LIFE INSURANCE

PRACTICES IN INDIA

Distribution system
Distribution System is the relationship
between distribution channels, market
segments and also products is very
important.
Insurance companies should continuously
innovate and integrate the distribution
channel, make them be the part of the
occupying market and highly promoting
the development of their own.

DISTRIBUTION SYSTEM IN
INDIAN INSURANCE MARKET
In present Indian insurance market, the
challenge to insurers and intermediaries is twopronged:
Building faith about the company in the mind of
the client
Intermediaries being able to build personal
credibility with the clients
Traditionally tied agents have been the primary
channels for insurance distribution in the Indian
market

Distribution system in Life

insurance
Need
Law requirements
Beliefs and cultural or religious
backgrounds

Agents are necessary for the selling life insurance due to the following
reasons:
Insurance is an idea that has to be explained and its usefulness
clarified personally
Each prospective buyer has special needs and requires specialized
solutions
Personalized guidance can be given only when there is a live
interaction with the agent
Significant amount of money is to be set aside immediately and
regularly for a long term in future for a benefit, which is vague and
far away.
The insurer has to access the risk involved in every proposal for
insurance for which the necessary information would include details
on personal life styles, habits, family etc. The agent, who gets to
meet the proposer closely, is in a position to provide some of this
valuable information.

 The distinction of channels in the developed markets are

personal distribution systems and direct response
systems.
Personal distribution systems include all channels like
agencies of different models and brokerages, banc
assurance, and work site marketing.
Direct response distribution systems are the method
whereby the client purchases the insurance directly. This
segment, which utilizes various media such as the
Internet, telemarketing, direct mail, call centers, etc., is
just beginning to grow.

Multiple distribution channels

Agents Age, known people, gender
Banks creditor insurance, banc
assurance
Brokers
Work site marketing
Internet
Invisible insurer

Work site marketing

This area needs to be tapped, as in any country one of the biggest
markets is through the worksite. With changes in human resources
management polices and compensation packages, group products
or work site products do have a definite market that cannot be
ignored.
Here the advantages would be:
Captive customer base
Potential to sell individual insurance and group insurance
High trust factor
High hit ratio for the intermediaries
The challenges would be the cost effectiveness, product
customization and efficient post sales servicing, which would
determine continued business. Technology has a key role to play
in worksite marketing to ensure cost benefits. Banks and financial
institutions have been successfully marketing credit cards and
other financial products using this channel. If not an identical
model a similar approach can be used for selling insurance.

TRENDS IN DISTRIBUTION
CHANNELS
Agency and brokerage systems are common and
contribute maximum share of life insurance business in
the developing countries. The Japanese life insurance
industry depends entirely upon agents. Part-Time agents
and lady agents form a good proportion of the agency
force.
In European countries, notably France, Holland, Belgium
and Spain distribution takes place also through banks.
Direct mailing is becoming increasing popular in
developed countries. In a small way, this has started in
India. The scope and the experience are being watched.

Differences between public and

private sector insurance companies

Public Sector Companies

Identity is well established, but the perception of " poor service providers" is a stigma.
Products are not attractive and flexible enough but expensive.
To retain their creamy layer
clientele who are the most likely to be wooed by the new companies
Retain and attract good intermediaries
Match the aura created by the new companies in the urban market

Private Sector Companies

Have to build their identity in a market where the public does not distinguish them.
Remove the perception that anything that looks good is expensive
Work against the people's mindset that they are not here for the long term
Attract intermediaries especially agents with the requisite qualifications and attributes
who can market the company and the product.
Run the risk of tapping an already insured market for repeat insurance instead of
tapping new virgin pockets in the market

Insurance Models
Direct Marketing by the
insurance company
Partner-agent model
De-linked model
Service Provider Model

Direct Marketing by the insurance

company
Identification of clients, selling of
policies, collection of premium,
receipts of claims and settlement of
claims etc., all are done by the
insurance companies
Outreach to provide insurance to
poor through this model has been
very limited

