INTRODUCTION
We are exposed to many risks in our day to day life. Nobody
can predict what may happen in the next moment. There
may be an accident, calamity, theft, loss due to certain
other cause etc. Similarly, there are always risks in business.
Everybody feels like shifting the risk to some agency which
can compensate in case of loss or damage.
MEANING OF RISK:
Risk is expressed differently by people. To some, it is the
chance or possibility of loss, to others, it may be uncertain
situations. The word ‘risk’ has been defined as follows:
“Risk is a condition in which there is a possibility of an
adverse deviation from a desired outcome that is expected
or hoped for”.
DEFINITION OF INSURANCE
CONTRACTUAL DEFINITION:
In the words of E.W. Patterson, “Insurance is a
contract by whichg one party, for a
consideration, called premium, assumes a
particualr risk of the other party and promises
to pay to him or his nominee a certain or
ascertainable sum of amount on a specified
contingency.”
IMPORTANT TERMS USED IN
INSURANCE
RISK
PERIL
CONTINGENCY
COMPENSATION
INSURANCE
POLICY
INSURER
INSURED
PREMIUM
INSURANCE
TERMS
INSURED
AMOUNT
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
FUNCTIONS
OF
INSURANCE
PRIMARY
FUNCTIONS
SECONDARY
FUNCTIONS
OTHER
FUNCTIONS
PRIMARY FUNCTIONS
Providing Cover for
Risk
Distribution of Loss
Provides Security
SECONDARY FUNCTIONS
Provides Funds for
Development
Helps in Increasing
Efficiency
Provides Certainty
Sharing of Risk
Helping
Businessmen
Helpful in Reducing
Losses
Proper Assessment of
Projects
a) Marine Insurance
b) Fire Insurance
GENERAL INSURANCE
c) Social Insurance
d) Liability Insurance
KINDS OF INSURANCE
e) Other insurance
LIFE INSURANCE
a) Double Insurance
b) Reinsurance
c)Over Insurance
OTHERS
d) Under Insurance
CHARACTERISTICS OF INSURANCE
ASSURANCE AND INSURANCE
BASIS OF DIFFERENCE
ASSURANCE
INSURANCE
1. Scope
This word is used only in Life
Insurance contract. Hence the
scope is limited.
The word is used to
describe all other types of
insurance. Hence the scope
is wider
2. Renewal of Policy
Requirement of renewal of
policy is only if policy lapse as
lifer insurance contract is a
continuing contracts.
Indemnity insurance is only
for maximum one year. It
lapses automatically after
one year. It can e renewed
every year.
3. Certainty of event
The happening of event is
certain but time is uncertain
The event is not certain. It
may happen or not.
4. Insured Sum
Insurance policies can be taken
for any amount or any number
Policy amount is equal to
the market value of
property because the
amount of indemnity
cannot be more than the
actual value of property
5. Certainty of payment of
claim
Payment of claim is
certain. It may be either
on maturity of the policy
or on the death of the
assured
Payment of claim is not
certain. It is paid only in
case of loss of the asset
insured
6. Element of Investment
There is element of
investment in assurance as
payment of sum assured is
certain either on death or
on maturity of the policy.
There is no element of
investment as certainty of
payment depends upon
the happening of element.
7. Amount of claim
Insurance company makes
the payment of policy
amount in full on the
maturity or on death
Amount of claim cannot be
more than actual loss or
amount of asset in any
case
8. Principle of
Indemnity
Principle of Indemnity is not
applicable in case of
assurance. Sum assured is
paid in full extent of amount
insured irrespective of any
profit or loss
Principle of Indemnity
is applicable. The basis
of insurance contracts
is the principle of
indemnity.
9. Assurance
Insurance companies assure
the insured to compensate in
case of maturity of policy or
death
Insurance companies
only promises to
compensate in case of
actual loss
10. Time of
Insurable interest
It is proved at the time of
Contract. It is not necessarily
be present at the time of
payment of claim
Insurable Interest must
e present at the time of
loss in case of marine
insurance.
RELEVANCE OF INSURANCE
RELEVANCE TO
AN INDIVIDUAL
RELEVANCE TO
BUSINESS
RELEVANCE TO
SOCIETY
1. Insurance provides
security, safety
2. Insurance affords peace
of mind
3. Insurance protects
mortgaged property
4. Insurance eliminates
dependency
5. It encourages savings
6. Profitable investment
7. It fulfils needs of
person
1. Uncertainty of business
losses is reduced
2. Business efficiency is
increased
3. Keyman
indemnification
4. Enhancement of credit
5. Business continuation
6. Welfare of employees
1. Wealth of the society is
protected
2. Economic growth of the
country
3. Reduction in inflation