INSTITUTE OF SCIENCE AND TECHNOLOGY

CA2 for Even Semester-2023

TOPIC NAME:- CONCEPT OF RISK COVERAGE AND

INSURANCE

NAME : RITTIK SHEE

ROLL NO: 32109322005
SUBJECT NAME: HEALTH INSURANCE
SUBJECT CODE: MHA-(N)-302
SEMESTER: 3RD
DEPARTMENT: MANAGEMENT(MHA)
 ABSTRACT

The project report entitled- “CONCEPT OF RISK COVERAGE

AND INSURANCE” is completed and submitted in the partial
fulfillment of the requirements for the award of degree in
MASTER OF HOSPITAL ADMINISTRATION.

Under the guidance of our teacher MITTHUN DAS

INTRODUCTION
People seek security. A sense of security may be the next basic goal after food, clothing, and
shelter. An individual with economic security is fairly certain that he can satisfy his needs (food,
shelter, medical care, and so on) in the present and in the future. Economic risk (which we will
refer to simply as risk) is the possibility of losing economic security. Most economic risk
derives from variation from the expected outcome.

One measure of risk, used in this study note, is the standard deviation of the possible outcomes.
As an example, consider the cost of a car accident for two different cars, a Porsche and a Toyota.
In the event of an accident the expected value of repairs for both cars is 2500. However, the
standard deviation for the Porsche is 1000 and the standard deviation for the Toyota is 400. If
the cost of repairs is normally distributed, then the probability that the repairs will cost more than
3000 is 31% for the Porsche but only 11% for the Toyota.

Modern society provides many examples of risk. A homeowner faces a large potential for
variation associated with the possibility of economic loss caused by a house fire. A driver faces
a potential economic loss if his car is damaged. A larger possible economic risk exists with
respect to potential damages a driver might have to pay if he injures a third party in a car
accident for which he is responsible.

Historically, economic risk was managed through informal agreements within a defined
community. If someone’s barn burned down and a herd of milking cows was destroyed, the
community would pitch in to rebuild the barn and to provide the farmer with enough cows to
replenish the milking stock. This cooperative (pooling) concept became formalized in the
insurance industry. Under a formal insurance arrangement, each insurance policy purchaser
(policyholder) still implicitly pools his risk with all other policyholders. However, it is no longer
necessary for any individual policyholder to know or have any direct connection with any other
policyholder.
TYPES OF RISK IN INSURANCE
The different types of risk in insurance are as follows:

 Financial Risk: Financial risk is a risk whose monetary value of a loss on a particular event
can be measured. The loss assessment can carry out; thus, proper monetary value can be
given regarding such losses. We can take, for example, the loss associated because of
material damage to the property upon the happening of an event. Therefore, these risks can
be insured and are the core subject while doing insurance.
 Non-Financial Risk: Non-financial risk is a risk whose monetary value of a loss on a
particular event cannot be measured. Loss assessment is practically not feasible; thus, one
cannot measure the same in monetary terms. A wrong decision or choice may result in
probable disliking, discomfort, or embarrassment, which could not be measured in
monetary terms. This risk cannot insure. An example of non-financial risk is the wrong
selection of the type of mobile phone.
 Speculative Risk: Speculative risk is the uncertainty regarding an event being considered
and the happening or non-happening of such event would lead to either profit or loss. This
type of risk is generally not insurable. An example of this type of risk is purchasing the call
option of any stock. The option’s price will depend upon the movement of the associated
stock and the time to expiry of the contract.
 Pure Risk: Pure risk relates to the happening of any event which would lead to either loss
to the person or may end up in a break-even situation. It will not lead to profit in any
circumstances. These types of risks are insurable and non-controllable. This type of risk
generally arises in a natural calamity, fire, etc. Upon any natural calamity, it would not,
under any circumstances, end up generating profits because of such calamity.
 Fundamental Risk: Fundamental risk is the risk that is intrinsic to the state of being, or it
may be an absolute hazard, thus producing no such uncertainty about the loss. The
happening of such an event is not under the control of any person. The origin of this type of
risk is on an individual level, and its impact can also be felt at a localized level. We can
take, for example, the event of an accident on a bus.
 Static Risk: Static risk is the risk that does not involve losses caused by changes in the
business environment and remains constant over the period, i.e., the risks associated with
the losses that would cause a stable economy. Any unexpected natural event or destructive
human behavior mainly causes it. For example, the risk that damage will be caused due to
heavy rains is covered under the static risk.
 Dynamic Risk: Dynamic risk associates losses with a stable economy. It affects a large
number of individuals as it does not occur regularly. For example, the risk that failure will
be caused due to changes in the technology is covered under the dynamic risk.
 Particular Risk: Particular risk can refer to the risks that affect only an individual & not
everyone in the community. For example, if any person’s assets are stolen, the loss falls on
 that person only and not on anyone else. Thus risks are the responsibility of the person, not
the society as a whole.