Partner-agent model
Approved intermediary organisations act as
insurance agents.
Identify the customers, negotiate with
insurance companies about the adequacy of
products and premium rates to be paid,
collect the premium
Assist in clients in claim processing and
settlement

De-linked model
Community based insurance facility where
NGO/MFI or federation of the groups act as
insurer
Coverage of risk remains with the insurer
Sum insured, design and pricing of products,
adverse
selection,
collection,
claim
verification and settlement data collection
and
maintenance,
assessing
client
satisfaction etc are undertaken internally by
the insurer

Service Provider Model

NGOs generally provide basic health care
facilities to the rural population since
necessary amenities were simply not
present in their area of operation. Instead
of premium, the service providers charge
a membership fees to partly cover their
costs

Challenges in Insurance Penetration

Designing of products suiting the
rural market
Using the right distribution channel
mix to reach the potential customer
Intermediaries being able to build
personal credibility with the clients

Distribution Channels

Agents
Formal Banks
Regional Rural Banks
Cooperative Banks
NGOs & MFIs
Post Offices
Internet & Rural Kiosks & Rural Knowledge Centers

Agents
Prime channel for insurance distribution in
urban areas
Trust of the company & customer must
Knowledge of different products
Postman,School teacher, shopkeeper, gram
sevikas, gram sahayaks
Training & educating poses a challenge
Not an optimum channel as 42 % of 600,000
villages have population of less than 500

Formal Banks
27 PSBs have19, 104 rural branches and 30
Pvt.SBs 1,111
Private banks are constrained by their lack
of reach and meager branch strength
Banking sector has shown propensity towards the
larger size accounts
Within the foreseeable future they will
normally not be able to fully serve that
market

Regional Rural Banks

177 RRBs together with14,150 branches
cover 516 districts and serve a client base of
close to 62.70 million
RBI has permitted RRBs to undertake
insurance business as corporate agent
without risk participation
Chitradurga Gramin Bank has -in close
cooperation with the NABARD GTZ-Projectintroduced a new deposit scheme called
Rakshith Savings Bank Scheme in tie up
with LIC and UIICo. Ltd

NGOs and MFIs

Large number of NGOs and MFIs are involved in
social as well as financial services intermediation
Out of 61 sample MFIs studied by Sa-Dhan 34 were
providing insurance services
While all 34 MFIs provided life insurance products,
only 9 facilitated non life insurance products
The most significant range in amount of cover was in
the category of Rs.10,000 and above

Challenges faced by NGO & MFIs

Many of them are working as pure service provider
particularly in health insurance, private insurer,
intermediary
Poor live for the present and do not plan for the future.
Given their fatalistic attitude, it is difficult to explain
the concept of insurance to poor
Given this mindset, premium is seen as additional
expenditure rather than risk cover
Without the availability of basic health infrastructure in
rural areas, health insurance is difficult to sell

Challenges faced by NGO & MFIs

Cooperation with the insurance company has not
proved successful. Limited motivation on both
sides to improve the cooperation
Delays in settling claims and complicated
formalities
Challenge to pick up the necessary
insurance techniques and adjust them to the
needs of their members
No legal status as a private insurer. This
complicates the matter further when it
comes to reinsurance

Post Offices
There are about 129,000 rural post offices.
Post Office itself is offering insurance
products to the poor
Its efficacy as an intermediary channel
needs to be explored

Internet, Rural kiosks & Knowledge Centers

Using net for transactions has been catching up in
urban areas. Many banks provide online banking
Most of the insurance companies have product
information and/or illustrative tools on the web
In rural areas too rural knowledge centers are being
set up to bring information close to the people. The
insurance companies can use these centers to create
awareness about insurance
Can only be enablers for the human channels

