CHAPTER FOUR
INTRODUCTION TO
INSURANCE
Prepared by-
Fatema Afreen
Faculty Member
Premier University
INSURANCE
Chapter Outline:
Meaning of Insurance
Nature / Features of Insurance
Scope of Insurance
Role / Importance of Insurance
Essentials of Insurance Contract
Types of Insurance Organization
Reinsurance & Double Insurance
Meaning of Insurance:
In simple words, insurance is a
contract. It is a legal contract
between two parties, where---
one party ensure other party to pay
compensation against loss arising out
of particular risk; and
other party ensure to pay fixed
amount of premium to get
compensation against loss arising out
of that risk.
contd.
So, usually there are two parties in
an insurance contract which are---
Insurer, who ensure to pay
compensation,
and
insured, who pay premium to get
compensation.
contd.
According to M. N. Mishra,
“Insurance is defined as a
cooperative device to spread the loss
caused by a particular risk over a
number of persons
who are exposed to it and who agree
to ensure themselves against that
risk.”
Nature / Features of Insurance:
a. Sharing of risk
b. Co- operative device
c. Value of risk
d. Payment of contingency
e. Amount of payment
f. Large number of insured persons
g. Insurance is not a gambling
h. Insurance is not charity
Scope of Insurance:
Scope or classification of insurance
can be made in two ways,
A. Branch-Wise Classification
B. Subject Matter-Wise Classification
contd.
A. Branch-Wise Classification:
1. Marine:
a) Hull
b) Cargo
c) Freight
2. Fire:
d) Loss, damage or destruction by fire
and other special perils to material
property;
e) Loss of profit or consequential loss
arising out of such material damage
contd.
3. Life:
a) Ordinary life assurance
b) Industrial life assurance
c) Annuity
d) Group life assurance and pension
e) Personal accident insurance
contd.
4. Accident:
a) Personal accident
b) Burglary
c) Motors
d) Employers’ liability
e) Public liability
f) Product liability
g) Cash – in safe and transit
contd.
h) Professional indemnity
i) Erection all risk & contractors all
risk
j) Boiler and electrical plant
insurance
k) Aviation insurance
l) Glass insurance
m) Crop insurance
n) Credit insurance
o) War risk insurance, etc.
contd.
B. Subject Matter-Wise Classification:
a) Insurance of person
b) Insurance of property
c) Insurance of liability
d) Insurance of interest
Role / Importance of Insurance:
A. Uses to an individual
B. Uses to business
C. Uses to society
contd.
A. Uses to an individual:
a) Insurance provides security and
safety
b) Insurance affords peace of mind
c) Insurance protects mortgaged
property
d) Insurance eliminates
dependency
e) Life insurance encourages saving
contd.
f) Life insurance fulfils the needs of a
person
i. Family needs
ii. Old age needs
iii. Re-adjustment needs
iv. Special needs
contd.
B. Uses to business:
a) Uncertainty of business losses is
reduced
b) Business efficiency is increased
c) Key man indemnification
d) Business continuation
e) Welfare of employees
contd.
C. Uses to society:
a) Wealth of the society is protected
b) Economic growth of the country
c) Reduction in inflation
Essentials/ Nature/Elements of
Insurance Contract:
A. Nature of General Contract:
a. Agreement (offer & acceptance)
b. Legal consideration
c. Competent to make contract
d. Free consent
e. Legal object
contd.
B. Nature of Special Contract:
a. Insurable interest
b. Utmost good faith
c. Principle of indemnity
d. Doctrine of Subrogation
e. Warranties
f. Proximate cause
g. Assignment or transfer of
interest
h. Return of premium
Types of Insurance
Organization:
a. Self-insurance
b. Individual insurer
c. Partnership
d. Joint stock companies
e. Co-operative insurance
organization
f. State owned organization
Reinsurance:
Reinsurance occurs when multiple
insurance companies share risk by
purchasing insurance policies from other
insurers to limit their own total loss in case
of disaster.
It is a process whereby one entity (the
reinsurer) takes on all or part of the risk
covered under a policy issued by an
insurance company in consideration of a
premium payment. In other words, it is a
form of an insurance cover for insurance
Double Insurance:
Double insurance is a type
of insurance where the same subject
matter is insured more than once. In
case of loss the insured can claim
from both the insurers and the
insurers are liable to pay under their
respective policies.
