INSURANCE

Insurance occupies an important place in the mulüfaceted modern world since risk, which can be insured, has increased very much in every walk of life. Insurance is a form of protection against a possible risk. It is a method which helps in shifting risks to the insurer in consideration of a nominal cost. The aim of all insurance is to compensate the owner against loss arising from a variety of risks, which he anticipates, to his life, property and business. Insurance allows individuals, businesses and other entities to protect themselves against significant potential losses and financial hardship at a reasonably affordable rate. If the potential loss is small, then it doesn’t make sense to pay a premium to protect against the loss. Insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium.

Modern insurance is conducted either by enterprisers for profit, or by mutual companies. Each insured gets a contract of indemnity for the payment of a sum that will help cover the losses of others. Such an exchange is mutually beneficial

Definitions

On the basis of function we can define insurance in the following ways.

Insurance can be defined as a cooperative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to ensure themselves against the risk. (Prof. R.S.Sharma)

According to Reigel and Miller, “the function of insurance is primarily to decrease the uncertainty of events.

In simple terms, “Insurance is a protection against financial loss arising on the happening of an unexpected event.

Concept of Insurance

Insurance is a form of risk management which is used mainly to hedge against the risk of a contingent, uncertain loss. The basic objective of insurance is to transfer the risk of a person to the insurance company which has easily spread it over a large number of persons who are similar risks. It is a protection against financial loss that may occur due to an unexpected event. insuring

Insurance is defined as the equitable transfer of the risk of loss, from one entity to another, in exchange for payment. Insurance is essentially an arrangement where the losses experienced by a few are extended among many who are exposed to similar risks. It is a protection against financial loss that may occur due to an unexpected event.

The concept behind insurance is that a group of people exposed to similar risk come together and make contributions towards formation of a pool of funds. In case a person actually suffers a loss on account of such risk, he is compensated out of the same pool of funds. Contribution to the pool is made by a group of people sharing common risks and collected by the insurance companies in the form of premiums.

It is a promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. When parties agree the terms of an insurance policy, a contract is created between the insured and the insurer. In exchange for payments from the insured (called premiums). The insurer agrees to pay the policyholder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest. Examples include car insurance, health insurance, disability, life, and business.

Insurance is a guaranty of partial or complete indemnity against a financial loss that will result if an event of a specified kind occurs.

Parties of insurance

The following are the parties involved in an insurance contract.

1.Insured: The person seeking some surety against the possible loss is called ‘insured’.

2 .Insurer: The person contracting to indemnify against the loss is the insurer:

3 .Beneficiary: The person to whom the indemnity is paid is the beneficiary (who may or may not be the insured).

4 .Insurance Policy: The written contract of insurance is the policy.

5 .Premium: The price paid by the insured in fulfillment of his part of the contract is the premium:

6 .Indemnity: The amount paid when a loss has been incurred is the indemnity.