INSURANCE   DEFINITION Is a contract whereby one party  called the Insured (Person taking out Insurance) agrees to pay the sum of money to another party called the Insurer (Insurance company) and the Insurer also agrees to Indemnify (compensate) the Insured in the happening of an event.ORIs a system of pooling risk together by contributing small sum of money to a common pool which in the long run compensates those who will suffer actual loss.TERMINOLOGIES USED IN INSURANCE

1. INSURANCE
DEFINITION
Is a contract wherebyoneparty called theInsured (Persontaking out
Insurance) agreesto pay the sum of money to another partycalled the
Insurer (Insurancecompany) and the Insurer also agreesto Indemnify
(compensate) the Insured in the happening of an event.
OR
Is a system of pooling risk together bycontributingsmallsum of money to a
commonpool which in the long run compensatesthosewho will suffer
actualloss.
TERMINOLOGIESUSED IN INSURANCE
In Insurance, the following termsare used;
(i) Insured
Thisis theperson or firm taking out Insuranceand who is promised to be
compensated bythe Insurancecompanyin caseof a loss.
(ii) Insurer
Thisis theInsurance companygrantingtheInsurancepolicy e.g National
InsuranceCorporation, GlobalInsurancecompany,etc.
(iii) Premium
Is the amount of money the Insured pays to theInsurer as the
considerationtothelatter'sundertaking tocompensatehim inevent of
loss. Premium arealwaysa very small proportionof the totalvalue that the
Insurer standsto lose.
(iv) Risk
Is the event against which theInsuranceis takenout for example;Onemay
Insure his car against accidentand fire. So accident and fire arecalled the
risk.
(v) Insurable Risks
These are Risks whose probabilityofoccurrencecanbe determined. Such

2. risks includefire, accident, theft, damageof goods in transit. With such risk
InsuranceCompaniesare ableto estimatethepossible futurelosses and
thus premium canbecalculated with somedegree of precision.
(vi) Non-Insurable Risks
Are those riskswhich in principleInsurancedoesn't accept tobe Insured
against. Example; Diseases, naturalcalamitiessuch as floods, murder,
losses due to wars,etc. They arealso referred to as UninsurableRisks.
(vii) Loss
Thisis anoccurrenceof an event against which Insuranceistakenout. For
instance; ifone Insured his vehicle against accident and thevehicle is latter
destroyed in an accident, theloss of a vehicle has occurred if only partyof
the propertyis destroyed.Thenthe loss is said to be partialloss but when
the entirepropertyis destroyed, then that is thetotal loss.
(viii) Pooling Risks
Thismeans that several individualsbring their riskstogether and a fund is
created intowhich they all pay. Those who actuallysuffer loss arepaid from
thisfund and essentially thisis how InsuranceCompanieswork.
(ix) Sum Insured
Thisrefers to the value of the propertyInsured as stated by the owner at the
timeof applying for Insurance.
(x) Proposal form
Thisis thedocument issued by theInsurance companyto a person
intending tobecomeInsured which he or she fills it in. All the details of the
InsurancePolicy required and thegoods and propertyinvolved must be
given. The truth, thewhole truth and nothing but the truth should be
disclosed.
(xi) Cover Note ( Temporary Agreement)
Thisis thedocument issued by theInsurance Company as theproof that
premiums havebeen paid and accepted bythe InsuranceCompany. A
cover note is issued for the period betweenthe payment of thepremium
and the issue of the policy.
(xii) The Policy (Permanent Agreement)
In Insurance, it is themajor document that containsthetermsand

3. conditionsof the agreement betweentheInsurer and the Insured.
(xiii) Re- Insurance
Thisis thepracticeofInsurancecompaniesInsuring themselves against
risks Insured with them by their customer. It is usually done by the
InsuranceCompanieswhich cover propertiesof high value like aeroplanes,
ships, trains, expensivebuildings, etc. It is done to avoid the riskof failure
to meet customers' claims.
(xiv) Co- Insurance
Thisis thesituationwhereseveral InsuranceCompaniescome together to
share a risk Insured with one of them. Each Insurance Company, accepts
the responsibilityfor part of the risk in the event of a loss. Several
InsuranceCompaniescontributeaccordingtothetheir respectiveshares of
the risk in order to compensatetheInsured.
(xv) Claimform
If the Insured event takes placethen the Insured person is required to
notify the Insurer. He fills a claim form, thisform shows the full detailsof
loss. After receipt of the Claim form the InsuranceCompanysends an
assessor to determinetheloss of the Insured and on the basisof the
assessor the Insurer pays compensationtotheInsured.
(xvi) Underwriter
Thisis any employee of theInsurance Company. His work is to accept or
refuse the natureof the risk presented to him. If he acceptsit, he is also
responsiblefor computing thepremiumtobe paid. In consultationwith the
StatisticalDepartmentofInsurance.
(xvii) Insurance Agent
Thisis theone who representsthe InsuranceCompaniesInterest in a
particularpart ofcountryor the world at large.
(xviii) Insurance Broker
Thisone transactstheInsurancebusinesson behalfof the Insurance
company.

