Definition of Insurance
It is a contract or agreement between tow parties by which one of
them (called insurer) agree to indemnify the other (called insured)
against a lost which may occur to the insured on the happening
Terminologies used in Insurance
Policy : The insurance policy is a contract between the insurer and the insured,
known as the policyholder, which determines the claims which the insurer
is legally required to pay. In exchange for an initial payment, known as the
premium, the insurer promises to pay for loss caused by perils covered under
the policy language.
An insurer is a company, selling the insurance.
An insured is the person or entity buying the insurance policy.
Premium is the price paid by the customer to the insurance company to
purchase the contract .
Indemnity is the total amount that the insurance company has to pay on
behalf of the claim of insured.
Re insurance The practice of insurers transferring portions of risk
portfolios to other parties by some form of agreement in order to reduce
the likelihood of having to pay a large obligation resulting from an
insurance claim. The intent of reinsurance is for an insurance company to
reduce the risks associated with underwritten policies by spreading risks
across alternative institutions
Principle of Contract
Principle of Indemnity
Principle of Insurable interest
Principle of Utmost good faith
Principle of Contribution
Principle of Subrogation
Principle of Proximate cause
This means the insured cannot make a profit from an
To insure anything the Insured must have an insurable
interest in the subject matter of insurance, i.e. he/she
must benefit by its safety or be biased by its loss.
The insured and the insurer are bound by a good
faith, honesty and fairness.
One can insurance the same propriety item with more then one
insurance company, the insured can’t demand more then total loss
from all companies put together
Insurance company has the legal right to claim compensation
from any other party that caused the accident.
The damage to the prosperity can takes place due to many causes
the insurer company will look first cause of damage or the
original cause of damage.
- Medical insurance.
- Personal Accident insurance.
- Group insurance.
- Travel insurance.
- Liability insurance.
On periodic basis premium is paid by insured.
If the insured die within that time period, The nominee
get a specified amount of money.
There are two types of life insurance:
The most basic one.
Whole Life Insurance
• This type of policy never expires.
• Premiums are usually based on your age.
• You'll pay the same amount of premium for the rest of your
life. (Start young and the less expensive the premiums will
Who is an Insurance Intermediary?
An Insurance Intermediary means individual agents, corporate agents including banks
and brokers –they intermediate between the customer and the insurance company.
Insurance Intermediary also includes Surveyors and Third Party Administrators but
are not involved in procurement of business. Surveyors assess losses on behalf of the
Insurance agents are, in general, licensed to conduct business on behalf of insurance
companies. Agents represent the insurer in the insurance process and usually operate
under the terms of an agency agreement with the insurer. The insurer-agent relationship
can take a number of different forms.
Insurance brokers typically work for the policyholder in the insurance process and
act independently in relation to insurers. Brokers assist clients in the choice of their
insurance by presenting them with alternatives in terms of insurers and products.
Acting as “agent” for the buyer, brokers usually work with multiple companies to
place coverage for their clients. Brokers obtain quotes from various insurers and
guide clients in determining the adequate policy from a range of products.
Surveyors and loss assessors
Surveyors and Loss Assessors are service providers to a general insurance
company, usually at the time of a fire or motor insurance claim. They carry out claim
surveys and estimate the quantum of loss.
A Third Party Administrator (TPA) is a person or organization that processes claims
and performs other administrative services in accordance with a service
contract, usually in the field of employee benefits. More specifically, a TPA is
neither the insurer (provider) nor the insured (employees or plan participants), but
handles the administration of the plan including processing, adjudication, and
negotiation of claims, record-keeping, and maintenance of the plan.
Risk is an umbrella term for multiple types of risk
associated with financial including financial
transactions that include company loans in risk of
Classification of Risk’s
Credit or Default Risk
• Systematic risk influences a large number of assets. A
significant political event, for example, could affect
several of the assets in your portfolio. It is virtually
impossible to protect yourself against this type of risk.
• Unsystematic risk is sometimes referred to as "specific
risk". This kind of risk affects a very small number of
assets. An example is news that affects a specific stock
such as a sudden strike by employees.
Credit or Default Risk
Credit risk is the risk that a company or individual will
be unable to pay the contractual interest or principal
on its debt obligations. This type of risk is of particular
concern to investors who hold bonds in their
Country risk refers to the risk that a country won't be
able to honor its financial commitments. When a
country defaults on its obligations, this can harm the
performance of all other financial instruments in that
country as well as other countries it has relations
with. Country risk applies to stocks, bonds, mutual
funds, options and futures that are issued within a
When investing in foreign countries you must
consider the fact that currency exchange rates can
change the price of the asset as well. Foreignexchange risk applies to all financial instruments that
are in a currency other than your domestic currency.
As an example, if you are a resident of America and
invest in some Canadian stock in Canadian
dollars, even if the share value appreciates, you may
lose money if the Canadian dollar depreciates in
relation to the American dollar.