Discuss Insurance sector from different angles
• TERM INSURANCE:
Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks which can be insured against include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is insurance. DEFINITION:
➢ General definition:
In the words of John Magee, “Insurance is a plan by which large number of people associate themselves and transfer to the shoulders of all, risks that attach to individuals.” ➢ Fundamental definition:
In the words of D.S. Hansell, “Insurance may be 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.” ➢ Contractual definition: •
In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.”
• Functions of insurance:
In a layman's words, insurance means, ‘a guard against pecuniary loss arising on the happening of an unforeseen event’. In developing economies, the insurance sector still holds a lot of potential which can be tapped. Majority of the people in the developing countries remains unaware of the functions and benefits of insurance and it is for this reason that the insurance sector is still to grow.
Basic functions of Insurance
1. Primary Functions 2. Secondary Functions 3. Other Functions 1. Primary Functions:
a) Providing protection –
The elementary purpose of insurance is to allow security against future risk, accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure allow for the losses arising with the risk. Insurance is in reality a protective cover against economic loss, by apportioning the risk with others. b) Collective risk bearing –
Insurance is an instrument to share the financial loss. It is a medium through which few losses are divided among larger number of people. All the insured add the premiums towards a fund and out of which the persons facing a specific risk is paid.
c) Evaluating risk –
Insurance fixes the likely volume of risk by assessing diverse factors that give rise to risk. Risk is the basis for ascertaining the premium rate as well. d) Provide Certainty –
Insurance is a device, which assists in changing uncertainty to certainty. 1. Secondary functions of insurance
a) Preventing losses –
a. Insurance warns individuals and businessmen to embrace appropriate device to prevent unfortunate aftermaths of risk by observing safety instructions; installation of automatic sparkler or alarm systems, etc. b) Covering larger risks with small capital –
a. Insurance assuages the businessmen from security investments. This is done by paying small amount of premium against larger risks and dubiety. c) Helps in the development of larger industries –
a. Insurance provides an opportunity to develop to those larger industries which have more risks in their setting up. 2. Other functions of insurance
a) Is a savings and investment tool –
a. Insurance is the best savings and investment option, restricting unnecessary expenses by the insured. Also to take the benefit of income tax exemptions, people take up insurance as a good investment option. b) Medium of earning foreign exchange –
a. Being an international business, any country can...