27 Do all the above risks worry you? You need not Panic as insurance can provide a cover against all the above risks, > In the first situation, motor insurance can Provide you with a cover against tisks related tc your car, > In the second situation, life insurance can Provide you with a cover against risks related to your life. If you fall sick, health insurance provides you the Medical costs. » In the third situation, fire/ property insurance can provide you with a cover against risks related to your business, Diagram 1: Types of Insurance Motor Insurance Life Insurance General Insurance So, to protect yourself from the risks associated with the assets and to continue enjoying benefits from it, you need insuranee i For your general awareness A] Assets are economic resources. Anything tangible or intangible that is capable of being owned or controled to produce value and that hone to have positive Of value thet is Considered an asset. Simply stated, assets represere ownership OF value that can be converted into cash (although eash itself also considered an asset) 1.2 Concept of Insurance ‘The business of insurance is related to the protection of the economic value of from ie snesstt is valuable to the owner because they get income or benefits from it in the form of comfort and convenience, > In the first situation, owning the car as an asset does not give the end user comes netary income. But at the same time, the car provides the owner comfort and convenience in transportation,28 } Inthe second situation, a human life is an income generating asset. > Inthe third situation, the business owner can sell finished goods and generate income. So here the business is an income generating asset. This includes the ses and the contents of the building like machinery, raw and finished ‘Therefore, in all the above three situations, the owner would be interested in the continued enjoyment of the benefits from these assets ‘All the assets have timelines and cannot be expected to last forever. So the benefits provided by these assets will last only for a certain period of time. In the above situations, the car as an asset has a life-time of say 10 years or 15 years. Hurman beings work until the age of 60 years, which is the normal retirement age, ‘After retirement the monthly salary income benefit will not be available. During its life time, the asset will be exposed to certain risks such as: > the car can be stolen > a human being can fall ill or die the business can be destroyed by fire If any of the above happens, the owner and those enjoying the benefits from these assets will be deprived of the benefits. At the same time, there may be no immediate substitutes ready. Also any substitution would involve an unforeseen economic burden. This may lead to an adverse or unpleasant situation. In such Situations, insurance comes in handy. Insurance is a mechanism that helps to reduce the financial effects of such adverse situations. ‘Arinsurance company (referred to usually as the insuret) promises to pay to the owner (insured) or beneficiary of the asset, a certain sum of money (sum seured), if-a loss occurs, so that they may try to ensure continuance of the financial benefits. The insured pays a certain amount (consideration) to the insurance company for bearing the risk, which is known as premium. Insurance can also be defined as a co-operative arrangement to spread the loss caused by a particular risk over a large number of people who are exposed to it, in exchange for a small sum of money29 Insurance can also be defined as a process of transferring the risk from someone Who cannot bear it, to someone who has the capacity to bear for such tisk, in return for a consideration, _— es In simple terms, insurance is: > a process of; > Passing or transferring the risk of incurring loss by the owner (who cannot bear the risk) of an asset; > to the other party (insurance company) who can bear the tisk: > in return for a consideration (premium). (Ap accident or an event like fire may happen or may not happen, ‘The owner can {ake precautionary steps to prevent the event. But still there is likelihood that x _—_—_— Question 1 The proposer pays a consideration to the insurance company for bearing the risk on his behalf. What is this consideration known as? A. Enrollment fee Be Premium C. Installment D. Bonus eos