Life, Motor & Fire Insurance Principles and Claims Process

Posted on Jan 9, 2026 in Philosophy and ethics

Life insurance is not just a commercial transaction; it is a ‘social contract’ built on specific legal and ethical pillars. While it shares some principles with general insurance, others apply differently because human life cannot be replaced or valued purely in monetary terms.

Core Principles of Life Insurance

Here are the core principles of life insurance in detail.

1. Principle of Utmost Good Faith (Uberrimae Fidei)

This is the most critical principle. Unlike a standard market transaction where the rule is ‘buyer beware,’ life insurance is a contract of total transparency.

  • The Insured’s Duty: You must disclose every material fact — any information that could influence the insurer’s decision to cover you or set your premium. This includes medical history, family health history, lifestyle (smoking/drinking), and hazardous hobbies.
  • The Insurer’s Duty: The company must clearly explain all terms, conditions, and exclusions.
  • Consequence: If you hide a material fact (e.g., a pre-existing heart condition), the insurer has the right to void the contract and reject future claims.

2. Principle of Insurable Interest

You cannot insure the life of a random stranger. You must have a legitimate stake in the person’s survival.

  • Economic Stake: You have an insurable interest if the death of the person would cause you a direct financial loss.
  • When it must exist: In life insurance, insurable interest must exist at the time the policy is purchased, even if it doesn’t exist at the time of death.
  • Examples:
    • Self: Every person has unlimited interest in their own life.
    • Family: Spouses have interest in each other; parents in children (and vice versa).
    • Business: A business has interest in a ‘key person’; a creditor has interest in a debtor.

3. Life Insurance Is Not a Contract of Indemnity

This is a major difference between life and non-life insurance.

  • The Concept: In car insurance, the company ‘indemnifies’ you (pays the actual cost of repair).
  • Life Insurance Exception: Since a human life is priceless, you cannot ‘repair’ or replace a person. Therefore, life insurance is a valued contract.
  • The Payout: The insurer pays the exact ‘sum assured’ agreed upon in the contract, regardless of the person’s financial value at the time of death.

4. Principle of Proximate Cause (Causa Proxima)

If a person dies, the insurer must determine the direct and dominant cause of death to see if it is covered under the policy terms.

  • The Logic: If a policy covers ‘accidental death’ but the person dies of a heart attack which then caused the accident, the proximate cause is the heart attack.
  • Exclusions: This principle is often used to check for excluded perils, such as suicide (usually excluded for the first year) or death during illegal activities.

5. Principle of Subrogation and Contribution (Do Not Apply)

In general insurance, if you have two policies for one car, they share the cost (contribution). If someone hits you, the insurer can sue them to get their money back (subrogation).

In Life Insurance: These do not apply. You can have five different life insurance policies from five different companies. In the event of death, all five companies must pay the full sum assured to your beneficiaries. One payout does not reduce the others.

Motor Insurance: Features and Claims

Motor insurance is a contract where the insurer compensates for financial losses resulting from vehicle damage, theft, or legal liability. In India, under the Motor Vehicles Act, 1988, a basic level of insurance is mandatory for all vehicles on public roads.

1. Main Features of a Motor Insurance Policy

Motor insurance policies are structured around three primary pillars: coverage types, valuation, and add-ons.

A. Types of Coverage

  • Third-Party Liability (Mandatory): This is the legal minimum. It covers bodily injury, death, or property damage caused to a third party by your vehicle. It does not cover your own vehicle.
  • Own Damage (OD) Cover: This protects your vehicle against damage caused by accidents, fire, theft, and natural disasters (floods, earthquakes).
  • Comprehensive Insurance: This is a ‘package policy’ that combines both third-party and own damage covers into one.
  • Personal Accident Cover: A mandatory cover (usually up to ₹15 lakhs) for the owner-driver in case of accidental death or permanent disability.

B. Insured Declared Value (IDV)

In motor insurance, IDV is the maximum sum assured fixed by the insurer. It represents the market value of the vehicle.

  • It is calculated based on the manufacturer’s listed selling price minus age-wise depreciation.
  • IDV = (Manufacturer’s Price – Depreciation) + (Accessories – Depreciation).

C. No Claim Bonus (NCB)

NCB is a reward for safe driving. It is a discount on the Own Damage premium for every claim-free year. It can range from 20% to 50%. Importantly, NCB is tied to the policyholder, not the vehicle, so it can be transferred to a new car.

D. Key Add-Ons (Customization)

  • Zero Depreciation: Prevents deductions for depreciation on parts during a claim.
  • Engine Protect: Covers engine damage due to water ingress (hydrostatic lock) during floods.
  • Return to Invoice (RTI): In case of total loss/theft, the insurer pays the full original invoice price of the car.

2. Claim Settlement Procedure Following an Accident

The claim process is strictly regulated by IRDAI to ensure speed and transparency.