Appointment of agent

Eligibility
Life Insurance Corporation of India has eligibility requirements. You should be at least
18 years of age or above and the 12th standard pass.
If you are an eligible candidate, try to locate a local branch office of LIC and
schedule an appointment with the Development Officer. An interview will be
conducted by the branch manager of LIC to determine if you can qualify to undergo
training. The training will be conducted by the Divisional/Agency Training Center.
The said training is conducted until the 100 hours is complete and it will cover the
different aspects of life insurance and the business.
Once youve completed the training, you will be allowed to take the pre-licensing
exam by IRDA (Insurance Regulatory and Development Authority).
IRDA will give you a license if you pass the exam and you can now become an
insurance agent. The branch office of LIC where you applied will already absorb you
into their team of insurance agents.
An LIC agent should be ambitious, outgoing, can handle different personalities, and
treat clients as bosses. You are free to decide on your working hours so you can pick
the most convenient time to work. The good thing about becoming an LIC agent is
that you have a chance to earn unlimited income. LIC will provide the needed support
which includes advertising, first-rate training, and in-house consultant.

REMUNERATION TO AGENTS
Persons appointed by an insurer may be
remuneration in any of the following ways:
Payment of fixed monthly salary
Payment of commission related to the
business done
Part payment of fixed salary and part payment
of commission based on business done.

 Commission to agents is specified as a percentage of premiums

paid. This percentage may vary between different plans of
insurance. It may also vary from year to year, high in first year and
lower in subsequent years.
Commission may be paid right through the term of the policy or may
be paid only for a fixed number of years.
In India, provisions exist whereby agents who have performed
certain qualifying levels of business during 10 years of the agency
are entitled to receive commission for the rest of their lives under
certain conditions.
Commission is also payable to the heirs after the agents death.
Bonus commission is also payable on the first year premium as an
incentive for higher performance. This is a percentage of the eligible
first year commission increases.

 Agents of the LIC are entitled to term insurance and

gratuity benefits. The amount of term insurance is linked
to the average annual commission (renewal) earned in
the three agency years preceding his death. The
following other conditions also have to be fulfilled:
The agent should not have completed 50 years on the date of
appointment as an agent.
The death must take place before he has completed 60 years of
service
He must have an insurance policy on his own life for at least
Rs.5000 SA and the policy must have been in force at the time of
his death.
He must have completed at least 3 years as an agent at the time
of his death.

 An agent will be eligible for gratuity if he has worked continuously for

15 years or more and his agency is not terminated due to fraud,
conviction on a charge of criminal misappropriation, criminal breach
of trust, cheating or forgery, acting against the interests of the
insurer, offering rebate or giving false information in the agency
application form with a view to defraud the insurer.
The amount of gratuity is related to the renewal commission earned
in the last 15 qualifying years preceding the date of claiming gratuity.
180th part of the aggregate of the qualifying year renewal
commission is the eligible rate.
Gratuity is admissible at the eligible rate for each qualifying year for
the first fifteen qualifying years and at half the eligible rate for the
subsequent ten qualifying years subject to a maximum. Gratuity is
paid only once in the agency career.

 Functions Of The Insurance Agent:

Life insurances agent has the unique role
of such a person, who enjoys the trust of
two parties - the prospect and the insurer simultaneously in the same transaction.
To simplify, functions of a life insurance
agent could be divided into two parts, viz.
'Pre-sale functions';
'Post-sale functions'

Function Before Sales:

Contact prospects
Study their insurance needs
Completion of formalities for proposal of new
insurance viz,
Filling of form
Arranging for Medical Examination
Collection proofs of age and income
Any other information required by the
underwriters

 Function After Sales:

Ensure payment of renewal premiums.
Assist policyholder for nomination / or
change thereof.
Assist the policyholder in case he wants to
get loan against the policy assignment.
Assist the policyholder or the claimant to
comply with the requirement for getting
timely settlement of claims.

Plans of life insurance

Life insurance products are usually referred to
as plans of insurance.
These plans have two basic elements. One is
death cover or risk over, which provides for the
benefit being paid on the death of the insured
person within a specified period.
The other is the survival benefit, which provides
for the benefit being paid on survival of a
specified period.

