I| | INTRODUCTION|
Insurance is legal contract that protects people from the financial costs that result from loss of life, loss of health, lawsuits, or property damage. Insurance provides a means for individuals and societies to cope with some of the risks faced in everyday life. People purchase contracts of insurance, called policies, from a variety of insurance organizations. Almost everyone living in modern, industrialized countries buys insurance. For instance, laws in some countries require people who own a car to buy insurance before driving it on public roads. Business partners take out life insurance on each other to make sure the business will succeed even if one of the partners dies. Insurance makes up part of the broader financial saving institutions. In the western world most insurance companies offered a wide range of policies and services while in Africa only a few do offered such. Some large companies sell virtually every type of insurance available in the marketplace. Smaller companies may specialize in a specific geographic region or type of insurance. II| | REASONS FOR INSURANCE|
In life, losses are sometimes unavoidable. People may become ill and lose income or savings to pay medical bills. People’s homes or other property may suffer damage or theft. People also may accidentally cause injury to others or damage to the property of others. Since one can’t know when a loss will occur or how serious that loss will be. The uncertainty surrounding potential losses is known as risk and Insurance offers a way for people to replace risk with known costs—the costs of buying and maintaining insurance policies. For example: If the accident injures someone, the costs of medical care could be much higher. Through the mechanism of insurance, however, the car owner can share the risk of an accident with others who face the same risk. The reduction in risk brought by insurance relies on so many factors. Insurers distinguish between two types of risk: speculative risk and pure risk. Speculative risk offers both the potential for gain and the potential for loss. People who invest in the stock of companies, for example, take speculative risk. An increase in stock prices produces a gain, while a decline in stock prices produces a loss. Pure risk, by contrast, creates the potential only for loss. Although pure risks do not necessarily result in losses, they never result in gains. However, some insurance companies now help businesses finance large losses including those incurred on speculative risks, such as the international exchange of currency. III| | THE IMPORTANCE OF INSURANCE|
Insurance benefits society by allowing individuals to share the risks faced by many people. But it also serves many other important economic and societal functions. Because insurance is available and affordable, banks can make loans with the assurance that the loan’s collateral is covered against damage. This increased availability of credit helps people buy homes and cars. Insurance also provides the capital that communities need to quickly rebuild and recover economically from natural disasters. Insurance has become a significant economic force in most industrialized countries. Employers buy insurance to cover their employees against work-related injuries and health problems. Businesses also insure their property, including technology used in production, against damage and theft. Because it makes business operations safer, insurance encourages businesses to make economic transactions, which benefits the economies of countries. Not all effects of insurance are positive ones. The possibility of earning insurance payments motivates some people to attempt to cause damage or losses. Without the possibility of collecting insurance benefits, for instance, no one would think of arson, the willful destruction of property by fire, as a potential source of money. | | INSURANCE POLICIES AND COVERAGE|
An insurance policy...