INSURANCE

1. CHAPTER 1
INTRODUCTION TO
INSURANCE
TOPIC OUTLINES:
1. Definition of Insurance
2. Importance of Insurance
3. How Insurance Works
4. Functions of Insurance
5. Classes of Insurance

2. Definition
An economic institution based on the principles
of mutuality, formed for the purpose of
establishing a common fund, the need for which
arises from chance occurrences of nature, whose
probability can be fairly estimated.
It involves payment of contracted benefits or
compensation to the insured or a third party
against unforeseen losses.
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3. Essential features of
insurance
An economic institution
Based on the principles of
mutuality or cooperation
Its objective is to accumulate
fund to pay for claims
Only certain risks can be
insured against
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4. The importance of insurance
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The need for
income
Source of
income
Unfortunate
events or risks

5. How insurance operates?
FUND?
RM100
RM100
RM100
RM100RM100
RM100
RM100
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Risk : Premature death
RM100 is contributed every
month to the fund.
If every CIRCLES
represent 10000 people,
HOW much money is
accumulated in the FUND?
TOTAL :
Loss : RM100,000
Concepts involved :
1. Pooling of risk
2. Pooling of losses

6. Functions of Insurance
Secondary
Functions
Cost
stabilization
Stimulates
business
enterprises
Removes fear
and worries
Reduction of
losses
Means of
savings
Sources of
capital for
investment
Provides
employment
for many
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Primary function :
Equitable
distribution of the
financial losses of
the few who are
insured among the
many insureds.

7. Classes of insurance
Life Assurance
A contract which pays an agreed sum of
money on the happening of a
contingency (event), or of a variety of
contingencies, dependent on human
life.
Risks Covered :
Premature death
Continuous stream of income during
retirement
Sickness or disability
General
Insurance
A contract arranged to provide cover
against certain risks to the insured
and/or third parties
Risks covered :
Loss or damage to property
Legal liability caused by products or
goods sold or process carried out
Death or injury to a person by an
accident
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