Understanding the Needs Levels

Every possible adverse consequence that requires to be taken care of

constitutes a need for insurance.
The needs of people for life insurance can be classified as under:
Stage 1 Family: Protection of the interests of the family against loss of
income resulted because of the death of the bread-winner.
Stage 2 Children: Provision for higher education, marriages, Start-in life.
Stage 3 Old age: Post- retirement income for self and family/dependants.
Stage 4 Special Needs: Disability, accidents, expenses for treatment of
diseases. Loss of income as a result of sickness.
Stage 5Avoiding the loss of wealth (assets) due to depreciation or inflation.
Generally, all these needs exist simultaneously, but not in the same
measures, for all persons. The variations between people will depend on
the ages, size of families and dependants and the nature of other properties
and incomes. Insurance plans of various kinds are designed to meet these
one plan alone may not meet all the needs. All the needs can be met
through a judicious mix of plans.

Basic elements of plans

A plan of assurance will have the following features. By making
changes in these features or adding and combining some of them,
any number of plans can be developed.
Who can be insured? The various possibilities are (i) individual
adults (ii) children (minors) (iii) two or more persons jointly under
one policy.
What can be the SA? Some plans stipulate a minimum SA. There
are maximum limits also for certain benefits, like accident benefits.
In what contingency would the SA be payable? Could be on death
or on survival.
When would the SA be payable? On the contingency happening or
some other dates.
How would the SA be payable? Could be in one lump sum of in
installments.
What would be the term (duration) of the policy? This determines the
period during which the specified event should occur for the SA to
be payable. Some plans provide for benefits even beyond the term.

 When would the premium be payable? Variations are in

the frequency of payment (monthly), quarterly, halfyearly or yearly), as well as the period during which it is
payable. Some plans provide for premiums to be paid for
a period less than the term.
Does the SA increase? This can happen because of
participation in surpluses and bonus additions or
because of guaranteed increases in S.A.
Does the SA reduce? This can also happen, if the plan is
to meet reducing liabilities under a mortgage.
Are there additional benefits? These, also called
supplementary benefits, may be provided by way of
riders, in addition to the basic covers.

Whole Life Assurance

Ordinary whole life policy

Limited Payment Whole Life Policy
Single Premium Whole Life Policy
Convertible whole Life Assurance
Policy

Endowment Assurance
Advantages :
Compulsory savings
Old Age Provision
Accumulation of Fund
Types of Endowment Policies
Ordinary Endowment Policy
Double Endowment
Pure Endowment Policy
Anticipated Endowment of Money back Policy
Triple Benefit Endowment Policy
Marriage Endowment Policy
Educational Endowment Policy

Other Life Insurance Plans

Money Back Policy

Family Income Assurance
Limited payment plans
Participating Plans
Convertible Plans
Joint Life Policies
Childrens Plan deferment period, deferment
date, risk cover, vesting
Variable Insurance Plans
Plans covering handicapped

Policy Rider
A rider is a clause or condition that is added on to a
basic policy providing an additional benefit, at the choice
of the proposer.
For example, a provision that in the event of death of the
life assured by accident, the SA would be double can be
a rider on an Endowment policy. This rider can be added
on to a policy under any plan. The option to participate in
valuation surplus can also be offered as a rider.
Insurers find it convenient to have a small number of
basic, plans, with riders being offered as options, so that
effectively the prospect has a number of options, to
choose from each plan can be taken with any one or
more of the riders.

 Some of the riders being offered by insurers in India are mentioned

below:
Increased death benefit, being twice or even more the survival benefit.
Accident benefits allowing double the SA if death happens due to
accident.
Permanent disability benefits, covering loss of limbs, eyesight, hearing,
speech, etc.
Premium waives which would be useful in the case of childrens
assurance, if the parent dies before vesting date or in the case of
permanent disability and sickness.
Dreaded disease cover, providing additional payments (in or in
installments), if the life insured requires medical attention because of
specified conditions like cancer, cardiac or cardiovascular surgeries,
stroke, kidney failure, major organ transplants, major burns, total
blindness caused by illness or accident, etc.
Guaranteed increase in cover at specified periods or annually.
Cover to continue beyond maturity age for same SA or higher SA.
Option to increase cover within specified limits or dates.

