Insurance

Introduction

Human beings are exposed to a number of uncertain events,which are known as risks.It is impossible to eliminate these risks but a person can reduce the financial losses arising from such uncertain events with the help of insurance.In fact,the greatest challenge for every business is the risk and uncertainty of financial losses.Such uncertainty may arise due to fire,theft,bulgary,accident,flood and earth-quake.These risks and uncertainties are considered as the threats of business.These threats discourage for the promotion of business.Insurance is the way of minimizing and reducing the financial losses arising from such threats,risks and uncertainties.Hence,the insurance can rightly be regarded as the most effective tool for the expansion and development of industry and trade.

Meaning and Definition

Insurance is a way,which provides security to the man and his property against the risk and uncertainty.It is the means of shifting the risks to insurer(insurance company)in consideration of a nominal cost called premium.An insurer promises to indemnify the losses in return for a financial consideration called premium paid by insured (individual or business).Thus,insurance is a contract of indemnifying the losses occurred due to any sort of risk,in consideration  of the premium.It provides financial protection against any specific risk of a person or business.Insurance can be defined as a co-operative device of spreading the losses.Insurance can  neither eliminate nor decrease the risk.It only provides financial protection against such risk.Hence,insurance is a scientific method of co-operating individuals who are exposed to similar risk.

"Insurance is a contract by which one party,for a compensation called the premium,assumes particular risks of the other party and promises to pay to him or his nominee a certain or ascertainable sum of money on a specified contingency"- Edwin W. Peterson

From the,above definition,it is clear that insurance is a co-operative device by which risks are distributed among a large number of persons who are exposed to such risks.Under this plan,the losses due to uncertain events are compensated.It provides security against the losses to a man and his property.Hence,insurance is a contract of providing financial protection against the losses occurred due to a particular risk in consideration of the premium.

Insurance Company

The insurance company involves in providing insurance service.It is a highly popular financial institution,which involves to reduce the risk of financial losses due to unexpected events.It involves in compensating the financial losses to the individuals as well as corporation in consideration of the payment of the premium.An insured pays certain amount of money as premium,which is the source of fund for the insurance company.The amount of premium collected is used to compensate the losses.It collects a large amount of premium,which can be invested in productive sectors.It grants loan and mobilize the idle capital in the productive sectors for the development of the country.Therefore,it should be accepted that the insurance company have great contribution in the economic development of the country.

Types of insurance

1.Life insurance

Life insurance is one of the most common forms of insurance.It has secured a special position all over the world. It is estimated that life insurance compromises 80 percent of the total insurance done in the world.It was started in England and other European countries in the 16th century. The life insurance in modern lines was developed in the 18th century.
Life insurance is a contract whereby the insurer agrees to pay a certain sum of money to the insured on the maturity of the policy in consideration of premium paid by the insured.If the insured dies before the policy matures,his nominee will get the amount  of policy.Such provision provides financial protection against the risk of early death which provides the financial security to the nominee or dependents.In fact,life insurance contains the elements of investment as well as protection.It is considered as an investment as the insured gets the amount of insurance with bonus on the maturity of policy.It is considered as an protection as the nominee gets the financial compensation in case of the death of the insured.Life insurance is also known as contingent contract because the loss of the life cannot be compensated but the financial compensation is provided to the nominee for the loss of insured life.

Types of life insurance

Life insurance can be classified as follows:

• Whole life insurance:

Under this policy,the insured has to pay the amount of premium in his whole lifetime.The insured amount is paid to the nominee by the insurer only at the death of the insured person.Under this policy,the insured person cannot get the amount of premium during his lifetime.

• Endowment life insurance:

 The endowment policy is issued for a fixed period of time,say,for 15 years,20 years or 25 years.The premium is payable during the insured period only.The sum assured is payable to the policyholder on the maturity of the policy.However,if the insured dies before the expiry of the policy,the sum assured is payable to his nominee.Endowment policy is very popular because it provides financial security to the family as well as livelihood to the insured in his old age.

• Anticipated endowment life insurance:

Under this policy,a part of the sum assured is paid at certain intervals during the endowment period.The balance of the assured amount is paid on the maturity of the policy. In case pf death of the insured before the maturity of the policy,the whole assured amount is payable to the nominee with bonus at once.Generally,such policy is issued for 15,20 or 25 years.For example,if the policy is issued for 15 years,25% of the insured amount is paid after 5 years,25% is paid after 10 years and balance amount is paid with bonus after 15 years,i.e.,on the maturity of the policy.

