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3 Principles of Insurance

3 Principles of Insurance

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Published by Zerin Hossain

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Published by: Zerin Hossain on Jul 20, 2013
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According to law, insurance is a form of risk managementprimarily used tohedgeagainst the risk of anuncertainloss. Insurance is defined as the unbiased transfer of the risk of a loss, from one entity to another, in exchange for payment.The main objective of every insurance contract is to give financial security and protection tothe insured from any future uncertainties. Insured must never ever try to misuse this safefinancial cover. An insurer must always investigate any doubtable insurance claims. It is alsoa duty of the insurer to accept and approve all genuine insurance claims made, as early as possible without any further delays and annoying hindrances. However, insurance holds some basic principals which are to be followed by relevant parties. All factors would be discussedaccordingly.
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 The Rationale of Insurance
The advantages and the objectives of insurance are as follows:
Cover risk 
Insurance is a method of eliminating, reducing or covering risk. By insurance a person can protect himself (and his dependants) from loss arising by any uncertain incident in future (i.e.fire, accident, early death).
Small loss
Insurance converts uncertain risks to a certain sum of money. The premium is determined lessthan the value of insured item that if it is lost or destroyed then a portion of amount can beretained from the insurance. Therefore, it is the mean of reducing the loss. By insurance, a person exchanges his uncertain, heavy loss for a certain, small loss.
Expansion of insurance business
The great advantages of insurance have led in recent times to an enormous expansion of thevolume of insurance business and the evolution of many different types of insurance.
Small premium
The insurance is beneficent for both the insurer and the insured as because the amount of  premium is determined by the insurer after a cautious research on the frequency of loss for the product to be insured. Here the potential loss is defined for a huge bunch and then that isconverted for each segment of items that the insurer tends to insure. For such fixation of amount, insurer ensures own safety of not paying the whole price for future uncertaindestruction, and the insured is also gets chance to get back a certain amount after anyuncertain loss.
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It is also to be mentioned that through insurance one wants to protect him/ her against asignificant monetary loss. Interest of people stays upon this are provided below:
Protecting family after one's death from loss of income
Ensuring debt repayment after death
Covering contingent liabilities
Protecting against the death of a key employee or person in business
Protecting business from business interruption and loss of income
Protecting against unforeseeable health expenses
Protecting own home against theft, fire, flood and other hazards
Protecting own car against theft or losses incurred because of accidents
Protecting in the event of disability; and so forth.
 The Contract of Insurance
Ininsurance, the insurance policy is acontract(generally astandard form contract) between
the insurer 
the insured 
, known as the
, which determines theclaimswhichthe insurer is legally required to pay. In exchange for payment, known as
the premium
, theinsurer pays for damages to the insured which are caused by covered risks under the policylanguage.Insurance contracts are designed to meet specific needs and thus have many features notfound in many other types of contracts. The insurance policy is generally an integratedcontract, meaning that it includes all forms associated with the agreement between theinsured and insurer. The characteristics of a Contract of Insurance are enlisted below:
Essential requirements
A contract of insurance must fulfil al the essential requirements of a contract as laid down inthe law of contract. Thus, there must be a proposal and an acceptance, the parties must becapable of contracting, the objective must not be illegal or immoral.
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