Insurance is an important aid to commerce and industry. Every business enterprise involves a large number of risks and uncertainties. It may involve risk to premises, plant and machinery, raw material and other things. Goods may be damaged or may be destroyed due to fire or flood. Some risk can be avoided by timely precautions and some are unavoidable and are beyond the control of a business. These unavoidable risks can be protected by insurance.
What is Insurance?
In D.S. Hamsell words, insurance is defined “as a social device providing financial compensation for the effects of misfortune, the payment being made from the accumulated contributions of all parties participating in the scheme”
In simple terms “Insurance is a co-operative device to spread the loss caused by a particular risk over a number of persons, who are exposed to it and who agree to insure themselves against the risk”
Thus, the insurance is
(a) A cooperative device to spread the risk;
(b) The system to spread the risk over a number of persons who are insured against the risk;
(c) The principle to share the loss of the each member of the society on the basis of probability of loss to their risk; and
(d) The method to provide security against losses to the insured
Insurance may be defined as form of contract between two parties (namely insurer and insured or assured) whereby one party (insurer) undertakes in exchange for a fixed amount of money (premium) to pay the other party (Insured), a fixed amount of money on the happening of certain event (death or attaining a certain age in case of life) or to pay the amount of actual loss when it takes place through the risk insured (in case of property)
Terminology used in definition of Insurance
– Insurer or insurance company – The agency involved in Insurance business is known as insurer
– Insured/ Assured – The person who gets his property/life insured is known as insured
– Policy – The agreement or contract which is put in writing is known as a Policy
– Premium – The consideration in return of which the insurer undertakes to make goods the loss or give a certain amount in case of life insurance is known as premium