 As per the regulations made by the IRDA in April

2002 and amended in October 2002.
The premium on all the riders relating to health
or critical illnesses shall not exceed 100% of the
basic premium of the main policy.
And the premium on all the other riders put
together should not exceed 30% of the basic
premium.
This virtually puts a limit n the number of riders
that can be offered with any policy. It is possible
that this limit of 30% may be changed from time
to time.

ANNUITIES
Annuity may be defined as the payment of amounts
periodically during the life time of the annuitant in
consideration of the payment of an agreed sum to
insurance company.
The Annuity is called the up-side-down application of
the life insurance principle. When a person purchases a
life insurance contract he agrees to make a series of
payment (premiums) to the insurer in return for which the
insurer agrees to pay a specified sum to the
beneficiaries, in case of death of the life assured.
When a person buys an annuity contract, he pays the
insurer a specified capital sum, may be in installments, in
return for a promise from the insurer to make a series of
payments to him as long as he lives.

Difference between Annuity and Insurance

Insurance is a pooling arrangement whereby a group of

individuals make contributions that the dependents of the
unfortunate few, who die each year, may be indemnified for the
loss of the bread winners income. On the other hand, Annuity is
pooling arrangements whereby those who die prematurely and do
not need further cover make a contribution so that those who live
beyond their expectancy may receive more income from their
contribution alone would provide.
Life insurance policy protects against the absence of income in
the event of premature death or disability, whereas the annuity
(policy) protects against the absence of income on the part of
those affected with undue longevity. These two are extreme
forms that assume protection to two unfortunate groups. One
dying too soon and the other living too long.

CLASSIFICATION OF ANNUITIES
A. By Commencement of Income:
Immediate Annuity.
Annuity Due.
Deferred Annuity.

B. By Number of Lives Covered:

Single Life Annuity.
Multiple Life Annuity.-Joint Life Annuity ; Last Survivor Annuity

C. By Mode of Payment of Premium:

Level Premium Annuities.
Single Premium Annuities.

D. By Disposition of Proceeds:
Life Annuity.
Guaranteed Premium Annuity.

 Group Insurance is a plan of insurance that provides

cover to a large number of individuals under a single
policy called the master policy. Group insurance
schemes are used by the Government, as instruments of
social welfare.
Group Gratuity Schemes are related to gratuity
payments. Gratuity is paid to employees who retire or
die and also to those who resign, after having put in
specified periods of minimum service, usually 15 years.
The Group Superannuation Scheme is offered to
employers in order to facilitate the funding and
disbursement of pensions. Pensions are payable to
employees who retire from service on attaining the age
of superannuation or retirement.

REINSURANCE
Reinsurance is a contract of insurance
whereby one insurer (called the
reinsurer or assuming company)
agrees, for a portion of the premium, to
indemnify another insurer (called the
reinsured or ceding company) for
losses paid by the latter under
insurance policies issued to its
policyholders.

TRANSFERRING RISK
INSURANCE
RISK
Policyholder

- Insured
- Underlying Insured

Insurance Co.

- Insurer

TRANSFERRING RISK

REINSURANCE
Risk

Insurance Co.
- Ceding Co.
- Cedent
- Primary Insurer
Direct Company

Reinsurer
-Assuming Co.

ELEMENTS OF
REINSURANCE
Reinsurance is a form of
Insurance.
There are only two parties to the
reinsurance contract - the
Reinsurer and the Reinsured - both
of whom are empowered to insure.

ELEMENTS OF REINSURANCE
(continued)
The subject matter of a reinsurance
contract is the insurance liability the
Reinsured has assumed under
insurance policies issued to its own
policyholders.
A reinsurance contract is an indemnity
contract.