• Children's education and marriage endowment life insurance:

Education and marriage of the children are costly affairs for every parents.Such financial burden can be minimized by taking children's education and marriage endowment life insurance.This policy is taken by the concern parents for a specific period of time.The parent should pay the amount of premium for a specific period on regular basis.The child becomes the nominee of the policyholder.On the maturity of policy,the insurer pays assured amount which supports the policyholder to manage the required amount of fund for higher education and marriage of the nominee.

• Term life insurance

:The term life insurance policy is issued for short-term period ranging from 3 months to 7 years.Under this policy,the sum assured is payable only on the death of the policyholder.If the policyholder survives on the maturity of policy,nothing is payable to him.Term life insurance is generally taken for debtors or borrowers.Such policy helps to release the amount of debt from the insurance company on the death of the debtor or borrower.It provides full financial protection to the creditor against the risk of the debtor or borrower. 

• Single life insurance

:Under single life insurance policy,only one individual is insured.The premium is paid for the life insurance of the single policyholder.

• Joint life insurance:

Under joint life insurance,the insurance policy is taken for two or more person's lives. In this policy,the sum assured is payable to the survivors on the death of any person insured or to the survivors on the expiry of the policy whichever is earlier.Generally,this policy is taken by husband and wife jointly and partners of a firm.

2.Non-life insurance

Non-life insurance refers to the insurance of goods and properties.It is a short-term contract between the insurer and the insured.It is taken for the indemnity of the loss of goods and properties on account of a specific cause.As a consideration of the insurance contract,the insured pays the amount of annual premium.The amount of annual premium is treated as business expenses.Non-life insurance policy is generally taken for 1 year and it should be renewed every year.In fact,non-life insurance is taken as a means of providing financial protection for building,machinery,equipment,furniture, vehicle and merchandise items against the risk of fire,earthquake,accident and theft.

Non-life or general insurance includes fire insurance, marine insurance, and miscellaneous insurance.

• Fire Insurance

Fire insurance is a type of insurance,which is taken for getting financial compensation against the loss by fire.Loss and damage of property caused by fire is called fire waste.The purpose of fire insurance is to make the financial compensation of losses caused by fire.In fact,fire insurance is a co-operative effort to reduce the financial loss caused by fire among insured persons.The insured cannot claim anything more than the value of goods lost by fire or the amount insured,whichever is less.Fire insurance is a recent growth.The first fire insurance was established only after the Great fire of London in 1666 A.D.

Fire insurance is a agreement between the insurer and insured under which the insurer agrees to indemnify the losses caused by fire to the insured in consideration of a certain payment called premium. In order to make the insurer liable for the loss caused by fire,two conditions must be fulfilled. First, there should be actual fire and second,fire should be accidental but not intentional.

• Marine insurance:

Marine insurance is a type of insurance,which is taken for getting the financial compensation against the losses due to perils of the sea in course of sea voyage.Marine insurance is a contract between insurer and the insured under which a large number of risks including sinking,burning of ship,accident, collision of ship,jettison,barratry,piracy,explosion, sea dacoits,and stormy winds of the sea are covered. Marine insurance covers not only the ocean but also the inland perils.However,the perils to be included in the policy should clearly be defined and the insurer will be liable only for the insured perils.

• Miscellaneous insurance

The following are some common types of miscellaneous insurance:

Motor insurance:

The insurance,which compensates the financial losses of motor vehicle due to accident,theft and other similar type of events,is known as motor insurance.If the vehicle  damages due to accident or other similar causes,the insurer compensates the financial losses to the owner of the vehicles.It also includes the insurance of staff and passenger of the vehicles.

1. Employer's liability insurance:General insurance also includes employer's liability insurance. Under it,an insurance policy is taken for the workers of factories or institutions by the employer to compensate the claim of the employees on the event of injury,accident,death and disability while they are at work.Institutions or factories pay the premium regularly to the insurance company for getting such kind of compensation.Insurance company compensates at the time of injury,accident,disability,or death of the workers.
2. Fidelity guarantee insurance:Sometimes,the loss occurs in the organization due to the mistake of the staff knowingly or unknowingly.Fidelity guarantee insurance is the process of making financial compensation against the loss caused by embezzlement,theft,error or fraud committed by the staff of the business.It,thus,saves the employer for possible financial losses due to the activities of dishonest staff.
3. Aviation Insurance:Nowadays,air transportation is a popular means of transportation.Sometimes, accident may take place in the air service.If the accident takes place in the air service,the loss is unbearable.Hence,the aviation insurance is inevitable.In this reality,aviation insurance policy is taken for getting financial compensation against the loss in air service.