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Insurance
There are no certainties or guarantees in life. There is no guarantee that the
business will not suffer an unexpected loss or damages. So while we cannot
protect our interests against all risks, we can opt for some insurance. Let us take a
look at concepts of insurance and functions of an insurance company.
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Select the option from the choices given below:A policy of insurance which covers definite risk is
called ____ policy.
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Insurance
Insurance is defined as a contract, which is called a policy, in which an individual
or organisation receives financial protection and reimbursement of damages from
the insurer or the insurance company. At a very basic level, it is some form of
protection from any possible financial losses.
The basic principle of insurance is that an entity will choose to spend small
periodic amounts of money against a possibility of a huge unexpected loss.
Basically, all the policyholder pool their risks together. Any loss that they suffer
will be paid out of their premiums which they pay.
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2] Protection
Insurance does not reduce the risk of loss or damage that a company may suffer.
But it provides a protection against such loss that a company may suffer. So at
least the organisation does not suffer financial losses that debilitate their daily
functioning.
3] Pooling of Risk
In insurance, all the policyholders pool their risks together. They all pay their
premiums and if one of them suffers financial losses, then the payout comes from
this fund. So the risk is shared between all of them.
4] Legal Requirements
In a lot of cases getting some form of insurance is actually required by the law of
the land. Like for example when goods are in freight, or when you open a public
space getting fire insurance may be a mandatory requirement. So an insurance
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company will help us fulfil these requirements.
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5] Capital Formation
EXAMS
The pooled premiums of the policyholders help create a capital for the insurance
company. This capital can then be invested in productive purposes that generate
income
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Principles
CONCEPTS of Insurance
If it is later discovered that some such fact was hidden by the insured, the insurer
will be within his rights to void the insurance policy.
2] Insurable Interest
This means that the insurer must have some pecuniary interest in the subject
matter of the insurance. This means that the insurer need not necessarily be the
owner of the insured property but he must have some vested interest in it. If the
property is damaged the insurer must suffer from some financial losses.
3] Indemnity
Insurances like fire and marine insurance are contracts of indemnity. Here the
insurer undertakes the responsibility of compensating the insured against any
possible damage or loss that he may or may not suffer. Life insurance is not a
contract of indemnity.
4] Subrogation
This principle says that once the compensation has been paid, the right of
ownership of the property will shift from the insured to the insurer. So the
insured will not be able to make a profit from the damaged property or sell it.
5] Contribution
This principle applies if there are more than one insurers. In such a case, the
insurer can ask the other insurers to contribute their share of the compensation. If
the insured claims full insurance from one insurer he losses his right to claim any
amount from the other insurers.
6] Proximate Cause
This principle states that the property is insured only against the incidents that
are mentioned in the policy. In case the loss is due to more than one such peril,
the one that is most effective in causing the damage is the cause to be considered.
Ans: India’s economy has been in a boom for the last two decades. There has been
increased manufacturing and financial activities. This, in turn, has triggered a
rapid growth in the insurance sector as well.
In the year 2000, the authorities allowed private companies to be a part of the
insurance business. Today there are 13 companies in life insurance and 13 in
general insurance. The most prominent one is of course LIC. And then there are
other major players like New India, Tata AIG, Bajaj Allianz, ICICI Lombard etc.
Types Of Insurance
EXAMPLE DEFINITIONS FORMULAS
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