Step 1: Immediate Intimation

Contact your insurance company immediately. Most insurers provide a 24/7 helpline or mobile app for instant registration. Provide details like policy number, location, and nature of the accident.

Step 2: Documentation (FIR & Photos)

  • FIR: Mandatory if the accident involves a third party, theft, or major injury.
  • Visual Evidence: Take photos or videos of the accident site and the damage to both vehicles.
  • Do not move the vehicle until advised, unless it is obstructing traffic.

Step 3: Survey and Assessment

  • The insurer appoints a surveyor within 72 hours.
  • New Rule (2025): For minor losses below ₹50,000, a physical survey is often not mandatory; insurers now use AI-driven video assessment via mobile apps for instant approval.
  • For major losses, a registered surveyor must inspect the vehicle and submit a report within 15 days.

Step 4: Settlement Mode

There are two common settlement modes:

  • Cashless Claim: If you repair at a network garage, the insurer pays the workshop directly. You only pay the standard deductibles (₹1,000 to ₹2,000 depending on engine capacity).
  • Reimbursement: If you repair at a non-network garage, you pay upfront and then submit the bills, discharge voucher, and original documents to the insurer for a refund.

Step 5: Final Payout

Once the surveyor’s report is verified and documents (driving license, RC, policy copy) are checked, the insurer must settle or reject the claim within 30 days of receiving the final survey report.

Fire Insurance: Policy Components and Claims

Fire insurance is a contract of indemnity where the insurer agrees, in exchange for a premium, to compensate the insured for financial loss caused by fire or other specified perils during a specific period.

Standard fire insurance in India is typically governed by policies such as Bharat Griha Raksha (for homes) or Bharat Sookshma/Laghu Udyam (for businesses), as mandated by the IRDAI.

1. Components of a Fire Insurance Policy

A fire insurance policy is not just about ‘flames.’ It is a comprehensive document consisting of several critical parts.

A. The Declarations Page (Policy Schedule)

This is the ‘summary’ of the contract. It includes:

  • Identification: Names of the insured and the insurer.
  • Period of Cover: The exact start and end dates.
  • Sum Insured: The maximum amount the insurer will pay.
  • Location: The specific address of the property insured.

B. Covered Perils (Standard Fire & Special Perils – SFSP)

Despite the name, a ‘fire’ policy covers much more than just fire. Standard components include:

  • Fire & Lightning: Direct damage from flames or lightning strikes.
  • Explosion/Implosion: Excluding damage to boilers or steam-generating vessels.
  • Natural Calamities: Storm, cyclone, typhoon, tempest, hurricane, tornado, flood, and inundation (collectively known as STFI).
  • Social Perils: Riots, strikes, and malicious damage.
  • Impact Damage: Damage caused by rail/road vehicles or animals (not belonging to the owner).

C. Exclusions (What Is NOT Covered)

  • Spontaneous Combustion: Damage caused by the property’s own fermentation or natural heating.
  • Theft during a Fire: If someone steals items while the building is burning (this requires a separate burglary policy).
  • War and Nuclear Risks: Standard exclusion in almost all insurance contracts.
  • Pollution/Contamination: Unless caused by a covered peril.

D. Policy Conditions

  • Average Clause: If the property is under-insured (e.g., insured for ₹50 lakh but actually worth ₹1 crore), the insurer will only pay a proportionate amount of the loss.
  • Contribution: If there are multiple policies, they share the loss.

2. Procedure for Claim Settlement

Settling a fire claim is a technical process because the insurer must verify that the fire was accidental and not intentional (arson).

Step 1: Immediate Notification

The insured must inform the insurance company immediately via phone, email, or app. Delay in notification can lead to a rejected claim as it may hinder the investigation.

Step 2: Loss Minimization

The insured has a legal duty to act as if they are uninsured. They must call the fire department and try to save as much property as possible without risking life.

Step 3: Appointment of a Surveyor

For losses exceeding a certain limit (usually ₹50,000 in India), the IRDAI mandates the appointment of an independent surveyor and loss assessor.

  • The surveyor inspects the site, takes photos, and interviews witnesses.
  • Crucial: The debris must not be cleared until the surveyor has completed the inspection.

Step 4: Documentation

The insured must provide a ‘statement of claim’ along with:

  • Fire Brigade Report: Evidence that the fire department was called.
  • Police FIR: Required if there is a suspicion of malicious intent or riot.
  • Forensic/Laboratory Reports: If necessary to determine the cause of the fire.
  • Inventory List: Detailed list of damaged items with their original purchase value.

Step 5: Assessment and Discharge Voucher

The surveyor calculates the loss based on the principle of indemnity (current market value minus depreciation).

  • Once the surveyor submits the report, the insurer sends a discharge voucher to the insured.
  • Signing this voucher indicates the insured accepts the settlement amount as full and final.

Step 6: Final Payment

After the signed voucher is received, the insurer must make the payment. Under IRDAI rules, the claim must be settled within 30 days of receiving the final report and necessary documents.