Insurance is a way, which provides security to the man and his property against the risk and uncertainty. It is the cooperative method of distributing the risk of an individual caused by death, fire, accident etc. over a large number of individuals in exchange for a regular contribution called premium.
This note has information about insurance.
Insurance is a way, which provides security to the man and his property against the risk and uncertainty. It is the cooperative method of distributing the risk of an individual caused by death, fire, accident etc. over a large number of individuals in exchange for a regular contribution called premium.
This note has information about insurance.
Things to Remember
Insurance is a way, which provides security to the man and his property against the risk and uncertainty.
Insurance is the cooperative method of distributing the risk of an individual caused by death, fire, accident etc. over a large number of individuals in exchange for a regular contribution called premium.
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Insurance
Insurance
Insurance is an arrangement by which a company or the state undertakes to provide a gaurantee of compensation for specified loss, damage, illness, death, accident, fire and so on in return for payment of a specified premium. In other words, it can be defined as the contract between two parties in which one party promises to pay a certain sum of money as premium over the loss of life or physical properties and another party agrees to compensate in case of happening the events.
The following are some of the main definitions of insurance: -
“Insurance can be defined as a contract made by the person paying a certain amount based on estimated life and he or his representative gets the amount after his death or expiry of a policy period.” – Insurance Business Act, 2042.
“Insurance is a co-operating device to spread loss caused by a particular risk over a number of persons who are exposed to it who agree to insure themselves against that risk.” – Prof. R. S. Sharma
Functions of Insurance
The insurance business has become an integral part of the business. It is essential for the expansion and development of trade and industry. It supports the economic development of the country. The primary function of insurance is to provide financial security against the losses due to uncertain events. In addition, it performs various other functions as well. The functions of insurance can be divided into primary and secondary,which are as follows: -
Primary functions
The primary functions of insurance are as follows:
Providing certainty Insurance provides certainty for the recovery of the losses incurred by different causes such as death, accident, theft, fire etc. Under this cooperative scheme, the policy holder gets assurances of the future uncertain risks & calamities in consideration for a premium.
Distributing risk Insurance spreads the risk of a single person over a large number of people involved in it. It accumulates a large amount of premium into a fund from a large number of insured persons or parties and manages to compensate the financial loss. Thus, it can be regarded as a mean of distributing risks & losses.
Providing security Providing Security Insurance provides protection against loss to the insured. It provides feeling of security to the insured against the possible risk of uncertain events of their properties. Thus, insurance is a cooperative device for making provision against insecurity.
Secondary functions
The secondary functions of insurance are as follows:
Formation of capital The huge amount of capital collected by an insurance company as a premium is not required as once for financial compensation. Thus, it accumulates such capital and mobilizes it in different profitable sectors in the form of investment. Thus, it provides capital for the different sectors & assists for economic development.
Reducing loss Reducing Loss Insurance Company always adopts the policy of reducing losses. It estimates the future losses by applying various statistical & technical tools. It creates the social awareness to protect their life & physical properties. Thus, the insurance performs the functions of reducing losses.
Promoting trade Insurance helps to promote both home trade & foreign trade. It covers a number of risks that take place in the transit in case of export & import trade. It encourages the domestic & foreign trades to expand their trading activities by compensating the loss that occurs in the carriage of goods.
Increasing efficiency Insurance avoids the worries & tensions of the insured person for losses due to unexpected events. It helps to develop their skill & confidence. As a result, it increases the efficiency of individual and organization for doing creative & productive jobs.
Supports in economic progress Insurance provides security against the losses and damages. It helps to create better-working environment ensuring to compensate the financial losses arising due to unexpected events. It provides initiation for hard work. As a result, industrial and trading activities flourish in the country, which improve the economic status of the people.
Help to minimize social problems The people of the society exposed to a number of personal risks due to their accidental death, unemployment, disability etc. Such events bring a serious economical problem to the individual and his dependents. In such circumstances, the insurance is considered as an effective measure to minimize such social problems. For this, insurance provides financial compensation against the losses due to such events.
Types of insurance
Insurance can be classified into two categories as shown in the following chart: -
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