Non-life insurance

Life insurance answers one question: what happens to income when the earner dies. Non-life insurance answers everything else that can go wrong with money.

The workbook's own definition: non-life insurance provides risk cover from loss or destruction of assets, and covers unexpected large expenses that would otherwise drain a household's available income. A hospital bill, a car accident, a burglary, none of these involve a death, and all of them can still be financially serious.

The building blocks the workbook lists for every non-life product:

• Sum insured, the insurer's maximum liability for claims in the policy period, with a minimum and maximum the insurer may specify.
• Term, typically 1 year, though health and two-wheeler policies can run for 2 or 3 years.
• Premium, driven by the sum insured and the assessed risk: age, gender and health history for medical cover; engine capacity, place of registration and vehicle age for motor cover.
• Deductible, the slice of every claim the insured bears before the insurer pays.
• Restore and Recharge, health-insurance benefits that put the sum insured back to 100%, either whenever it is used, restore, or only once it is actually reduced, recharge.
• No claim bonus, a lower premium, or extra cover, for each claim-free year.

The named categories in the chapter include health insurance, motor insurance, personal accident insurance, critical illness, overseas travel insurance, liability insurance and fidelity insurance. Most of these are indemnity contracts, paying the actual, ascertainable loss, which is the key structural difference from life insurance's defined-benefit payout.

Mr Nair holds a 1-year motor policy with a sum insured of Rs 8,00,000 and a compulsory deductible of Rs 1,000, as his car's engine is under 1600 CC. He also holds a health policy with restoration benefit.

A minor accident causes Rs 45,000 of damage. The insurer pays Rs 44,000 after the Rs 1,000 deductible, an indemnity payout, matched to the actual loss, not a fixed defined benefit.

Later the same year, a hospitalisation exhausts his health sum insured. Because his policy carries restoration, the sum insured is put back to 100% for the rest of the year, at no extra premium, one of the elements the workbook lists as specific to non-life products, and unlike anything in a life insurance contract.

Chapter 3 opens with the definition of non-life insurance and lists its elements in section 3.1.1, before working through each named product type in section 3.1.2. Expect a definitional question distinguishing non-life from life insurance, and a question on the standard elements, sum insured, term, deductible, restore and recharge, and no claim bonus, that apply across every non-life product.

• Non-life insurance is not general insurance minus health. Health, motor, travel, liability and fidelity insurance are all non-life products in this workbook's scheme.
• Term is usually 1 year, but the exception for health and two-wheeler policies, 2 or 3 years, is a specific, examinable fact.
• Restore puts the sum insured back at every use; recharge only when it is actually reduced. The two are easy to swap in an exam answer.
• Most non-life products are indemnity contracts, paying the ascertained loss. Personal accident insurance is the workbook's flagged exception, being a defined benefit product.