INTRODUCTION
We are exposed to many risks in our day to day life. Nobodycan predict what may happen in the next moment. Theremay be an accident, calamity, theft, loss due to certainother cause etc. Similarly, there are always risks in business.Everybody feels like shifting the risk to some agency whichcan compensate in case of loss or damage.
MEANING OF RISK:
Risk is expressed differently by people. To some, it is thechance or possibility of loss, to others, it may be uncertainsituations. The word ‘risk’ has been defined as follows:
“Risk is a condition in which there is a possibility of anadverse deviation from a desired outcome that is expectedor hoped for”.
DEFINITION OF INSURANCE
CONTRACTUAL DEFINITION:
In the words of E.W. Patterson, “Insurance is acontract by whichg one party, for aconsideration, called premium, assumes aparticualr risk of the other party and promisesto pay to him or his nominee a certain orascertainable sum of amount on a specifiedcontingency.”
IMPORTANT TERMS USED ININSURANCE
INSURANCETERMS
INSURED
INSURER
CONTINGENCY
RISK
PERIL
PREMIUM
COMPENSATION
INSURANCEPOLICY
INSUREDAMOUNT
NATURE & SCOPE OF INSURANCE
1. sharing of risk
2. Cooperative instrument
3. Evaluation of risk
4. Payment is linked to contingency
5. Contract
6. Consideration
Continued……
7. Good Faith
8. Contract of Indemnity
9. Insurable Interest
10. The Amount
11. Large no. of insured persons
12. It is not gambling and charity
FUNCTIONSOFINSURANCE
PRIMARYFUNCTIONS
SECONDARYFUNCTIONS
OTHERFUNCTIONS
PRIMARY FUNCTIONS
Providing Cover forRisk
Distribution of Loss
Provides Security
Provides Certainty
Sharing of Risk
HelpingBusinessmen
SECONDARY FUNCTIONS
Provides Funds forDevelopment
Helps in IncreasingEfficiency
Helpful in ReducingLosses
Proper Assessment ofProjects
KINDS OF INSURANCE
GENERAL INSURANCE
a) Marine Insurance
b) Fire Insurance
c) Social Insurance
d) Liability Insurance
e) Other insurance
LIFE INSURANCE
OTHERS
a) Double Insurance
b) Reinsurance
c)Over Insurance
d) Under Insurance
CHARACTERISTICS OF INSURANCE
BASIS OF DIFFERENCE
ASSURANCE
INSURANCE
1. Scope
This word is used only in LifeInsurance contract. Hence thescope is limited.
The word is used todescribe all other types ofinsurance. Hence the scopeis wider
2. Renewal of Policy
Requirement of renewal ofpolicy is only if policy lapse aslifer insurance contract is acontinuing contracts.
Indemnity insurance is onlyfor maximum one year. Itlapses automatically afterone year. It can e renewedevery year.
3. Certainty of event
The happening of event iscertain but time is uncertain
The event is not certain. Itmay happen or not.
4. Insured Sum
Insurance policies can be takenfor any amount or any number
Policy amount is equal tothe market value ofproperty because theamount of indemnitycannot be more than theactual value of property
ASSURANCE AND INSURANCE
5. Certainty of payment ofclaim
Payment of claim iscertain. It may be eitheron maturity of the policyor on the death of theassured
Payment of claim is notcertain. It is paid only incase of loss of the assetinsured
6. Element of Investment
There is element ofinvestment in assurance aspayment of sum assured iscertain either on death oron maturity of the policy.
There is no element ofinvestment as certainty ofpayment depends uponthe happening of element.
7. Amount of claim
Insurance company makesthe payment of policyamount in full on thematurity or on death
Amount of claim cannot bemore than actual loss oramount of asset in anycase
8. Principle ofIndemnity
Principle of Indemnity is notapplicable in case ofassurance. Sum assured ispaid in full extent of amountinsured irrespective of anyprofit or loss
Principle of Indemnityis applicable. The basisof insurance contractsis the principle ofindemnity.
9. Assurance
Insurance companies assurethe insured to compensate incase of maturity of policy ordeath
Insurance companiesonly promises tocompensate in case ofactual loss
10. Time ofInsurable interest
It is proved at the time ofContract. It is not necessarilybe present at the time ofpayment of claim
Insurable Interest muste present at the time ofloss in case of marineinsurance.
RELEVANCE OF INSURANCE
RELEVANCE TOAN INDIVIDUAL
RELEVANCE TOBUSINESS
RELEVANCE TOSOCIETY
1.Insurance providessecurity, safety
2.Insurance affords peaceof mind
3.Insurance protectsmortgaged property
4.Insurance eliminatesdependency
5.It encourages savings
6.Profitable investment
7.It fulfils needs ofperson
1.Insurance providessecurity, safety
2.Insurance affords peaceof mind
3.Insurance protectsmortgaged property
4.Insurance eliminatesdependency
5.It encourages savings
6.Profitable investment
7.It fulfils needs ofperson
1.Wealth of the society isprotected
2.Economic growth of thecountry
3.Reduction in inflation
1.Wealth of the society isprotected
2.Economic growth of thecountry
3.Reduction in inflation
1.Uncertainty of businesslosses is reduced
2.Business efficiency isincreased
3.Keymanindemnification
4.Enhancement of credit
5.Business continuation
6.Welfare of employees
1.Uncertainty of businesslosses is reduced
2.Business efficiency isincreased
3.Keymanindemnification
4.Enhancement of credit
5.Business continuation
6.Welfare of employees