meaning of insurance – Definition of insurance – Type of insurance

meaning of insurance

Insurance is a contract between two parties whereby one party who insures is called the insurer, the other party who insures is called the insured or the insured. A promise to the beneficiary to pay a certain amount in return for a certain return called premium on the occurrence of a specified contingency against which the insured is insured.

Definition of insurance

According to Patterson, E.W.- “Insurance is a contract between two parties whereby one party assumes the specific risks of the other in exchange for a certain consideration and to pay him an amount or indemnity in the event of a specified event in the future. promises.”

According to Maggie D.H. – “Insurance under which the insurer makes a promise to pay the loss due to the occurrence of a certain event in consideration of the premium.”

Type of insurance

On the basis of name of types of insurance, subject matter or nature of insurance, insurance can be classified as follows

Life insurance

Human life is full of uncertainties. In order to survive, man has to do many activities, in which there are risks at every step. Untimely death can occur due to an accident or illness. In such a situation, the family of the deceased has to face financial difficulties. Similarly, in old age, a person does not have enough money to live comfortably, to get medical treatment. A huge amount of money is needed for the marriage of his children or for getting him higher education.

Through life insurance, we can get protection from these future situations. In this, the insurer promises to pay a fixed sum on the death of the insured or at the end of a specified period. In return, the insurer (insurance company) takes a fixed premium amount in installments. Now because the insured risk is sure to happen. Therefore, the insured person is sure to get the sum insured sooner or later. Life insurance is also called life assurance as the insured person feels safe.

Life insurance was introduced to provide protection against the uncertainties of life. But gradually its scope has been extended to health insurance, disability insurance, pension scheme etc. There are basically two types of life insurance policies. A. Life Insurance Policy and B. Endowment Insurance Policy. In life insurance policy, the premium amount has to be paid regularly for life or for a fixed period of time to the insured. Sum Assured is payable to the heirs of the insured after his death.

This policy is taken by a person who wants to provide financial assistance to his dependents after his death. On the other hand endowment insurance policy is for a fixed term i.e. in case of death of the insured on attaining a certain age or before attaining that age, the sum assured is paid by the insurance company.

Apart from the lifetime and endowment policies, many other policies were also introduced. The purpose of which is to encourage customers to invest money. The importance of protection against risks and benefits of savings are combined, their importance increases even more. Brief description of some policies-

Joint Life Insurance Policy- This policy insures the life of two or more persons jointly. In case of death of any one of them, the sum insured is payable to the surviving person(s). Generally, this policy is made on the life of husband wife or jointly on the life of two partners.

Money Back Policy- In this plan, the policyholder is paid at a certain interval of time. This is different from the normal permanent fund insurance policy in which the benefit of total payout on survival is available only after attaining a certain age. For example, if the refund policy is taken for 20 years then 20 percent of the sum assured becomes payable every five years, 10 years, 15 years and remaining 40 percent after 20th year with bonus.

Pension Scheme- Under this scheme, the amount of the policy is paid to the policy holder on survival only after the term of the policy. The sum insured or the amount of the policy is paid in installments such as monthly, half or yearly. Useful for those people who want regular income after a certain age.

Unit Plans- These plans offer the benefit of dual benefit i.e. both investment and insurance. The premium amount paid by the policyholder is spent on the purchase of shares and debentures of various companies. The maturity amount mainly depends on the market value of the investment.

Group Insurance – Group insurance plans are meant to provide life insurance cover to a few individuals at a low cost to a group of individuals. This plan is useful for any business unit or group of office workers. Life insurance in our country is done by Life Insurance Corporation of India. Which was nationalized on 19 January 1956. Now many private companies have also come from the life insurance business.
fire insurance
Fire insurance is done to get protection against damages caused by fire. Fire insurance is a contract in which the insurer promises to indemnify or compensate for the loss caused by fire in return for a premium. Fire insurance is generally done for one year. It can also be renewed every year.
Loss due to fire is paid only on fulfillment of two conditions.
the fire has actually started, and
The fire was not started intentionally but due to accident. The reason for the fire does not matter here.
A fire insurance contract is a contract of indemnity i.e. the insured cannot claim an amount more than the value of the property, damage caused by fire or the policy amount, whichever is less. Loss or damage from fire also includes loss or damage caused by efforts made to minimize the loss.
marine insurance
Today maritime trade has increased significantly, as well as its dangers have also increased. Maritime insurance is a contract in which the insurance company gives an assurance to cover the damage caused to the ship or cargo by the risk of sea voyage.