4. (xix) Actually
Is a skilled person in assessing and calculating risksand determining
premiumscharged bytheInsurer.
(xx) Assessor
Thisis anInsurance officialwho calculatestheamount of danger involved
in any risk when the Insured makesa claim on theInsurer.
(xxi) Floating Policy
It is a policy for a certainamount, Insuring goodswhich are not all in one
place, but one spread over a certainDistrict or areasso that the goods are
covered with wholly or in part according totheir aggregatevalue asmay
happento be either under or above Sum Insured.
(xxii) Renewals
Thismeans giving new life to anInsurance contract sothat it continuesfor
a further period after the expiryof itscurrent period. It is at discreationof
the Insured to renew the Insurancepolicy. The Insurer only remindshim of
the expirydateof thepolicy by sending him to renewal notice.
(xxiii) Terminating the policy
Thisis bringing anInsuranceContract betweentheInsured and the Insurer
to an end. The Insured may terminatethepolicyby not renewing the policy
at its expiryor by stopping to paypremiums.
(xxiv) Surrender Value
Thisis theamount of money paid backto theInsured when he decidesto
terminatehislife InsurancePolicybefore it expires.
The policy holder is only refunded a portionof the totalamount he had
earlier paid as the premium. It should be noted that the premium doesnot
attainsurrender value until a specified time.
(xxv) Over Insurance
Thishappens when the Insured over declares thevalue of his propertyat
the timeof taking out theInsurance. In such case he will be required to pay
higher premiumstothe Insurer but in the event of totalloss he will be paid
only the correct value of the property.

5. (xxvi) Under Insurance
Thishappens when the Insured under declares the value of hispropertyat
the timeof taking out Insurance. But in the event of totalloss he is paid
only the sum Insured and not thecorrect value.
IMPORTANCE OF INSURANCE IN COMMERCE
1. It creates confidence among businessmen and Investors
Insurancecreatesconfidenceamong the businessmenand investors to
undertakeriskybusiness ventures without fear of loss in which they would
otherwisenot have invested their money.
2. Provide Compensation
InsuranceCompaniescompensatetheunfortunatepeoplewho actually
suffer loss as a result of Insured risk.
3. It is a means of saving
Thisis particularlytrue with life assurancepolicieswhich isa suitableway
of saving money for old age, disabilityand retirement. Alsomoney paid as
premium canbeused to help the familyafter the death of the wageearner.
4. Assured policiesact as security for loans
Businessmanwho is short of money canuse his InsurancePolicyas security
for the loan from the bank or any other Credit FinancialInstitutionand
thus raisecapitalfor the business.
5. Provide employmentopportunities
InsuranceCompaniesprovideemployment opportunitiestothe general
society. Some areemployed as Manager, InsuranceAgent, Insurance
Brokers, Secretariesetc. hencesolve the problem of unemployment in the
country.
6. Provide Government Revenue
InsuranceCompaniespay tax to thegovernment which can be used to
develop infrastructureslikeroads, hospitals, schools etc. AgainInsurance
contributestowardsa countryinvisibleExports just like tourism, shipping
and banking.
7. Insurance promotes investment
The owners or proprietorsof the InsuranceCompanycan put to use money

