3. Chapter Contents
1. Introduction
2. Meaning of Insurance
3. Definition of insurance
4. Nature of Insurance
5. Functions of Insurance
6. Types of Insurance
7. Evolution of Insurance
8. Why Life Insurance
4. 1. Introduction
Insurance is a tool by which fatalities of a
small number are compensated out of
funds (Premium payment) collected from
plenteous.
Insurance companies pay back for
financial losses arising out of occurrence
of insured events, e.g. in personal policy
death due to accident, in stick, explosion,
etc.
5. What is insurance?
Insurance is a contractual
arrangement whereby one party
agrees to compensate another
for losses in return for payment
of a consideration.
6. Who are the parties to an
insurance contract?
1. The party agreeing to pay for the losses
called the Insurer.
2. The party whose loss causes the insurer to
make a claims payment called the insured.
3. The payment that the insurer receives called
as a premium.
4. The contract called a policy of insurance.
5. The insured's possibility of loss called the
insured's exposure to loss - Risk.
7. 2. Meaning of Insurance
Commonly acknowledged phenomenon
that there are countless risks in every
sphere of life.
1. Property: Fire risk.
2. Shipment of goods: Perils of sea.
3. Human Life: Risks of death or disability.
4. And so on…….
8. 3. Definition of insurance
The term INSURANCE : A co-operative
mechanism to spread the loss caused by a
particular risk over a number of persons
who are expected to it and who agree to
ensure themselves against that risk.
Risk is, an uncertainty of a financial loss.
9. 4. Nature of Insurance
One can observe its following
characteristics:
1. Risk sharing and Risk transfer.
2. Co-operative Device.
3. Risk Assessment in Advance.
Give more details on each of above.
10. 5. Functions of Insurance
Insurers provide insurance policies.
1. Certainty
2. Protection
3. Risk Sharing
4. Assists in Capital Formation
5. Prevention of loss
11. 6. Types of Insurance
1. Classification on the basis of nature of
insurance.
2. Classification from business point of
view.
3. Classification from risk point of view.
12. Classification on the basis of
nature of insurance.
◦ Life Insurance
◦ Fire Insurance
◦ Marine Insurance
◦ Social Insurance
◦ Miscellaneous Insurance
14. Classification from risk point
of view
1. Personal Insurance
2. Property Insurance
3. Liability Insurance
4. Fidelity Guarantee Insurance
15. 7. Evolution of Insurance
The first insurers of life were the marine
insurance underwriters who started issuing life
insurance policies on the life of master and crew
of the ship, and the merchants.
The early insurance contracts took the nature of
policies for a short period only.
The underwriters issued annuities and pension
for a fixed period or for life to provide relief to
widows on the death of their husbands.
The first life insurance policy was issued on 18th
June 1583, on the life of William Gibbons for a
period of 12 months
16. 8. Why Life Insurance
1. Covers the risk of death.
2. Encourages compulsory savings.
3. Easy settlement and protection against creditors.
4. It helps to achieve the purpose of the life assured.
5. Peace of mind.
6. Loss control.
7. Social benefits.
8. Investment of funds.
9. Invisible earnings.
10. Insurance facilities liquidity.
11. Loan facility and tax relief.