During sea voyage, the ship is exposed to various types of risk, colliding with storm, rock or any other ship etc. Maritime losses can be of three types: 1. Damage to the ship, 2. Loss of cargo and 3. Loss of freight. These losses are insured separately. Ship’s insurance is called hull insurance, freight insurance is called freight insurance (cargo) and freight insurance is called freight insurance.

Fire insurance and marine insurance are covered under general insurance. General insurance was nationalized on 13 May 1971.

meaning of insurance

meaning of insurance

Peacock Vehicle Insurance
Insurance of passenger car, van, motor cycle, scooter etc. is insurance against damage caused to the vehicle by accident, loss due to theft and liability arising out of injury or death to third parties due to the accident. In fact, insurance of the vehicle with respect to third parties is mandatory.
health insurance
This policy provides protection to the holder from expenditure on medical treatment due to illness or injury etc. This is called medical claim insurance or mediclaim insurance. It is the most popular insurance nowadays.
crop insurance
It provides protection to farmers from crop loss due to drought or flood.
cash insurance
This bank provides protection against loss due to theft or any other reason on the way to other business establishments while carrying cash from one place to another.
animal insurance
It is an insurance for the risk of loss due to death due to accident, disease etc. of cows, buffaloes, bulls etc.
theft damage insurance
In this type of insurance, the insurance company promises to compensate the insured for the loss caused by theft. Loss due to theft or dacoity means loss of movable property due to theft, theft etc.
reliability insurance
To protect against risk of loss due to misappropriation of cash or misappropriation of goods by businessmen, against the risk of dishonest or fraudulent loss of employees who handle cash or are in charge of the store Provides insurance. This is called reliability insurance.

meaning of insurance
importance of insurance
1. Protection from Risk- Insurance provides protection to the business from various risks. This protection is in the form of a provision to cover the loss to the insured.

2. Division of risk among many people – Insurance helps in sharing the risk amongst themselves. In practice, a large number of people get insurance by paying premium. This creates the insurance corpus. This fund is used to compensate those who actually suffer this loss. In this way the loss is distributed among a large number of people.

3. Helpful in taking loans – Banks and financial institutions generally insist on insuring those goods and properties, against which they are giving loans, before giving loans. In this way insurance makes it easier to get loans and advances from financial institutions.

4. Protection from liability under various labor laws- Insurance provides protection to the practitioner at the time of payment of compensation in case of accident to the employees causing serious injury, disability or illness and in case of maternity etc.

5. Contribution to Economic Development- Money deposited with insurance companies is invested in various types of securities and projects which contribute to the economic development of the country.

6. Availability of employment opportunities- Insurance companies provide regular employment to a large number of people. Many people earn their living by working as insurance agents.

7. Social Security- Life insurance provides protection against the risk of old age and premature death. Along with this, employees are provided social security through the Employees’ State Insurance Scheme, which includes accident insurance.

meaning of insurance

act of insurance
1. Providing certainty:- Insurance provides the certainty of meeting the loss due to the uncertainty of loss. A person can be sure of loss by doing efficient planning, but many obstacles can arise in this act. Insurance provides certainty against loss by removing the difficulties of loss. Risk is the uncertainty of loss in which it is not known when the loss will occur, how much it will happen, if the risk occurs, then the person is worried about the loss before and before that, but this type of worry ends with insurance. . The person becomes sure, for this the person has to pay a very small premium which is a very small part of the loss.

2. To provide protection:- The main function of insurance is to provide protection against possible loss as human life is full of risk. Due to various risks, it remains uncertain when and how much loss will be suffered by future disasters. In this way man feels insecurity, he wants security. Security can be achieved only when the uncertainty of risks is removed. Insurance provides protection by getting rid of this uncertainty.

3. Distribution of Risk (Loss):- The main function of insurance is the division of loss arising out of risks. Disaster or risk cannot be divided but the losses caused by them can be divided among those who want to be safe from losses. In ancient times, losses were divided at the time of risks. But those losses were to be paid later in the insurance contract. For which the share of loss from limited persons was already taken from them as premium. The premium will be calculated according to the probability of loss.

4. Prevention of Loss- Insurance does not prevent loss itself, but supports such individuals and organizations who are working to prevent loss. If the loss is reduced, then the loss will stop. The insurer will pay less. In this way he will not have to bear the loss. Loss reduction can reduce the premium rate thus helping with the development of insurance.

