INTRODUCTION TO INSURANCE

INSURANCE : A insurance policy is a contract between an individual (policyholder) and an insurance company (provider). It binds both the policyholder and the insurance company towards each other.

   Under the contract, you have to pay a regular amount of money to the insurer and they pay you if bthe sum assured on unfortunate event arises . It has all the details of the conditions or circumstances under which either the insured individual or the policy nominee receives insurance benefits from the insurer.

Insurance is a method by which you can protect yourself and your loved ones from facing a financial crises. We can buy an insurance policy for the same , while the insurance comapny takes the risk involved and offer insurance cover at a specific premium. 

The policy sets forth the risk covered , the duration of the coverage period , the coverage to be provided ,the amount of any deductibles and the premium payments to be made by the insured party to the insurer.

PURPOSE AND NEED OF INSURANCE:

 (1)Uses to an individual=

       (a)Insurance provides security and safety: The insurance provides safety and security against the            loss on a particular event .In case of  life insurance payment is made when death occurs .

       (b)Insurance affords peace of mind: The security wish is the prime motivating factor . This is the                wish which stimulate to more work, if this wish is unsatisfied , it will create a tension which                   manifest itself to the individual in the form of an unpleasant reaction causing reduction in work . 

      (c)Life insurance provides profitable investment: Individuals unwilling or unable to handle their               own funds have been pleased to find an outlet for their investment in life insurance policies.

  (2)Uses to business=

        (a)Uncertainity of business losses is reduced : In world of business , commerce and industry a                    huge number of properties are employed . With a slight slackness and negligence , the property                may be turned into ashes . The accident may be fatal not only to the indidvidual or property but              to the third party also. New construction and new establishment are possible with the help of                  insurance 

      (b)Business efficiency is increased : When the owner of a business if free from the botheration of               losses , he will certainly devote much time to the business . The carefree work owners can work                better for the maximization of profit.

     (c)Business continuation : In any business particularly partnership business may discontinue at bthe          death of any partner although the surviving partner can restart the business but in both cases .

 (3) Uses to society:

       (a)Wealth of the society is protected: The loss of a particular wealth can be protected . Life                         insurance provides loss of human wealth . The loss of damage of property can be well identified            by the property insurance,etc.

     (b)Economic growth of the country: For the economic growth of the country , insurance provides               strong hand and mind, protection against loss of property and adequate capital to produce more            wealth.

    (c) Reduction in inflation : The insurance reduces the inflationary pressure in two ways . First , by              extracting money in supply to the amount of premium collected and secondly, by providing                      sufficient funds for production narrow down the inflationary gap.

Nature of insurance :

(a) Sharing of risk= It is a device to share the financial losses which might be fall on an individual or his family on the happening of a specified event . The loss arising from these events if insured are shared by the insured are shared by the insured in the form of premium.

(b) Cooperative devices= The most important feature of every insurance plan is the cooperation of large number of persons who in effect, agree to share the financial loss arising due to particular risk which is insured. Such a group is bought together voluntarily or through publicity of the agents .

(c) Value of risk= The risk is evaluated before insuring to charge the amount of share of an insured , here in called premium . There are several method of evaluation of risks . If there is higher expectation of loss , higher premium may be charged . 

(d) Insurance is not charity= Charity is given without consideration but insurance is not possible without premium . It is a profession bcoz it provides adequate sources at the time of disasters only.

(e) Large number of insured persons=  To spread the loss immediately , smoothly and cheaply , large number of persons should be insured. It is essential to insure large number of persons or property bcoz the lesser would be cost of insurance . 

Insurance as a social security

Insurance known as a social security tool bcoz of the following reasons=

(1)Social security= Insurance can be used as a social security tool which otherwise govt. has to provide. Since in India , the govt is not providing these benefits to general citizens. Therefore , an individual has to secured himself by taking appropriate and sufficient insurance . Thus, the insurance provide social security to the individuals.

(2)Standard of living = The level of wealth , comfort , necessities available to a certain socio-economic class is known as standard of living . The insurance provides help in health hazards , financial help in education , after retirement , etc. Thus the insurance is helpful or requirement , etc. Thus, the insurance is helpful or required for improving the standard of living.

(3)Economic independence= A family depends upon the earning hand. If the earning hand dies or become handicapped , the family would suffer a lot . If the earning hand was sufficiently insured ,  the family will not loose economically and would able to maintain its economic independence from the amount received .

(4)Protection against mortgage= In case a person got loan , whether the property got damaged , then the insured property get the loan amount from the insurance company .

(5)Future needs= The insurance is also necessary for compensating the future needs like old age needs etc. A person can make small savings in the form of insurance for meetings his future requirements.

(6)Safety against business loss= The business has different types of properties and any negligence may lead to huge loss to it the only safeguard against these uncertainity losses is the insurance . 

(7)Employee welfare= Employees are the integral part of the society. The employee welfare is the responsibility of the employer . For meeting the responsibility , the employers can take various types of policies.

(8)Employment opportunity=Insurance is also business organisation . It comes under service industry . The company employs large number of persons . Even the unemployed persons get their livelihood of they work sincerely as agents.

Fundamental principles of insurance:

  (a) Principle of Co-operation=Insurance is  a co-operative device . If one person is probability for his own losses , it cannot be strictly an insurance bcoz in insurance , the loss is shared by a group of persons who are willing to co-operate . Now, it becomes the duty and responsibility of the insurer to obtain adequate funds from the members of the society  to pay them all happening of the insured risk. Today , all the insured give a premium to join the scheme of insurance . Thus, the insured are cooperating to share the loss of an individual by payment of a premium in advance.

(b)Principles of Probablility= The loss in the shape of premium can be distributed only on the basis of theory of probability . The chances of loss are estimated in advance to fix the amount of premium. With the help of the principles, the uncertainity of loss is converted into certainity . The insurance will not have to suffer the loss as well have to gain snowfall . Therefore , the insurer has to charge only so much amount which is adequate to meet the losses. The probability tells what are the chances of losses and what will be the amount of losses . The inertia of large number is applied while calculating the probability.