INSURANCE

I N S U R A N C E

Insurance in broad terms may be described as a method of sharing financial losses of few from  a common fund who are equally exposed to the same loss.

Example

n  Say 1000 motor cars valued @ 300000/- are observed over a period of five years. On an average say per year two are total loss by accident. Then the total annual loss  would be Rs.600000. If the loss is to shared by all the thousand owners then they have to contribute Rs.600/-

n  The loss experience will be established by taking the past experience, geographical area in which the vehicles are used and density of traffic.

What is insurance?

The definition of insurance can be made from two points:

ž  Functional definition.

ž  Contractual definition.

FUNCTIONAL DEFINITION

ž  Insurance is a co-operative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to insure themselves against the risk.

Contractual Definition

ž  In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.”

TYPE OF INSURANCE

LIFE   INSURANCE

   Life insurance is a written contract between the insured and the insurer, that provides for the payment of the insured sum on the date of the maturity of the contract or on the unfortunate death of the insured, whichever occurs earlier.

GENERAL INSURANCE

ž  General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance.