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Introduction to Insurance

By Edited Jun 6, 2015 0 1

INSURANCE:

Every underlying asset has its own value. These assets have been created by the efforts of its owner, through which he derives an income or benefit.Each and every asset has its own lifetime. Therefore the owner should replace that asset when it becomes non functional. Otherwise the owner cannot derive the income or comfort from that asset. This is normal regarding to all assets and the owner should make proper arrangements to safeguard him against that event.

Sometimes unexpected event may take place and destroy the asset far before the expected lifetime of the asset. In such cases the owner incurs an unexpected loss which is unbearable.

Here is the place where insurance plays an important role. Insurance is the mechanism that lessens such loss by spreading the loss to large number of persons who is exposed to the same type of risk.

Insurance is nothing but the process of sharing of loss. It spreads the loss of a few people to many people who face the same risk.There should be uncertainty on the occurrence of an event in order for it to be insured. If there is no uncertainty, there is no insurance.

INSURANCE BUSINESS:

People who are exposed to the same type of risk can come together and agree to share the loss. The may be met by collecting shares in advance. The insurance companies collect the shares (premium) in advance and create a fund, which is used to pay the loss (claims). The insurance business is related to the protection of economic value of assets and is nothing but sharing.

LIFE INSURANCE:

Human life is also an income generating asset. The risks related to human life are early death, retirement, disability, sickness and accident. But these occurrences are uncertain. Life insurance companies mitigates this loss.

RISK MANAGEMENT:

Insurance is not for protecting assets. It cannot prevent its loss due to peril. We cannot avoid risk or peril through insurance. Better safety and damage control may be used to lessen the magnitude of risk. Insurance can used to compensate only the financial and economic loss. The essence of insurance is to share the losses and to substitute uncertainty with certainty. Nobody should make the risk happen. The occurrences have to be random, accidental and should not be deliberately created by the insured person.

ROLE OF INSURANCE IN ECONOMIC DEVELOPMENT:

The funds that are generated by the insurance companies is invested in economic building and social development activities of the country. The investments are made in infrastructural areas like highways, electricity generation, transport facilities, housing development, industrial development etc which strengthens the economic base of the country.

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Comments

Dec 21, 2009 11:59am
Sonni57
Good information on insurance I need to get some health insurance.
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