6. so collected as premium toset up businessventures like houses for rent,
factoryor in stock shares. This helps to generatefunds to pay for the claims
madeon Insurancecompanies.
8. Promotes International Trade
InsurancepromotesInternationalTradewherebybusinessmencan
transport their goodsfrom one country to another without fear or loss.
9. Educates the public
InsuranceCompaniesprovideeducationalservices. They conduct
campaignson safety, heath care, diseaseetc. through mass media like
radio, television, newspapers. Thispromotebetter standard ofliving of the
public.
HOW INSURANCE MAKE THEIR PROFIT
The mainsourceof incomefor insurancecompaniesisas follows;
1. Premiumscontributedbythe insured.
2. InsurancecompanyConstruct their own building e.g. ‘KITEGA
UCHUMI’ receiverent insuranceinvestment
3. Provideloans.
Insuranceprovide loans to their memberswith the expectationof
returnof interests.
4. Selling the scraps.
When insurancesettlethe claim; theremaining propertyscrapsis
sold by them hence making profits.
5. Securing bank.
The money contributed asa premium iskept at bank hence get
interestsof saving.
6. Buying shares.
Insurancecompaniesbuyshares from different companies.

7. INSURANCE AND ASSURANCE
Insurancerefers to cover against events which mayor may not
happene.g fire Insurance, theft, accident WHILE;Assurancecovers
against anevent that is bound to happen, theuncertaintyof which
being the timeat which it will happen. This is in respect of death. This
event will occur in the life of everyone hence life policiesare
assurancepolicies.
PRINCIPLES OF INSURANCE
The system of insurancedepends upon certaindoctrine(principles) which
both the Insurer and the Insured arerequired to obey. These are;
 Indemnity
 Insurable interest
 Utmost good faith (Uberrimaefidei)
 Proximitycause
 Subrogation
 Contribution
Indemnity
Thisprinciplerequiresthat thecompensationgivento the Insured should
only restore him to the exact financialpositionhewas enjoying first before
the loss occurred not better. According tothisprincipletheInsured is not
supposed to makeany profit or benefit from Insurance.
Insurable Interest
Thisprinciplerequiresthat a person or organizationcanInsureonly that
propertywhose destructionwillcause a financialloss to him. According to
thisprincipleInsurancecanonly be taken out by people who will suffer
financialloss of the event occursagainst which theyhave Insured.
In view of theabove, it is for examplepermissiblethat;
i) You canInsure your car but not your friend's car.
ii) You can Insure your childrenbut not your neighbour'schildren.
Utmost Goodfaith (Uberrimae fidei)
Thisprinciplerequiresthat all partiestothe Insurancecontract (The
Insurer and The Insured) should be faithfulto one another by disclosing all
the materialfactsconcerningthepropertyInsured or life Insured. Any

8. person taking out the Insuranceis required to discloseall the relevant
materialfactsabout thepropertybeing Insured so as to help the Insurance
Companyto assess thesuitabilityofthe propertyfor Insuranceand
accordinglycalculatePremiumsaccurately. Thisis known as acting in
Utmost goodfaith.
Proximity Cause
Thisprinciplerequiresthat theremust be fairlyclose connectionbetween
the Cause of the loss and the riskInsured against inorder for the person
(Insured) to claim compensation. TheCauseof the loss must be one that
was stated inthe policy for the Insurer to accept liabilityfor example; If
someone insures his car against theaccident and thecar isconsequently
destroyed as the result of fire, then the Insured can not claim
compensation.
Sabrogation
Thisprinciplestatesthat, In the event of totalloss after theInsured has
received full compensationtheInsurer ( InsuranceCompany) acquiresthe
rightsthat theInsured had in theproperty destroyed.
The guiding principleisthat the Insured is not supposed to benefit from
the loss. For example; If a lorry is involved in the accident, and the
InsuranceCompany fully compensatestheowner, then the wreck(scrap) of
the vehicle becomesthe propertyof the InsuranceCompany who maydo as
they wish with it.
Contribution
Thisprinciplepreventsthe insured recovering from more thanone insurer.
If he has insured his propertywith more thanone insurer and therisk
occursthe loss is shared proportionallybetweenthe insurers.
TAKING OUT AN INSURANCE POLICY
The steps involved in undertaking theInsurancePolicy changeaccordingto
the particular typesof Insuranceconcerned. Traditionallyhowever, the
following steps are commonin all Insurance Policies.
1. A proposalform is filled in by intending Insured in which all detailsthe
Insurancerequired and the goods and propertyinvolved must be given. It
should be remembered that theprincipleof Utmost Goodfaith applies.

