damages. The extra cost cannot be
added to the eventual charge the contractor will make to the
owner.
• The intention of the policy is to provide compensation to the
contractor for damage to construction works from a wide
range of perils.
• Money Insurance – The policy provides compensation to the
insured in the event of money being stolen either from the
business, his home or while it is being carried to or from bank.
 Pensions
• The prime objective is to ensure that pension is available on
retirement. Most of the pension schemes are arranged by
employers for the benefit of their employees. In association
with pensions, policies are normally effected covering death
in service for those employees who do not live up to the
retirement age. This is normally in the form of group life
assurance. It is also possible for individuals to purchase
personal pension plans. The occupational pension plan may
be on:
• Final Salary or defined benefit basis or
• Money purchase or defined contributions
 Pensions
• Annuity: Is a period payment made to the assured usually
after retirement for a consideration. The annuity can be;
1. Immediate annuity – It starts to make the periodic payments
immediately after purchase.
2. Deferred Annuity – The periodic payments commence
sometimes in future.
3. Annuity Certain – The periodic payments are made for a
certain period irrespective of death.
4. Guaranteed annuity - The annuity is made for a guaranteed
period or until death whichever is later.
 Transport Insurance
• The policies here cover:
1. Marine risks.
2. Aviation risks.
3. Road risks.
 Marine Insurance
• Marine policies relate to three areas of risk i.e.
hull, cargo and freight.
• Freight is the sum paid for transporting goods
or for hire of a ship. When goods are lost or
destroyed by marine perils then freight or part
of it is lost – thus need for cover. The risks
covered in a marine policy are generally
referred to as “perils of the sea” and includes
fire, theft, collision etc.
 Marine insurance
• The main types of marine policies are:-
• Time Policy – Which is for a fixed period e.g. 12 months.
• Voyage Policy – which is operative for the period of the
voyage - for cargo it is from ware house to warehouse.
• Mixed Policy – Which covers the subject mater for the voyage
and a period of time thereafter e.g. while in port.
• Building Risk Policy – It covers construction of marine vessels.
• Floating Policy - It provides the policy holder with a large
reserve of for cargo. A large initial sum is granted and each
time shipments are sent, the insured declares the value which
is deducted from the outstanding sum insured.
• Small Craft – It covers the leisure use small boats. It is
comprehensive in style covering liability insurance.
 Aviation Insurance
• Most policies are issued on an “all risks
basis”, subject to certain restrictions.
• In most cases a comprehensive policy is
issued covering the aircraft itself (the
hull), the liabilities to passengers and the
liabilities to others.
 Motor Insurance
• The minimum requirement by law is to provide insurance in
respect of a legal liability to pay damages arising out of injury
caused to any person. Motor Insurance polices can either be:
– Third party only – It provides cover in respect of liability
incurred through death or injury to a third party or
damage to the third party property. This is according to the
Road Traffic Act.
– Third party, fire and theft - It provides cover as above but
in addition cover damage or loss to the vehicle from fire or
theft.
– Comprehensive policy – It provides cover as above but in
addition cover accidental loss or damage to the vehicle
itself.
 Motor insurance
• Also motor insurance is categorized into;
1. Private Car Insurance - It covers private cars used for social,
domestic and business purposes. Some of the covers include
personal accident benefits for the insured and spouse,
medical expenses and loss or damage to rugs, clothing and
personal effects.
2. Vehicles used for commercial purposes e.g. Lorries, taxis,
vans, hire cars are insured under commercial vehicle policies.
3. There is separate cover for motor cycles – the cover is fairly
inexpensive when contrasted with motor car insurance.