What Reinsurance Does

It redistributes the risk of loss
which a reinsured incurs under
the policies it issues according
to its own needs.
It redistributes the premiums
received by the reinsured
according to its own needs.

What Reinsurance Does Not Do!

Convert an uninsurable risk into an
insurable one.
Make loss either more or less likely to
happen
Make loss either greater or lesser in
magnitude
Convert bad business into good
business

Forms of Reinsurance
PROPORTIONAL
Quota Share
Reinsurer
covers the
same
percent on
each risk

Surplus
Share
Reinsurers
share based
on type or
size of risk

Per Risk Excess of Loss

Reinsurer covers excess of a
predetermined amount; limits
apply separately to each loss

EXCESS OR NON-PROPORTIONAL
Excess Each Risk/ Excess Each
Per Risk
Occurrence
(Catastrophe)

Aggregate
Excess
(Stop Loss)

Reinsurer covers
Reinsurer
over a
covers over a
predetermined
predetermined aggregate limit
amount or limit of loss or loss
ratio for a
for all losses
specific
arising out of
period of
one event or
time
occurrence
Per Risk Aggregate Excess of Loss
Reinsurer covers over aggregate
claims for a risk in a specified period
of time

FORMS OF REINSURANCE
PROPORTIONAL (OR PRO-RATA)
PAY PREMIUM ON A SHARE BASIS
COLLECT LOSSES ON SAME SHARE

EXCESS OF LOSS
PAY PREMIUM ON NEGOTIATED PRICE
COLLECT LOSSES ONLY WHEN
RETENTION IS EXCEDED.

The Forms of Reinsurance

Pro-Rata or Proportional:
Reinsurer receives a percentage share of
premium and pays that same percent of
each loss.
Reinsurer pays cedent a Commission to
Reimburse for Expenses
Can be Flat Percentage
Can Include Profit Commission
Can be Swing-Rated

The Forms of Reinsurance

Pro-Rata or Proportional (cont.)
Can be Quota Share or Surplus:
Quota Share
Reinsurer takes same % on each risk.

The Forms of Reinsurance

Pro-Rata or Proportional (cont.)
Surplus Share
Reinsurers share varies for each risk
based on type and/or size of risk.
Whatever that percentage share is,
reinsurer receives same percent of
premium and losses.

The Forms of Reinsurance

EXCESS OR NON-PROPORTIONAL:
Per Risk (property), Per Occurrence
(casualty) or Claims Made
Per Occurrence: Catastrophe

The Forms of Reinsurance

Per Risk or Occurrence Excess
Responds to Losses Excess of a
Predetermined Retention
No Proportional Sharing of Premium
or Loss
Premium is Negotiated
Normally has Occurrence Limit
Reinstatements are Negotiated

Forms of Reinsurance
Catastrophe Excess of Loss
Covers all losses in an event
Occurrence is defined as a geographic
area (flood and Riot) or a time period
(wind, quake, fire and winter storm)
Usually Limited to two Occurrences
Additional Cover Needed
Sold in Layers
Usually has two risk warranty

Functions of Reinsurance
Financing
Stabilization
Capacity

Catastrophe Protection
Services

Financing

is growing and needs additional surplus to

maintain acceptable premium to surplus ratios.

Unearned premium demands reduce surplus.

Marketing considerations dictate that an
insurer enter new lines of business or new
territories.

Stabilization
Marketing Consideration
Policyholders and stockholders like to be
identified with a stable and well managed
company.
Management Consideration
Planning for long term growth and development
requires a more stable environment than an
insurance companys book of business is apt to
provide.

Capacity
Refers to an insurers ability to provide a
high limit of insurance for a single risk,
often a requirement in todays market.
Reinsurance can help limit an insurers loss
from one risk to a level with which
management and shareholders are
comfortable.