FEATURES OF INSURANCE COVERAGE

Insurance coverage has the below mentioned salient features:

 It is a kind of risk management plan to use an insurance policy as a hedge against an

uncertain loss
 Insurance coverage does not mitigate the magnitude of loss one may face. It only assures
that the loss is shared and distributed among multiple people
 Various clients of an insurance company pool in their risks. Hence, they pay the
premiums together. So when one or a few incur a financial loss, the claimed money is
given out of this accumulated fund. This makes each client bear a nominal fee
 Insurance coverage can be provided for medical expenses, vehicle damage, property
loss/damage, etc. depending on the type of insurance
 Premium, policy limit, and deductible are the main components of an insurance coverage
policy. The policy buyer should check them thoroughly while buying an insurance policy

BENEFITS OF INSURANCE COVERAGE

Insurance is a risk management tool not only benefits the individual and businesses but also
benefits the society and economy in numerous ways. Following are some of the important
benefits of insurance:

1. Provides peace of mind:

Insurance provides protection against various uncertainties that can put you or your
family in financial crisis. By covering the uncertainties of human life and businesses,
insurance provides a sense of security. Having life insurance gives you peace of mind
that the financial stability of your family will remain intact even when you are not
around. Having health insurance gives you a sense of security that you do not need to
shell out all your savings in the event of medical emergencies.
2. Promotes risk control:
As insurance works on risk transfer mechanism, it promotes risk control activity.
3. Promotes economic growth:
As insurance funds are invested in various projects like water supply, power and roads
etc, it contributes to the overall economic growth of the nation. Also, insurance provides
employment opportunity to people. Insurance contributes to economic growth in many
other ways such as getting Foreign Direct Investment, paying taxes on the profit earned
and by investing in the capital market etc.
4. Distribution of risk:
Risk of insurance is spread across various individuals and organisation instead of
concentrating on only one.
5. Helps to get loan easily:
There are loan facilities offered against insurance policies. In case of home loans, having
an insurance cover can help to get the loan easily from the lender.
6. Inculcates savings habit:
There are many life insurance products that come with investment cum protection
benefit. Such products inculcate a regular saving habit among individuals. Plans like
endowment insurance plans help in achieving long-term financial goals. Pension plans
help to receive regular income flow in older age.
7. Provides tax benefit:
Insured gets the tax benefits for premium paid depending on the insurance product type.
For example, the premium paid towards life insurance plans qualifies for tax deduction
under Section 80C of the Income Tax Act. And, the premium paid towards health
insurance plans qualifies for tax deduction under Section 80D of the Income Tax Act.
8. Financial safety for the family:
One of the biggest benefits of having insurance is that you can safeguard your family. For
example, a life insurance policy pays out a lump sum death benefit to your loved ones in
case of your death, which can help them sustain a comfortable livelihood.
9. Safety of financial status:
The right insurance policy can assure your safety if an unforeseen accident brings
financial burdens on you. Be it your own safety or the safety of your business, property or
valuables, in case of a mishap; you would not have to dig up your hard-earned savings.
 10. Wealth creation goals:
In the case of a comprehensive life insurance plan, you receive a maturity benefit at the
time of maturity. This amount, generally received in a lump sum, can be very helpful in
fulfilling a number of financial requirements. For example, as a retirement fund, money
to buy a house, go on a foreign holiday or pursue your hobbies.
11. Wealth preservation:
An insurance policy can be instrumental in managing and safeguarding your financial
future. Suitable plans can help in reducing the risk element in your financial portfolio. It
can eliminate uncertainties or offer you the funds to manage them without disturbing
your savings.
12. Wealth distribution
When more and more people opt for insurance, the insurance ecosystem gets help at
large. It helps in spreading out the risk, thus making the insurance premiums more
affordable for everyone.

