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Insurance, Definition of Insurance, Characteristics of Insurance, Nature of Insurance, Functions of Insurance


Insurance: in law and economics, is a
form of risk management primarily used to hedge against
the risk of a contingent, uncertain loss. Insurance is defined as
the equitable transfer of the risk of a loss, from one entity to another, in
exchange for payment. An insurer is a company selling the
insurance; an insured or policyholder is the person or
entity buying the insurance policy. The insurance rate is a factor
used to determine the amount to be charged for a certain amount of insurance
coverage, called the premium. Risk management, the practice of
appraising and controlling risk, has evolved as a discrete field of study and
practice. The transaction involves the insured assuming a guaranteed and
known relatively small loss in the form of payment to the insurer in exchange
for the insurer’s promise to compensate (indemnify) the insured in the case
of a large, possibly devastating loss. The insured receives a contract
called the insurance policy which details the conditions and
circumstances under which the insured will be compensated.

General Insurance: Insuring anything other than
human life is called general insurance. Examples are insuring property like
house and belongings against fire and theft or vehicles against accidental
damage or theft. Injury due to accident or hospitalisation for
illness and surgery can also be insured. Your liabilities to others arising
out of the law can also be insured and is compulsory in some cases like motor
third party insurance.

Definition of Insurance

  • Insurance
    is a cooperative form of distributing a certain risk over a group of
    persons who are exposed to it. – Ghosh and Agarwal
  • 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. – Justice Tindall
  • Insurance
    may be described as a social device whereby a large group of
    individuals, through a system of equitable contributions, may reduce or
    eliminate certain measurable risks of economic loss common to all
    members of the group. – Encyclopedia Britannica
  • Insurance
    is an instrument of distributing the loss of few among many. – Disnadle
  • The
    collective bearing of risk is Insurance. – W. Beverideges
  • A
    provision which a prudent man makes against fortuitous or inevitable
    contingencies, loss or misfortune. – Thomas
  • Insurance
    is a device for the transfer to an insurer of certain risks of economic
    loss that would otherwise come by the insured. – Allen Z. Mayerson
  • Insurance
    has been defined as a plan by which large numbers of people associate
    themselves, to shoulders of all, risks attach to individuals. – Magee
    D.H.
  • Insurance
    may be defined as a social device providing financial compensation for
    the effects of misfortune, the payments being made from the accumulated
    contribution of all parties participating in the scheme. – D.S. Hansell
  • Insurance
    by lessening uncertainty, frees the individual from same element of
    risk. – Relph H. Wherry & Monroe Newman
  • Insurance
    is purchased to offset the risk resulting from hazardous which exposes a
    person to loss. – Robert I. Mehr and Emerson
    Cammack
  • Insurance
    is a contract by which one party, for a compensation called the premium
    assumes particular risk of the other party and promises to pay to him or
    his nominee a certain or ascertainable sum of money on a specified
    contingency. – E.W. Patterson

Characteristics of Insurance

  1. It is a contract for
    compensating losses.
  1. Premium is charged for
    Insurance Contract.
  1. The payment of Insured
    as per terms of agreement in the event of loss.
  1. It is a contract of
    good faith.
  1. It is a contract for
    mutual benefit.
  1. It is a future
    contract for compensating losses.
  1. It is an instrument of
    distributing the loss of few among many.
  1. The occurrence of the
    loss must be accidental.
  1. Insurance must be
    consistent with public policy.

Nature of Insurance

  1. Sharing of Risks
  1. C0-operative Device
  1. Valuation of Risk
  1. Payment made on
    contingency
  1. Amount of Payment
  1. Large Number of
    Insured Persons
  1. Insurance is not
    gambling
  1. Insurance is not
    charity

Functions of Insurance

  • Primary Function
  1. Provision of certainty
    of payment at the time of loss
  1. Provision of
    protection
  1. Risk sharing
  • Secondary Function
  1. Prevention of loss
  1. Provision of Capital
  1. Improvement of
    efficiency
  1. Ensuring welfare of
    the Society

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