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Interpretation of Insurance Policies And Their Applicability for COVID 19

Insurance is a contract represented by a policy through which an individual or an entity receives financial protection or reimbursement against losses incurred by them from an insurance company.

Insurance is a contract represented by a policy through which an individual or an entity receives financial protection or reimbursement against losses incurred by them from an insurance company. They are used as security against the risk of any kind of financial loss that may result from damage to the insured or his property, or from the liability for damage or injury caused to a third party.

 The COVID-19 pandemic has severely impacted many industries such as manufacturing, travel & transportation, energy, hospitality and retail. In comparison to these sectors the insurance industry is generally well prepared for major loss events including pandemics, but the financial impacts take time to play out. The insurance carriers have roughly lost 48% of their market due to this crisis, with major repurcussions on the life & health insurance carriers with an average drop of 58% all over the world.

Types of insurance and impact of COVID 19

The new business premiums of life insurance companies have declined by 32 per cent in the month of March due to the disruption caused by the spread of coronavirus and the subsequent lockdown enforced by the government to curb its spread. For the month of March the new business premiums of life insurance companies stood at Rs 25,409 crore compared to Rs 37,459 crore in March 2019. The private life insurers observed their new business premiums decline by 34.21 per cent in March 2020 at Rs 8,342 crore compared to Rs 12,682 crore in the same period in the last financial year. The state owned life insurance companies, Life Insurance Corporation (LIC) observed its premiums decline by 31.11 per cent in the reporting month. In March 2020 it collected new business premiums to the tune of Rs 17,066 crore compared to Rs 24,776 crore in March 2019.

There are four main types of insurance policies in India, namely:

  1. Life Insurance

Life Insurance can be defined as a contract between the policy holder and the insurance company, wherein the life insurance company pays a specific sum to the insured individual's family upon his death. The life insurance sum is paid in exchange for a specific amount of premium. It is considered a back-up plan for life.

The continued spread of COVID-19 has led to a number of casualties across the world and would continue to lead to further casualties in the coming months.  According to estimates even with mitigation and suppression measures, the pandemic could lead to 20 million deaths around the world. The small and medium sized life insurers would be the ones that would be faced with the maximum number of challenges owing to the propblems of sustaining this impact.

  1. Health Insurance

 Health insurance refers to a type of general insurance that pays for medical, surgical, and sometimes dental expenses incurred by the insured individual. Health insurance can reimburse the insured individual for expenses incurred from illness or injury or pay the care provider of the insured individual directly.

Those people who are infected or potentially infected by coronavirus may require testing as well as medical care and depending upon the level of severity, hospitalization as well. In countries where health care costs are covered by the state or through a state-mandated social security coverage, these costs would be covered in a much easier manner. On the other hand in countries which mostly rely on private insurance markets to provide coverage for health care expenses, may suffer gaps in insurance coverage for COVID-19 related expenses.

  1. Travel Insurance

Travel insurance is an insurance product for covering the unforeseen losses incurred while travelling, either internationally or domestically. Travel insurance may offer financial aid at various times, such as during loss of baggage, trip cancellations etc. This type of insurance is usually provided by private health insurers, either as part of the general health insurance policy or as an add on to an already existing  travel insurance policy.

  • Domestic Travel Insurance- This kind of travel insurance policy safeguards an individual’s finances during travels within India.
  • International Travel Insurance- This kind of policy allows you to cover the unforeseen expenses that can arise during your trip such as medical emergencies, baggage loss, loss of passport, etc, when one travels outside India.

In existing policies, medical treatment that is incurred due to infection caused by the novel coronavirus during travel would be covered in most cases as long as the trip had met the policy terms and conditions and was not to an area that the health authorities had specifically advised against travelling to at the time of travel.

  1. Motor Insurance

Motor insurance refers to a policy that offers financial assistance in the event of accidents involving your motor vehicle. It can be availed for three categories of motorized vehicles, including Car Insurance, Two-wheeler Insurance and Commercial Vehicle Insurance. Third-Party Liability is the most basic type of motor insurance covered in India. It is the minimum mandatory requirement for all motorized vehicle owners as per the Motor Vehicles Act of 1988.

From 3.4 million units in the Financial Year 2019, the car industry could shrink by a million to 2.4 million units. Two wheeler sales could plunge by 5 million units at the end of the Financial Year 2021, from its peak of 21 million to an estimated 15.5-16 million.
Almost all segments of the Indian passenger vehicle market are set to see a decline by over 10-15% in 2020-2021,with the lockdown suffocating discretionary purchases . All the major insurance companies have now extended the grace period for paying renewal premiums in March. Life Insurance Corporation (LIC) has also extended the deadline up to April 15, 2020.

Regulations and guidelines for insurance policies during the Pandemic

Insurance Regulatory and Development Authority of India (IRDA) had issued guidelines dated 04.03.2020 and vide Circular dated 30.03.2020 for meeting health insurance requirements of various sections and had advised the insurance companies to design products covering the costs of treatment for COVID – 19.

The IRDA vide its Press Release dated 23.03.2020 has directed the insurance companies to condone the delay up to 30 days in renewal of health insurance policies without deeming such condonation as a disruption in the policy. 

The IRDA issued Circular dated 23.03.2020 directing insurers to settle their Life Insurance claims of COVID – 19 to be settled expeditiously to suit the emergency situation in the affected areas.

The Ministry of Health and Family Welfare in its Press Release dated 26.03.2020, under the Pradhan Mantri Garib Kalyan Package, announced an insurance cover of Rs. 50 Lakhs for a period of 90 days to public healthcare providers including community health workers, who may have to be in direct contact and care of COVID – 19 patients and who may be at the risk of being impacted by the disease.

The IRDAI circular dated 03.04.2020, stated “In view of the prevailing conditions owing to the COVID-19 outbreak and considering the need for easing the payment of health insurance premiums, all the insurers are allowed to collect health insurance premiums in instalments,".


COVID 19 has caused disruptions across businesses and markets. The world economy is immensely being affected due to the border lockdowns, countries being shut down and restrictions on travel, thus the main question that arises is whether the insurance policies protect us from the disease, which entirely depends on the insurer. Most of the policies cover the finances on the disease, although the new policies might have some restrictions on the same.

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