5. Supply of Capital- Insurance supplies capital to the society. Sufficient amount of insurance comes in the form of premium, which is appropriated to increase the production and to meet the shortage of capital to the society. In a nation like India, where there is inadequacy of capital, this work of insurance has special importance, the accumulation of capital through insurance can be done in two ways-
(1) In the absence of insurance, every person, business or organization keeps some reserves to meet the losses, which are not consumed. (2) Accumulates insurance capital.

6. Providing Financial Stability- An important contribution of insurance is that it prevents volatility from pure risks. If the facility of insurance is not available, then due to fire, accident, theft, riot, and so on, there can be irreparable loss to the business or industry running on a large scale. If there is insurance, then arrangements are made to compensate for such loss, and stability in business and industry and in society can be ensured.

meaning of insurance

act of insurance
The utility of insurance can generally be studied under personal utility, commercial, and social benefits, which are as follows.

1. Insurance Provides Protection – Insurance provides protection against loss arising out of a specified risk. In life insurance, the sum assured is paid on death or event of life. Different types of insurers are purchased for various needs of life which are related to the insured. Similarly, property insurance is related to the protection and risk of property. The insured is paid on the occurrence of a risk, the loss is paid by general insurance on the destruction or loss of property.

2. Insurance frees the person from worry- Security is the main motive of man. If the future of a person is insecure with risk, then he is always worried and does not feel like doing work, but when there is protection against loss, the person becomes free from that worry. Because he explains that the risk will not cause any loss to his family as the loss is paid by insurance. This loss can be in relation to property, life and liability. For which insurance exists in various forms. If there is no protection from risk, a person has anxiety, discouragement, mental weakness etc.

3. Insurance secures the mortgaged property – The insurance mortgage protects the property, due to the death of the person, the mortgaged property belongs to the lender, and the family suffers. On the other hand, the lender insists on insuring the property before giving the loan because it is not possible to get the payment of mortgage loan due to damage, theft etc. And the receiver suffers loss. If the properties were insured, then in case of theft due to damage to property, the loan is paid to the lender due to the insurance being given to the mortgaged property.

4. Insurance works as a helper- If there is insurance, then whether there is death of the head of the family or loss of property, there is no need to worry about both, because insurance works in case of damage. Insurance provides free from all hardships that remove such problems, which may be troublesome for the individual, as it provides relief from financial difficulties in case of risk.meaning of insurance

5. Encourages Savings and Helps in Profitable Investment – ​​Life insurance provides both savings and protection whereas in other insurances only protection is involved. The benefits of savings and investment are available in life insurance. By saving, a person becomes safe from the difficulties of old age, even if death is accidental, it helps in this. Because in that case a certain amount is paid along with other benefits as the sum insured is paid only at a certain time and occurrence of the event. Bonus is also paid along with the sum insured of life insurance as the insurer keeps on appropriating his accumulated corpus and after deducting expenses and accumulations from the income received, the remaining amount is given to the insured. Along with insurance protection, it also acts as a beneficial investment.

meaning of insurance

meaning of insurance

commercial utility
1. The uncertainty of personal losses is reduced – Insurance covers the loss due to many risks for which insurance facilities are provided. In the business world, excessive human and material wealth is used and due to a slight mistake, the wealth of billions is destroyed in a moment. To get rid of these risks, insurance is also necessary and important in the business world. Because this loss is covered by insurance and such uncertainty is removed and paid, which helps in business growth.

meaning of insurance

Insurance increases business efficiency and increases creditworthiness – By having insurance, businessmen become free from losses and work diligently. Persons engaged in business do not worry about having insurance about property etc., because the full damage is covered by insurance. Due to which the continuity of the business is maintained. Keeping insurance increases the credit, because the lender understands that even if the debtor’s death or the property held on the mortgage is lost, even then they will be paid through insurance, so the credit will increase due to insurance. may increase further.

3. Important Employee’s Insurance and Employee Welfare Facility:- The more important employee is the one in whose survival the profit and loss to the business cannot be met immediately. If the important employee is insured, the possibility of business closure or loss on his death is eliminated. On the death of the employee, his family has to pay some amount, for which the insurance buyer can pay him. Loan is also available from insurance for the management of the residence of the employees etc.
social utility
1. Protection of human and material property of society- The protection of human and material property of society can be done only through life insurance and property insurance. There is a possibility in life insurance that every person in the society keeps his future free from risk, because if his physical property is insured, there is security of property etc. If it is destroyed then the full loss will be paid by the insurance. By having insurance, there is progress in agriculture, industry, trade, transport etc., and human and material property gets protection.

