Insurance offices are split into departments or sections, which deal with types of risks which have affiliation with each other. Generally insurance companies are categorized into the following offering the specified products or policies:
Life and Health
Life
This is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual’s or individual’s death. It is the risk pooling plan and economic device through which the risk of premature death is transferred from the individual to a group In return the policy owner or policy payer agrees to pay a stipulated amount called a premium at regular intervals or in lump sums (so-called “paid up” insurance).
A life insurance contract is intended to meet the needs of survivors or beneficiaries, when the investor dies. From the life insurance contract, the beneficiaries receive a sum of money that far exceeds the value of the premiums the investor had paid. The beneficiaries, of course, receive this benefit if the person insured dies during the contract period.
The contract of life insurance is different from other types of insurance in the following respects.
- The event insurer against is an eventual certainty i.e nobody lives forever.
- It is not the possibility of death that is insured against; rather, it’s the untimely death. The risk is not whether the insured person is going to die but when. The risk increases as the individual ages or grows older because chances of death are greater in later years than in initial years.
- There is no possibility of partial loss in life as in the case of property and liability insurance. Therefore, if a loss occurs under life assurance, the insurer will have to pay the face value of the policy.
- Life assurance is not a contract of indemnity, that is, the position after the loss as before the loss. This is because it is not possible to place a value on human life.
- Life assurance does not violet the principle of contribution counts of law have held that every individual has unlimited interests in their own lives and individuals can assign insurable interests to any one therefore, if the person taking insurance does so with many insurers all of them will compensate the next of kin.
Ordinary life assurance, industrial life and group life would all fall under the wider caption of life and health insurance. 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.
- 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.
- 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
Cover is for loss suffered by the insured as to the amount he is liable to pay another as compensation or some loss of his own money. 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.
- 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.
- Professional Indemnity Insurance – This is liability to other parties arising out of professional negligence 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
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.
- 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 affected by the owner of the goods or the carrier if he is responsible for them while in his custody.
- 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
Annuities
An annuity is a contract that provides periodic payments for specified time periods e.g. a number of years of the life of an individual. The payment may begin at a stated date or may be contingent (unknown date). A person whose life governs the duration of payment is called an annuitant. Annuities are the reverse of life assurance contracts. Whereas life assurance is a method of scientifically accumulating an estate of funds, annuities are devices for scientifically liquidating that estate of funds. The basic function of life annuities is that of liquidating a principal sum regardless of how it was accumulated. It is intended to provide protection against the risk of outliving ones income from savings.
Types of Annuities
- Deferred
This refers to an annuity where benefits are deferred until some future date / time. The particular time when benefits are to begin may or may not be specified ahead of time.
- Temporary
This type is rarely used, it pays benefits until the expiration of a specified period of years or until the annuitant dies, whichever comes first.
- Joint and Survivor
An annuity may be issued on more than one life. It provides that annuity payments will continue as long as either annuitant is alive. The periodic payment may be constant during the entire period or it may be arranged so that the amount of each payment is reduced upon the death of the first annuitant.
The size of the survivor’s benefit (payable when only one of the two persons is still alive) is often stated as a % of the joint benefit (payable while both annuitants are living) using the terminology joint and x % survivor annuity.
Thus a joint and 100% survivor annuity would pay the same benefits regardless of whether one or two annuitants were still alive. But a joint and 50 % survivor annuity will pay the survivor only one half of the joint benefit. Age is an important factor as J & S annuities are more expensive at younger ages.
- Fixed-Annuity that has a benefit expressed in terms of a stated dollar amount based on a guaranteed rate of return.
Immediate – It starts to make the periodic payments immediately after purchase.
- Certain – The periodic payments are made for a certain period irrespective of death.
- Guaranteed – The annuity is made for a guaranteed period or until death whichever is later.
Major differences between life insurance and annuities;
- While an annuity contract is intended to support the investor’s future income requirements, the life insurance meets the financial needs of the beneficiaries immediately after the occurrence of an insured peril.
- While the annuity pays back the total value of the investment made plus the gains earned on it, the life insurance investment returns an amount that may be multiple times larger than the premiums paid.
- Life insurance is paid upon death or maturity and in lump sum while annuity is paid in installments.
- Life insurance has terms and conditions to be met while annuity matures at expiry of the stated period.
- Annuity can be deferred while life insurance is upon expiry of the stated period.
- In life insurance penalties are charged if funds are accessed before maturity while in annuity no penalties are charged.
- Life insurance are sold but not purchased.
Transport Insurance
The policies here cover marine, aviation and road risks. 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.
i) 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.
ii) 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.
iii) 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.
Also motor insurance is categorized into;
- 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.
- Vehicles used for commercial purposes e.g. Lorries, taxis, vans, hire cars are insured under commercial vehicle policies.
- There is separate cover for motor cycles – the cover is fairly inexpensive when contrasted with motor car insurance.