9. 2. The premium iscalculated bythe insurer after studying the completed
proposalform .
3. The premium ispaid and the cover note is issued to the insurer.
4. A policy is issued after one month. It is a printed contractof insurance
and sets out all the detailsof insurance.
5. In case of loss occurring theinsured informsthe insurer and the claim
form is filled.
6. Propertyis surveyed by insurer and the extent of loss is assessed and
compensationisgiven.
INSURANCE AND GAMBLING
Insurance is a system of pulling risk together by contributingsmallsum
of money to a commonpool in order to compensatethosewho will suffer
loss.
Gambling is a gameor Playwhereby people enter and itswinner or the
lucky people aregiven prizes.
DIFFERENCESBETWEEN INSURANCE AND GAMBLING
INSURANCE GAMBLING
1. Insuranceinvolves some formalitiesand use of
documents.
1. In gambling such formalities
are not there.
2. In Insurance, one must have Insurable Interest in
the propertyhe or she is insuring.
2. In gambling thereisno such
conditionof Insurable
Interest.
3. In Insurancemoney is paid in Installments.
3. In gambling it ispaid once
and takenonce.
4. In Insurancethe one who receivesthe money is 4. It is oppositewith gambling.

10. the one who suffered a financialloss.
5. In Insuranceit is only one Party(theInsured)
who contributesthemoney.
5. In gambling both parties
contributemoney.
6.Insuranceis legally accepted.
6. Gambling isnot in many
cases accepted.
7. In Insurancethe event Insured may never happen
e.g I mayinsure my house against fireand thehouse
never catchesfire.
7. In gambling theevent must
happento decidethe winner.
8. Insuranceaimsto help the unlucky one.
The unfortunateone is restored to the financial
positionshe was before the loss thusnot gaining
anything.
8. The gambling makesthe
lucky one improvetheir status.
In gambling wherethe
financialpositionof the
winner improves.
TYPES OF INSURANCE
Insurancecan be divided intotwo mainparts;
1. Assurance/ LifeInsurance
2.GeneralInsurance
ASSURANCE/LIFE INSURANCE
Refers to Insurance against humanlifei.e
-Death
-Old age for specific years
POLICY UNDER LIFE INSURANCE
Endowment policy
The money is paid to his relativesat his death or when the period expected
whenever is earlier.
Whole life Policy
Thisrequirespayment of premium throughout lifeof Insured, therefore
compensationafter death and money will be given to beneficiaries.
TERMS OF LIFE INSURANCE
Surrender Value
Thisis themoney paid backtothe Insured part when he decides to cancel
the Insuranceagreement beforethe period specified.

11. General Insurance
Thisis theInsurance propertieswhenthe propertyof the cause death
varies, etc.
TYPES OF GENERAL INSURANCE
1. Marine Insurance
2.Fire Insurance
3. Accident Insurance
MARINE INSURANCE
Refers mainly to the Insurance of ships and the goods in the
ships
TYPES OF MARINE INSURANCE
Voyage Policy
The policy will specify thegiven route i.e
- Four route
-Two route
-Or ten route(journey)
Time Policy
The policy will specify only a givenperiod i.e
-Two weeks
-Two months, etc
Mixed Policy
The policy will specify a givenroute at a specific period of timee.g
-Two routefor twomonths,etc.
Floating Policy
Covers losses associated with a particular ship or ship with a particular
route.
Port Policy/Open Cover Policy
Thisis cover to a ship during theperiod of off load (disembark)
Fire Insurance
Is the type of Insurance which cover against fire and acts of God
like

12. -Flooding
-Lightning
FIRE POLICY
-Fire
-Theft and Burglary
-Floods
-War
-Rioting
-Loss and profit liability
-All risksof household
ACCIDENT INSURANCE (ASSURANCE)
This department mainly Insures vehicles.
MOTOR POLICY
(a) Motor
The motor policy maybe third part or comprehensive
-Third party
Is the motor policy whereby cover therisk against personand
accidents/death or injury
Comprehensive
Thisis based on property (car) and person
(b) Goods or Cash in Transit
(c) Fidelity guarantee
Insuranceagainst thedestinationof an employee for keeping money.
(d) Workers' compensation
Machinerybreakdownand consequentialloss.
(e) Aviation and Aviation hull
Insuranceagainst aeroplanes.
Aviationhull includesthe propertiesand the passengers.
TYPES OF LOSSES
Total Loss
Occurs when propertyis destroyed completely.
Partial Loss
Occurswhen propertyis destroyed but thereis some particlesremainingit
canbe taken intothe Insurancefor repair.