Concept Of Insurance
Human life is full if risks and uncertainties, which result in fear, anxiety and unpleasantness. Such risks and uncertainties may cause the loss of life and properties. Nobody knows beforehand when a loss will occur and how much serious that loss will be. The uncertainties that may cause losses are known as risks. People always want protection against such risks.
Human being always tries to avoid and reduce the risk. Likewise, business also face numerous kinds of risks. Hence, they need to have a good understanding of the causes of risks and the methods of handling them. Risk cannot be completely eliminated, but there is a device to cover the loss of the financial risk which is known as insurance. Insurance is a technique to swap the risk of financial losses.
Meaning of Insurance
Insurance is a legal contract between two parties which protects people from risks arising from loss of life, or failure of business, or loss from other risks. It is the cooperative way of offering security against the possible risks and losses that may occur in future. Financial losses may occur in future due to unpredictable reasons. Insurance is a system which compensates the insured party by transferring the risks to an organization known as insurance company.
Insurance is based on pooling system. A large number of people combine together to reduce or to compensate the future losses of any one of them. They contribute smaller amount of money called premium. Pooling system helps in spreading out the risk over a large number of members. Insurance companies act as channels for collecting premium and indemnifying losses.
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Insurance has become the most important risk-handling method in modern age. The party doing insurance business is called insurer. An insurer promises to indemnify the losses in return for a consideration called premium. Insured is a party who takes insurance policy against the risk of life and property. Premium is the expense for the insured and income for the insurer.
Therefore, it can be stated that insurance is a written contract or agreement between insured and insurer according to which the future risks of the insured are transferred to the insurance company or insurer. For shifting the risk, insured pays premium and the insurer agrees to compensate in lump-sum for losses which may occur in future on account of risk of fire, accident, earthquake, theft, injury or death. Hence, insurance is a organized and cooperative device which stands against the risks and losses of human life and property.
Therefore, it can be stated that insurance is a written contract or agreement between insured and insurer according to which the future risks of the insured are transferred to the insurance company or insurer. For shifting the risk, insured pays premium and the insurer agrees to compensate in lump-sum for losses which may occur in future on account of risk of fire, accident, earthquake, theft, injury or death. Hence, insurance is a organized and cooperative device which stands against the risks and losses of human life and property.
