INSURANCE

FUNDAMENTAL (LEGAL) PRINCIPLES OF INSURANCE...  Principles are fundamental truths. The violation of principles put the system in disorder. Therefore, they must be followed. There are some principles of insurance as well. They must be followed by both parties of the insurance contract. If they are not followed, the insurance business cannot survive. Since these principles are so fundamental, they have been incorporated in insurance laws and are known as fundamental legal principles of insurance. We describe these important principles of insurance below.  Principle of Indemnity  The principle of indemnity states that the insurer should not pay more than the  actual amount of the loss. In other words, the insured should not profit from the loss. There are two objectives of this principle. The first one is to prevent the insured from profiting from a loss, and the second one is to reduce moral hazard. For example, if Ram’s motorbike is insured for Rs 150,000 and a . part...

 TYPES OF INSURANCE...  Insurance may be classified in more than one ways. Traditionally, it used to be classified as (1') marine insurance, (ii) fire insurance, and (iii) life insurance. Marine Insurance  Marine insurance is the oldest form of insurance. It is also of two types:  ocean marine insurance and inland marine insurance. Ocean marine insurance covers ocean-going vessels and cargo from loss or damage because of perils of the sea. It also covers legal liability of the shippers and owners. Inland marine insurance covers goods being shipped on land, which include imports, exports, domestic shipments, and means of transportation.   Fire Insurance  Fire insurance covers losses caused by fire and lightning. Personal as well as commercial properties such as buildings and their contents (furniture, equipments, raw material and finished goods, etc.) can be insured against the loss from fire. Though named fire insurance, it covers risks of Windstorm, h...

 THE NATURE OF INSURABLE RISK...  The risk is at the heart of insurance. If there were no risk, there would be no insurance. But the question is does the insurance protect against all kinds of risks? Certainly, it does not. Some risks are insurable and some are not Then how do we know which risk is insurable and which is not insurable? Is it possible to compile a list of insurable risk? If we attempt to do so, the list would be endless. Therefore, it is essential to understand the nature of insurable risk. Insurable risk should meet the following requirements.  1. Fortuitous  2. Financial value  3. Large number of exposure 4. Pure risks  5. Public policy  Fortuitous  The insurable risk is fortuitous in nature. It means the happening of the event must be accidental and the loss that arises must be unintentional loss. The loss caused by wear, tear and depreciation are not insurable risk because it is not accidental. Similarly, the loss should not be...

  FUNCTIONS OF INSURANCE...  If we recall the definition of insurance, we can sense the major functions it performs. The primary function of insurance is to protect policyholder individuals and corporations from adverse events. By accepting premiums, insurance companies promise policyholders compensation if certain specified events occur. In this process, the insurance does the following:  1.Risk transfer 2.Creation of common pool  3.Equitable premium  Risk transfer  The most important function of insurance is risk transfer. Insurance transfers the risk borne by the insured to the insurer. For example, think of your house and the shop your family run in your own house. Think of the car your family has purchased recently. Your house and the shop may catch fire and the car may be stolen. The potential risk of fire and theft may bring severe financial consequences to your family. By insuring your house and business against fire, and the car against theft; you ...

  EVOLUTION OF INSURANCE  A mechanism of sharing loss of one by many is as old as the human civilization. The Hindus refer to the Reegbed- their most sacred book, which describes the concept of 'Yogakshema’ which refers to the provision of security against risk. The Westerners record a form of insurance in early Rome where Romans gathered together in burial societies. They all contributed to a fund and the members of the pool had their burial cost met by the society. But the concept of insurance, as we understand it today, is not that old. In the following section we describe the evolution of three important form of insurance- marine insurance, life insurance and fire insurance.  Marine Insurance   Historians have uncovered evidence suggesting ,that some sharing of losses did exist among seafarers as early as the 9th century BC (Holyoake and Weipers). However, its development in England is well recorded only after 17th century. In the 17th century, insurance of ship...

MEANING AND DEFINITION OF INSURANCE...  What is insurance? Why do people insure? What does an insurance company do? After studying this article you will have answers to these and many other similar questions. Suppose your father purchased a bike for you. When you drive the bike you follow the traffic rules; when you park in the parking space you lock the bike.Why do you follow the traffic rule? The reason is obvious- you want to avoid accident causing loss to you and your bike. why do you love the bike? you want to protect the buy from being stolen. But unfortunately, your efforts reduce the risk of meeting accidents and the risk of the bike being stolen, but they don't eliminate the chances these events taking place. Here lies the role of insurance. To protect from the loss from these events you can insure your bike with an insurance company. For that you will have to approach an Insurance Company, request to get your bike insured and pay money for that. In return, the insurance c...