CONCEPTS AND NEED OF INSURANCE

By: Madhu Ruhil Anjali Kansal Shikha Shivani Deepika Dogra

Definition of Insurance
In financial sense:
It is a social device in which a group of individuals (insured) transfer risk to another party (insurer) in order to combine loss experienced, which

permits statistical prediction of losses and provides for payment of losses from funds contributed (premium) by all members who transferred risk

Definition of Insurance
In legal sense:
It is a contract by which one party (Insurer) in consideration of price paid to him proportionate to risk provides security to the other party (Insured) that he shall not suffer loss, damage or prejudice by the happening of certain specified events. Insurance is meant to protect insured against uncertain events which may cause disadvantage to him

Terms Used in Insurance

Insured Insurer Premium Policy

Amount Insured or Sum Insured

Peril Insurance and Assurance Insurance Contingency

Risk

Characteristics of Insurance

It is a contract for compensating losses. Premium is charged for Insurance Contract. The payment of Insured as per terms of agreement in the event of loss.

It is a contract of good faith.

It is a contract for mutual benefit. It is a future contract for compensating losses. It is an instrument of distributing the loss of few among many. The occurrence of the loss must be accidental. Insurance must be consistent with public policy.

Role of Insurance
Uses of Insurance for an Individual:

Insurance provides peace of mind Aversion of risk Insurance protects mortgaged property

Insurance gives self-dependency

Life insurance as a tool for savings Life insurance as a tool for investment Life insurance policies satisfies various needs

Role of Insurance (cont..)

Uses of Insurance for Corporates:

Uncertainty of business is reduced Productivity is increased Increase of credit

Employees welfare

Role of Insurance (cont..)

Uses of Insurance for Society:

Protects the wealth of the country Helps in economic growth Control of inflation

Factors Influencing Demand for Insurance

For Individuals:

Need for wealth Risk aversion Premium loading

Income and wealth

Information Other sources of payment Non-monetary losses

Factors Influencing Demand for Insurance (cont..)

For Business:

Insurance Services Reducing the expected cost of financing losses Reduction of costs of financing for new investments

Reduction of tax payments

Reduction of financial distress

Nature of Insurance

As a device of sharing risk As a device of cooperation Payment on contingency Risk valuation

Payment of claim
Insurance is different from charity Large number of insured persons Insurance is different from gambling

Principles of Insurance

Principle of cooperation Principle of Probability

Importance of Insurance Business

It ensures security and safety It encourage savings It provide tax benefits It create confidence among the public It provide credit facilities to the business, individual and government

It helps in reducing the uncertainties

Co-operative method of spreading risks It helps in economic growth It helps in controlling inflation and deflation It helps in industrial development

Thank You...