Life and Business share one thing in common and that is uncertainty and there is significant risk involved in Business as well as in life. Therefore we always want to protect o indemnify ourselves and our Businesses from this risk as much as possible. Insurance is the mechanism whereby this risk spread among all who are exposed to similar risk and transferring these risks to entities who have the capacity to handle them.
It is believed that over 5000 years ago, insurance was used Chinese merchants. By redistributing the cargo of each vessel across many vessels to limit the loss due to any single vessels destruction.
After the great fire of London destroyed over 13000 houses UN 1666 the first fire insurance Company the insurance Office for Houses, was started in 1680 to insure brick and frame homes from such future events.
In the modern word insurance has become an indispensible need for people as well as for businesses in this study Guide we will understand the meaning, importance and types of Insurance as well as possible.
Here let us see and describes the Nature and Importance of Insurance.
1. Nature of Insurance
Insurance in the meaning way means a mechanism by which the risks of loss or damage can be passed on to another party who can bear the risk on the payment of Charge. Also the party which passes the risk is called the insured, The party to whom the risk is passed on is called the insurer which generally is an Organization like Insurance Company Also the consideration is called the premium.
Insurance is a Contract between the insurer and insured whereby the insurer which is generally called is an Organization insurance Company the consideration is called premium. Insurance is the a contract between the insured and insurer and insured whereby the insurer and insured whereby the insurer undertakes to pay the insured a fixed amount in exchange for fixed amount in exchange for a fixed sum known as premium on the happening of a certain event or Compensate the actual loss when it takes a place due to the causes mentioned in the contract.
The insurance industry works on the concept of pooling and Cooperation. All the insured who are subject to similar risks are brought together where everyone pays premium and only a few among them who actually suffer the loss or damage are compensated using the money collected from all the insured in the form of premium.
Instead of people forming such groups on their own the insurance company acts as an intermediary and brings them together collects premium from all of them and pays compensation to a few of them who actually suffer loss.
Hence the risk is spread across the insured members.
Let us see the Importance of Insurance
Insurance has so many important in our Daily life and thus increases the efficiency of Business, Insurance helps in spreading the effects of personal as well as business risks by way of loss or damage among many and thus facilitates equitable distribution of losses, it provides security to individuals and to businesses.
Businesses invest a large amount of money in properties factories, raw material and various other things to facilitate the manufacturing and production of various commodities necessary for consumption. This investment is always subject to various risks such as risk of loss in business risk if loss due to fire, flood or other natural calamities. Also without any means of security people would be afraid of putting their money in development of business however insurance gives them assurance that by contributing a small in the form of premium, they will be compensated against a loss that may take place in future.
Economic development of any country depends on growth of businesses and businesses in turn are dependent on insurance to provide them security. Thus insurance plays a significant role in the economic development of a Country.
Insurance also enables savings of individuals to build up with the insurance companies by the way of premium collected against assurance of protection from loss. The insurance companies invest these funds in securities issued by big Companies as well as by Government which lead to economic development.
Insurance Business also facilitates creation of various employment opportunities for people the employment opportunities are in the form of direct employment in insurance Company offices spread over the Country and also in the form of working as agent of the insurance Company.
The following are the Principle of Insurance.
(a) Principle of good faith
Good faith is a very basic and primary principle of any contract this principle required provides complete clear and true information of the risk to be covered to the insurer and the insurer also should provide correct and clear information about the terms and conditions of insurance to the insured, if the insurance contract is obtained by the way of fraud or misrepresentation it is void.
(b) Principle of Insurable Interest
The principle of insurable interest states that the person getting insurance must have insurable interest in the subject matter for which he wants to take insurance.
A person is said to have an insurable interest in the insured object of he will suffer some loss by damage of the insured object.
(c ) Principle of Indemnity
The purpose of insurance is to indemnify or to compensate for the loss suffered, According to the principle of indemnity the insurer should compensate the insured only to the extent of the actual loss suffered The compensation must not be less or more than actual damage, insurance is not the means for making profit and its sole purpose is to give compensation in of any damage or loss.
(d) Principle of Contribution
Principle of Contribution is a corollary of the principle of indemnity and applies to all contracts of indemnity the principles of contribution requires that where the insured party has taken out more than one policy on the same subject matter then compensation can be claimed only to the extent of actual loss either from all insurers or from any one insurer. The principle of Contribution does not apply to life insurance policies as the loss of human life can never be fully compensated.