What is insurance?
Insurance may be described as a social device to reduce or eliminate the risk of life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk, attached to individuals. The risk, which can be insured against include fire, the peril of sea, death, incident, & burglary. Any risk contingent upon these may be insured against at a premium commensurate with the risk involved.
Insurance is actually a contract between 2 parties whereby one party called the insurer undertakes in exchange for a fixed sum called a premium to pay the other party ON happening of a certain event. Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events.
With the help of Insurance, a large number of people exposed to similar risks make contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good. An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium.
According to J.B. Maclean, ―Insurance is a method of spreading over a large number of persons a possible financial loss too serious to be conveniently borne by an individual.
What is insurance law?
Insurance law is the name given to practices of law surrounding insurance, including insurance policies and claims. Insurance regulation that governs the business of insurance is typically aimed at assuring the solvency of insurance companies. Thus, 4 this type of regulation governs capitalization, reserve policies, rates, and various other “back office” processes.
Need for insurance All assets have some economic value attached to them. There is also a possibility that these assets may get damaged/destroyed or become non-operational due to risks like breakdowns, fire, floods, earthquakes,s etc. Different assets are exposed to different types of risks like a car has a risk of theft or meeting an accident, a house is exposed to the risk of catching fire, a human is exposed to the risk of death/accident. Hence the insurance is required for the following reasons:
- Insurance acts as an important tool in providing a sense of security to society as a whole. In case the bread earner of a family dies, the family suffers from direct financial loss as the family’s income ceases. Life insurance is one alternate arrangement that offers some respite to the family from financial distress.
- The basic need for insurance arises as risks are uncertain and unpredictable in nature. Getting insurance for an asset does not mean that the asset is protected against risks or its exposure to risk is reduced, but it actually implies that in case the asset suffers any loss in value due to such risk, the insurance company bears the loss and compensates the insured by making payment to him.
- Insurance acts as a useful instrument in promoting savings and investments, particularly within lower-income and middle-income families. These savings are used as investments to fuel economic growth.
Types of insurance
The insurance business is divided into the following types of business namely:
- Life Insurance
- General Insurance
- Marine insurance
- Fire insurance
- Motor vehicle insurance
- Miscellaneous insurance