Chapter 1: Insurance Background

Insurance is a form. of shield against  financail loss  which can occur due to an unexpected event.

The protection takes the form. of a guarantee given to the person who has taken the insurance (called "insured")

if the event occurs

//In legal perspective

Insurance is a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening  of uncertain event.”

//In economic  perspective

“A financial intermediation function for pooling resources from people/group facing losses from similar set of events and distributing the pool on occurrence of such events among them. ”

//Key Terminologies

Insured: The person/group/company insuring life or property

Insurer: The  company offering insurance. Also known as Insurance company.

Insured property: This can be land, house, automotives,ship,aircraft,machine,crop, etc. However, the insured must have some legal relation with the said property.

Premium:  The amount paid in regular intervals to get insurance coverage.

Insurance is a means to distribute risks. Insurance is a kind of risk management to guard against risk of uncoming loss(“contingent loss”)

Insurance may also defined as : “ the fair transfer of the risk of a potential loss, from one entity to another, in return for fixed payments called premium”

Insurance is an intangible product. It is simply a promise made by insure to the insured that the latter would be protected in the event of a loss, in return for a small consideration called premium.

In case of a loss, the insured is paid out from the amount of premium collected. In this sense, Insurance Companies act as Trustees to the amount collected.

 

Why  Insurance?

1.       Assets  are vulnerable to damage from various quarters through possible accidental occurrences, which are called “perils”. Such perils could include fire, floods, lighting, earthquakes, etc.

2.       Risk arising from the damages by these perils may result in losses Insurance offers financial compensation for such losses.

3.       Life Insurance gives an individual freedom from financial worries and need for family support in case of an untimely death.

4.       Certain Insurance contracts are also mandated by legislation. For example, in India, Motor Vehicles Act 1988 requires a vehicle to hold a valid insurance policy

5.       Insurance companies also have a role in government sponsored social security schemes. Examples are the Farmer Insurance scheme and Hut Insurance Scheme.

 

Insurance and Economy

According to conference on Trade and Development, and efficient insurance market can aid in overall economic development in the following ways:

Ø  Helps in social stability by reducing financial stress and worry among people.

Ø  Cut down on financial burden of government for looking after aged and the destitute.

Ø  Benefits economy by offering resources for industry and other productive areas

Ø  Create employment

Ø  Offers favorable  terms to borrowers, reduces default risk and financial disruption to individuals and business

Ø  Builds improved employee-employer relationship

Ø  Offer protection at a relatively low cost

This is what a study by Organization for Economic Cooperation and Development reveals-Insurance facilitates three critical services to the economy

Ø  Substitutes  government security programs

Ø  Molilizes  savings, with insurers acting as financial intermediaries between borrowers and lenders

Ø  Allows efficient capital allocation by offering low cost funds to productive sectors

Benefits of Insurance

 

·         Compensation of loss, restoring earlier financial position.

·         The insured will be less stressed about financial losses

·         Insurer collects premiums then invested elsewhere, encourage economic growth

·         Improve a person’s credit worthiness, as loss will be compensated

o   Primarily Insurance aims to get people t o resume their normal financial.

o   Another important manner, benefits society by promoting operations which reduce loss

Cost of Insurance

Cost of doing business, Fraudulent Claims, Inflated Claims.

Insurance Characteristics

Sharing of losses, Law of large numbers, Payment of fortuitous losses, Risk transfer, Indemnification.

Fundamental laws of insurance

Indemnity, Insurable interest, Utmost good faith, Subrogation, Cause Proxima(nearest), Contribution.

來自 “ ITPUB部落格 ” ，連結：http://blog.itpub.net/7899089/viewspace-708522/，如需轉載，請註明出處，否則將追究法律責任。