DISADVANTAGES
Some disadvantages of the concept are as follows:

 The premium costs rise with the rise in risk. The policyholders need to bear the high risk
insurance.
 The policies may have a number of deductibles, exclusions and out of pocket expenses which the
policyholders should be aware of while taking the insurance.
 The process of claim disbursement may be complex and time consuming involving a lot of
documentation and investigation.
 Sometimes individuals or companies may end up taking multiple insurance policies for same
risk, resulting in payment of extra premium.

Thus, it is necessary to check both the benefits and limitations of risk insurance policies so that it
is possible to make informed decisions.

COMPONENTS OF LIFE INSURANCE:

When trying to learn what insurance is, it is important to understand its different components.
Now that you have gone through the insurance meaning, take a look at some of its components
too:
 1. Long-lasting coverage:
When it comes to life insurance definition, coverage is an important component. Life
insurance coverage can be permanent and last a lifetime. There are policies that can cover
you till the time you turn 100 years, making it a secure way of leaving a legacy behind.
2. Death benefit:
The worry of your family being financially vulnerable in your absence can be a major
concern for the primary earner. The death benefit helps build a safety wall around your
family that would help them manage their lives comfortably without compromising on
their dreams and aspirations.
3. Leveled premiums:
One of the most important components of your life insurance policy is the premium. The
premium depends on the chosen sum assured, the frequency of premium payment, and
the policy’s tenure. However, a great feature of a life insurance policy is that the
premium remains constant throughout the term of the policy. It is, therefore, often
recommended that life insurance should be purchased as early in life as possible.
4. Maturity benefit:
A number of life insurance policies come with the option of a maturity benefit, where a
maturity benefit is payable if the insured individual survives the policy term. Thus, the
policy acts as an investment vehicle that offers guaranteed and/ or non-guaranteed
benefits.
5. Liquidity:
Comprehensive life insurance plans also allow liquidity in partial withdrawals in Unit
Linked Plans or loans against the collected surrender value post a specified policy period
for Endowment Plans. This makes your policy act as an emergency fund that you may
use in case you need some financial help.

MUST-HAVE LIFE INSURANCE POLICIES

Insurance plays an important role in our lives. Be it a life insurance policy, or a motor insurance,
having insurance coverage helps us financially in different stage of our lives.

Listed below are different types of insurance coverage that one should have:

Term Insurance Plan:

This is the purest form of life insurance wherein you pay a premium towards the policy, and in
case of your death during the policy tenure, the nominee receives the sum assured. With term
insurance, you can receive high coverage against a lower premium. iSelect Smart360 Term
Plan by Canara HSBC Bank of Commerce Life Insurance offers critical illness cover against 40
 listed illnesses.
Health Insurance Plan:

Knowing the rising cost of healthcare and the number of diseases you can have, it is wise to have
a financial cushion against health contingencies. A health insurance plan will cover the expenses
of your healthcare expenses as per the health policy that you have.
Motor Insurance:

A motor insurance is mandatory for those who own a vehicle in India. It is compulsory to avail
of a third-party liability motor insurance. However, you can have a comprehensive package –
personal accident cover that offers coverage against the risks of damage.
Home Insurance:

Your home is exposed to various kinds of risk like theft, damage due to natural calamity, etc.
Hence to protect your home against such damages, you must avail of home insurance.
Such insurance plans will help you stay afloat even after a costly mishap or calamity.

TAX BENEFITS OF INSURANCE

Along with providing financial security, insurance also offers tax benefits. Here are some of the
tax benefits offered by insurance:

1. You can claim a life insurance premium of up to Rs 1.5 lakh under Section 80C.
2. Under Section 80D, you can claim a medical insurance premium of up to Rs 25,000 for self and
family and additional Rs 25,000 for parents. The deduction limit rises to Rs 50,000 if the insured
are senior citizens.
3. Under Section 10(10D), the life insurance benefits you or the nominee receives from the
insurance company are tax-exempted. This means both maturity value and death benefit received
from a life insurance policy will be tax-free.
CONCLUSION
In this report concept of risk coverage and insurance is a way to systematically solve the research
problem. It may be understood as a science of studying how research is done scientifically. In it
we study the various steps that are generally adopted by a researcher in studying his research
problem along with the logic behind them.
REFERENCE
 www.google.com

 www.wikipedia.com