Catastrophe Protection
Objective is to limit adverse effects on P&L
and surplus from a catastrophic event to a
predetermined amount.
Covers multiple smaller losses from
numerous policies issued by one primary
insurer arising from one event.

Services
1.

Claims Audit

2.

Underwriting

3.

Product Development

4.

Actuarial Review

5.

Financial Advice

6.

Accounting, EDP and other systems

7.

Engineering - Loss Prevention

Reinsurance is Provided Through

A. Treaty
a. Covers classes or entire books of business
b. Reinsurer accepts as written by insurer as to form,
price and risk
B. Facultative
a. Single Policy/Risk
b. Reinsurer evaluates each risk and establishes or
agrees to acceptance, form and price
c. Automatic or semi-automatic facilities

Types of Reinsurers
1. Professional Reinsurers
Specialize in Reinsurance
Are Licensed in at Least One State
Derive Majority of Their Premium Income
From Reinsurance

2. Reinsurance Department of Primary

Company
3. Pools

Special Purpose
General Purpose

Marketing of Reinsurance
1. Broker (Intermediary) Market

Reinsurance Intermediary
Provides Business for Reinsurers
Brings Parties Together - Helps Negotiate Reinsurance
Terms
Acts as Agent of Ceding Company
Compensated by Reinsurer

Reinsurers Share Reinsurance Programs

Marketing of Reinsurance
2. Direct Writers

Contact Primary Insurers Directly

Through Salaried Employees
Frequently Assume 100% of
Reinsurance Program

General Insurance Products

Fire
Health
Motor
Marine
Industrial
Liability
Micro insurance
Credit insurance
Miscellaneous

Social
Rural
Accident and hospitalization
Travel
Package
Business
Others

Reinstatement Value Policies

It is agreed that in the event of the property
insured being destroyed or damaged, the basis
upon which the amount payable under interest
insured (building, content) of the policy is to be
calculated shall be the cost of replacing or
reinstating on the same site property of the
same kind or type but not superior to or more
extensive than the insured property when new,
subject to the following Special Provision and
subject also to the terms and conditions of the
policy except insofar as the same may be varied
hereby.

Special Provisions
i.

ii.

The work of replacement or reinstatement must be commenced

and carried out with reasonable dispatch and in any case must be
completed within 12 months after the destruction or damage or
within such further time as the insurer may (during the said 12
months) in writing allow, otherwise no payment beyond the amount
which would have been payable under the Policy.
Until expenditure has been incurred by the insured in replacing or
reinstating the property destroyed or damaged the insurer shall not
be liable for any payment in excess of the amount which would
have been payable under the policy if this memorandum had not
been incorporated therein.

iii.

If at the time of replacement or reinstatement the sum representing the

cost which would have been incurred in replacement or reinstatement if
the whole of the property covered had been destroyed exceeds the sum
insured thereon at the breaking out of any fire or at the commencement of
any destruction of or damage to such property by any other peril insured
against by this policy then the Insured shall be considered as being his
own insurer for the excess and shall bear a rateable proportion of the loss
accordingly.

iv.

This memorandum shall be without force or effect if

(a) The Insured fails to intimate to the Insurer within 6 months from the
date of destruction or damage or such further time as the Insurer may in
writing allow his intention to replace or reinstate the property destroyed or
damaged.
(b) The Insured is unable or unwilling to replace or reinstate the property
destroyed or damaged on the same or another site.

Floating Policy
Insurance cover for situations where the total insurable
amount can be reasonably estimated but cannot be
determined accurately-enough for computing correct
premium, until the insurance policy comes to an end. For
example, a trader will take a floating policy on a sum
estimated to be large enough to cover shipments during
a period (say, one year) and pays premium accordingly.
As the shipments are sent out, the insurer is informed
and the value of those shipments is deducted from the
insured sum. This procedure is repeated until the insured
sum is almost exhausted. The insurer then recomputes
the premium according to the total value of the alreadysent shipments, and adjusts it against the premium paid
by the trader. At this stage the trader takes another
floating policy and whole process starts over again.