KNOWLEDGE ABOUT INSURANCE:
Insurance in UK, Insurance In USA, Inusrance World wide????
Insurance is defined as 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 ensure themselves against that risk. Risk is uncertainty of financial loss.
It should not be confused with the chance of loss which is the probable number
of losses out of a given number of exposures. It should not be confused with
peril which is defined as the cause of loss or with hazard which is a condition
that may increase the chance of loss. Finally, risk must not be confused with
loss itself which is the unintentional decline in or disappearance of value
arising from a contingency. Wherever there is uncertainty with respect to a
probable loss there is risk.
Every risk involves
the loss of one or other kind. The function of insurance is to spread the loss
over a large number of persons who are agreed to co-operate each other at the
time of loss. The risk cannot be averted but loss occurring due to a certain
risk can be distributed amongst the agreed persons. They are agreed to share
the loss because the chances of loss, i.e., the time, amount, to a person are
not known. Anybody of them may suffer loss to a given risk, so, the rest of the
persons who are agreed will share the loss. The larger the number of such
persons, the easier the process of distribution of loss. In fact; the loss is
shared by the by payment of premium which is calculated on the probability of
loss. In olden time, the contribution by the persons was made at the time of
loss. The insurance is also defined as a social device to accumulate funds to
meet the uncertain losses arising through a certain risk to a person insured
against the risk.
FUNCTION OF INSURANCE
The function of insurance can be studied can be studied into two parts
(i) primary function and (ii) secondary functions.
Primary Functions
i)
Insurance
provides certainty: Insurance provides certainty of payment at the uncertainty
of loss. The uncertainty of loss can be reduced by better planning and
administration. But, the insurance relieves the person from such difficult
task. Moreover, if the subject matters are not adequate, the self provision may
prove costlier. There are different types of uncertainty in a risk. The risk
will occur or not, when will occur, how much loss will be there? In other
words, there are uncertainty of happening of time and amount of loss. Insurance
removes all the uncertainty and the assured is given certainty of payment of
loss. The insurer charges premium for providing the said certainty.
ii)
Insurance
provides protection: The main function of the insurance is to provide
protection against the probable chances of loss. The time and amount of loss
are uncertain and at the happening of risk, the person will suffer loss in absence
of insurance. The insurance guarantees the payment of loss and thus protects
the assured from sufferings. The insurance cannot check the happening of risk
but can provide for losses at the happening of the risk.
iii)
Risk-sharing: The
risk is uncertain, and therefore, the loss arising from the risk is also
uncertain. When risk takes place, the loss is shared by all the persons who are
exposed to the risk. The risk sharing in ancient time was done only at time of
damage or death; but today, on the basis of probability of risk, the share is
obtained from each and every insured in the shape of premium without which
protection is not guaranteed by the insurer.
Secondary Function:
Besides the above primary functions, the insurance works for the
followings.
i)
Prevention of
loss: The insurance joins hands with
those institutions which are engaged in preventing the losses of the society
because the reduction in loss causes lesser payment to the assured and so more
saving is possible which will assist in reducing the premium. Lesser premium
invites more business and more business causes lesser share to the assured. So
again premium is reduced to, which will stimulate more business and more
protection to the masses. Therefore, the insurance assist financially to the health
organization, fire brigade, educational institutions and other and other
organisations which are engaged in
preventing the losses of the masses from death or damage.
ii)
Its Provides
Capital: The insurance provides capital
to the society. The accumulated funds are invested in productive channel. The
dearth of capital of the society is minimised to a greater extent with the help
of investment and loans of the insurers.
iii)
It Improves
Efficiency: The insurance eliminates
worries and miseries of losses at death and destruction of property the
carefree person can devote his body and soul together for better achievement.
It improves not only his efficiency, but the efficiencies of the masses
are also advanced
iv)
It helps Economic
progress: The insurance by protecting
the society from huge losses of damage,
destruction and death, provides an initiative to work hard for the betterment
of the masses. The next factor of economic progress, the capital, is also
immensely provided by the masses. The Property, the valuable assets, the man,
the machine and the society cannot loss much at the disaster.
DEFINITION OF INSURANCE
The definition of insurance can made
from two points: (i) functional Definition and (ii) Contractual Definition
Functional Definition:
Insurance
is 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 thus, the insurance is (a) a co-operative device to spread the
risk; (b) the system to spread the risk over a number of persons who are
insured against the risk; (c) the principle to share the loss of each member of
the society on the basis of probability of loss to their risk;; and (d) the
method to provide security against losses to the insured.
Similarly
another definition can be given Insurance is a co-operative device of
distributing losses, falling on an individual or his family over a large number
of persons, each bearing a nominal expenditure
and feeling secure against heavy loss.
Contractual Definition:
Insurance has
been defined to be that in which a sum of money as a premium is paid in
consideration of the insurer’s incurring the risk of paying a large sum upon a
given contingency. The insurance , thus, is a contract whereby (a) certain sum,
called premium , is charged in consideration, (b) against the said
consideration , a large sum is guaranteed to be paid by the insurer who
received the premium, (c) the payment will be made in a certain definite sum, ie, the loss or the policy
amount whichever may be, and (d) the payment is made only upon a contingency
more specific definition can be given as follows – Insurance may be defined as
a consisting one party (the insurer) agrees to pay to the other party (the
insurer) or his beneficiary, a certain sum upon a given contingency (the risk)
against which insurance is sought.
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