2. Helpful in nation’s progress and reduction in currency spread- Insurance plays an important role in nation’s progress because through insurance, the country’s property is protected, and sufficient amount is available for investment. There are two types of reduction in insurance money spread-
Meets shortfall in money supply by collecting premium amount. Due to the decrease in the amount of currency in the nation, there is a decrease in the spread of currency, it also fulfills it.
Production can be increased by appropriating the collected premiums. Methods of social benefit of insurance are important. Because insurance provides freedom from the systematic instability of the society, and at the same time increases the stability of the standard of living and also plays an important role in capital formation.

meaning of insurance

principles of insurance

Principles of Insurance The insurance contracts of all insurances are based on certain established principles. Their brief description is given below-
doctrine of absolute good faith
Insurance contract is a contract of mutual trust. Both the insured and the insured must disclose all necessary information relating to the subject matter of insurance. For example, in life insurance, the proposer (the person interested in getting the insurance) must honestly disclose information about his health, habits, personal history, family history, etc. If material facts are suppressed, the contract will not be valid, as the risk assessment can be done only on the basis of facts relating to the subject matter of insurance.

principle of insured interest

According to this principle the insured should have an insured interest in the subject matter of insurance. Insurable interest means a financial or profit interest in the subject matter of insurance. A person is said to have an insurable interest in property or life if his continuance gives him a benefit. For example, a man has an insurable interest in his own life and that of his wife, similarly his wife has an insurable interest in her husband’s life. As far as property is concerned, the owner has an insurable interest in it. An insurable interest must exist both at the time of taking a policy in life insurance, at the time of damage in marine insurance and at the time of fire insurance.

principle of compensation

Indemnity means to compensate a person for his actual loss or to bring him back to the condition he was insured. This principle is applicable in marine insurance, fire insurance and general insurance. This is not applicable in life insurance because compensation is not possible in case of loss of life i.e. death.

The principle of indemnity means that the insured is not at liberty to make any profit from the insurance contract on the happening of the event of insurance. The compensation is paid for the actual loss or the amount insured, whichever is less. Let us understand this with an example. Suppose a person has got his house insured for Rs 20 lakh. If he had to spend Rs.5 lakh on the house for repairs due to fire damage, then he can claim only Rs.5 lakh from the insurer and not the total amount insured.

meaning of insurance

principle of contribution

A subject matter can also be insured from more than one insurer. In such a case, all the insurers will contribute in proportion to their participation in the claim amount due to the insured. If an insurer has covered the entire loss to the insured, then that insurer can demand a proportionate share of the loss from other insurers. Keep in mind that on taking multiple policies, the insured can claim compensation for the loss from any insured but the condition is that the insured cannot recover more than the amount of actual loss from all the insurers combined.

principle of substitution

According to this principle, if the claim of the insured is settled, the ownership of the subject matter of insurance goes to the insurer. In other words, if the damaged property has any value, then this property belongs to the insurer, otherwise the insured will recover more than the actual loss, which would be against the principle of indemnity. Therefore, if there is an accidental damage to goods worth Rs. 1,00,000 and the insurance company indemnifies the insured in full, the insurance company will take over the damaged goods and give him the right to sell the damaged goods. Will happen.meaning of insurance

the principle of minimizing damage

In the event of an accident, the insured should take all necessary steps to minimize the loss or damage to the subject matter of insurance. This principle ensures that the insured does not become inattentive about the safety of the insured item after taking an insurance policy. The insured is expected to behave as if the subject matter is not insured. If proper steps are not taken to save the property, the insured will not get the full compensation from the insurance company. For example, suppose a house has fire insurance and if it catches fire, the owner should make all efforts to extinguish the fire to minimize the loss. Similarly, even when insurance against theft has been done, the landlord should take all steps to prevent theft without being inattentive towards the security of the house.

Principle of Proximal Cause of Loss

According to this principle, the insured has the right to receive compensation only if the loss is caused by the same reason for which the cover was insured. In other words, if the immediate cause of loss is not the one for which it was insured, the insured cannot claim compensation from the insurance company. For example, a ship loaded with oranges was insured against loss due to an accident. The ship reached the port safely but delayed the unloading of the oranges from the ship. In this case, no compensation will be paid by the insurance company as the reason for the oranges getting damaged was the delay in unloading them and not the accident.

meaning of insurance

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