Business Studies


Concept of Insurance

  • We face risks of death and disability for human life; fire and burglary risk for property; storms of the sea for shipment of goods and, so on.
  • If any of these takes place, the individuals and/or, organisations may suffer a great loss, sometimes beyond their capacities to bear the same.
  • It is to minimise the impact of such uncertainties that there is a need for insurance.
  • Insurance is a contract under which the insurance buyer agrees to pay a certain fee for protecting it against various risks. This fee is paid to the insurance company. In return, in case of damage of the insured property, the insurance company pays a percentage of the amount to the risk bearer.
  • In the end, insurance is a form of risk management.
  • Insurance is issued under good faith from the both parties. This is because all information should be disclosed by the customer to the insurer. The insurance company should make sure the customer is aware of terms and condition of the insurance contract.
  • The functions of insurance are of providing certainty, protection, and risk sharing.


Fundamental Principle of Insurance

  • The basic principle of insurance is that an individual or a business concern chooses to spend a definitely known sum in place of a possible huge amount involved in an indefinite future loss.
  • Insurance, therefore, is a form of risk management primarily used to safeguard against the risk of potential financial loss.
  • Insurance is a social device in which a group of individuals (insured)transfers risk to another party (insurer) in order to combine loss experience, which provides for payment of losses from funds contributed (premium) by all members.


Functions of Insurance

The various functions of insurance areas follows:
(i) Providing certainty: Insurance provides certainty of payment for the risk of loss. 
(ii) Protection: The second main function of insurance is to provide protection from probable chances of loss.
(iii) Risk sharing: On the happening of a risk event, the loss is shared by all the persons exposed to it.
(iv) Assist in capital formation: The accumulated funds of the insurer received by way of premium payments made by the insured are invested in various income generating schemes.


Principles of a Valid Insurance Contract

The principles of insurance are the rules of action or conduct adopted by the stakeholders involved in the insurance business.
The specific principles of utmost significance to a valid insurance contract consists of the following:
(i) Utmost good faith: A contract of insurance is a contract of uberrimae fidei i.e., a contract found on utmost good faith. Both the insurer and the insured should display good faith towards each other in regard to the contract.
(ii) Insurable Interest: The insured must have an interest in the preservation of the thing or life insured, so that he/she will suffer financially on the happening of the event against which he/she is insured.
(iii) Indemnity:  According to it, the insurer undertakes to put the insured, in the event of loss, in the same position that he occupied immediately before the happening of the event insured against.
(iv) Proximate Cause: According to this principle, an insurance policy is designed to provide compensation only for such losses as are caused by the perils which are stated in the policy.
(v) Subrogation: It refers to the right of the insurer to stand in the place of the insured, after settlement of a claim,as far as the right of insured in respect of recovery from an alternative source is involved.
(vi) Contribution: As per this principle it is the right of an insurer who has paid claim under an insurance, to call upon other liable insurers to contribute for the loss of payment.
(vii) Mitigation: This principle states that it is the duty of the insured to take reasonable steps to minimize the loss or damage to the insured property.


Life Insurance


Fire Insurance


Marine Insurance


Burglary, Cattle, Motor and Health Insurance


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