Define Insurance

Introduction

Insurance is a contract whereby the insurer undertakes to compensate the insured for any loss suffered by the later in consideration of premium paid for certain period. There are different insurance companies such as LIC, GIC, United India, New India assurance etc., offering wide range of insurance options. They provide comprehensive coverage with affordable premium. An insured can choose the policy according to his needs and ability to pay periodical premium to cover the risk of insurance for the stipulated period. The periodical insurance premiums are calculated according to the total insurance amount specified or estimated value of the property/things insured.

Thus, Insurance provides financial protection against a loss arising out of happening of an uncertain event. Hence, insurance is used as an effective tool for risk management.

Definition

Insurance is a contract between two parties, whereby one party agrees to undertake the risk of another, in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period/maturity period in case of life insurance or to indemnify the loss to the other party on happening of an uncertain event in case of general insurance. The party bearing the risk is known as the ‘insurer’ or ‘assurer’ and the party whose risk is covered is known as the ‘insured’ or ‘assured’.

Types of Insurance

Various types of insurances are as mentioned hereunder:

Life insurance: Descendant’s family receives insured amount in the case of death of the insured. In other case the insured himself gets the insured amount

Automobile/Motor insurance: Usually automobile insurances cover damages to the automobile and legal financial expenditure of the automobile driver/cleaner.

Workmen Compensation Insurance: It covers the employee for the loss of life or total/partial permanent disablement (loss of limb) or for occupational disease arising out of his employment during and in the course of his employment.

Health insurance: Health insurance covers the expenditure associated with treatment and medical expenditure including medicine.

Credit insurance: Borrowers often fail to repay the debts, loans and mortgages, due to certain unavoidable circumstances. Credit insurance can be of great help to the lenders during such crisis.

Property insurance: Property protection insurance provides protection from risks associated to theft, fire, floods etc. This type of insurance can be further classified into specialized forms as follows:

Fire insurance

Earthquake insurance

Flood insurance

Home insurance

Boiler insurance

At present insurance market is much vibrant than before and this has an impact on the rates of insurance premium.