Chapter Contents 1. Introduction 2. Meaning of Insurance 3. Definition of insurance 4. Nature of Insurance 5. Functions of Insurance 6. Types of Insurance 7. Evolution of Insurance 8. Why Life Insurance
1. IntroductionInsurance is a tool by which fatalities of a small number are compensated out of funds (Premium payment) collected from plenteous.Insurance companies pay back for financial losses arising out of occurrence of insured events, e.g. in personal policy death due to accident, in stick, explosion, etc.
What is insurance?Insurance is a contractual arrangement whereby one party agrees to compensate another for losses in return for payment of a consideration.
Who are the parties to an insurance contract?1. The party agreeing to pay for the losses called the Insurer.2. The party whose loss causes the insurer to make a claims payment called the insured.3. The payment that the insurer receives called as a premium.4. The contract called a policy of insurance.5. The insureds possibility of loss called the insureds exposure to loss - Risk.
2. Meaning of Insurance Commonly acknowledged phenomenon that there are countless risks in every sphere of life. 1. Property: Fire risk. 2. Shipment of goods: Perils of sea. 3. Human Life: Risks of death or disability. 4. And so on…….
3. Definition of insuranceThe term INSURANCE : A co-operative mechanism to spread the loss caused by a particular risk over a number of persons who are expected to it and who agree to ensure themselves against that risk.Risk is, an uncertainty of a financial loss.
4. Nature of Insurance One can observe its following characteristics: 1. Risk sharing and Risk transfer. 2. Co-operative Device. 3. Risk Assessment in Advance. Give more details on each of above.
5. Functions of InsuranceInsurers provide insurance policies.1. Certainty2. Protection3. Risk Sharing4. Assists in Capital Formation5. Prevention of loss
6. Types of Insurance1. Classification on the basis of nature of insurance.2. Classification from business point of view.3. Classification from risk point of view.
Classification on the basis ofnature of insurance. ◦ Life Insurance ◦ Fire Insurance ◦ Marine Insurance ◦ Social Insurance ◦ Miscellaneous Insurance
Classification from businesspoint of view 1. Life Insurance 2. General Insurance
Classification from risk pointof view 1. Personal Insurance 2. Property Insurance 3. Liability Insurance 4. Fidelity Guarantee Insurance
7. Evolution of InsuranceThe first insurers of life were the marine insurance underwriters who started issuing life insurance policies on the life of master and crew of the ship, and the merchants.The early insurance contracts took the nature of policies for a short period only.The underwriters issued annuities and pension for a fixed period or for life to provide relief to widows on the death of their husbands.The first life insurance policy was issued on 18th June 1583, on the life of William Gibbons for a period of 12 months
8. Why Life Insurance1. Covers the risk of death.2. Encourages compulsory savings.3. Easy settlement and protection against creditors.4. It helps to achieve the purpose of the life assured.5. Peace of mind.6. Loss control.7. Social benefits.8. Investment of funds.9. Invisible earnings.10. Insurance facilities liquidity.11. Loan facility and tax relief.