07-Feb-2022: ABOUT INSURANCE
Insurance ensures protection of economic value of assets. Assets are insured against the risk of being destroyed or made non-functional due to any accidental occurrence. Risk is defined as the possibility of adverse results flowing from any occurrence. Insurance is used with reference to financial protection against a possibility, such as fire, accidental damage, theft, or medical expenses: motor insurance, household insurance, travel insurance, health insurance.
Insurance reduces the impact of risk on the owner, and those
who depend on the asset. Integral to the concept of insurance is the concept of
risk. In insurance parlance, “RISK” is called “PERIL”. Only where risk
prevails, is insurance applicable. Basically there are two types of Insurance :
“LIFE” AND “NON-LIFE”. We are now concentrating on LIFE Insurance only.
LIFE INSURANCE
The economic value of a human life arises out of its relation to other lives. Whenever continuance of a life is financially valuable to others, either to family dependents, business associates, or educational and philanthropic situations, the necessity for life insurance is present. Human life is also considered as an income generating asset. This asset can be lost thru unexpected death or made non-functional thru sickness or disability caused by an accident.
There is no certainty that an accident shall happen. Events that must occur at some time, such as death, are provided for by assurance. We all know that “DEATH” is the ultimate truth of life, but NOT its timing. Life Insurance exists because of this element of “UNCERTAINTY”. Life Insurance protects against loss of income of an individual.
But it DOESN’T (1) protect
the asset, (2) prevent its loss. Life insurance is designed to make an attempt
to compensate a policyholder for a loss suffered, by the payment of money,
repair, replacement, or reinstatement. In every case the policyholder is
entitled to be put back in the same financial position as he or she was
immediately before the event insured against occurred. There must be no element
of profit or loss to the policyholder.
Most, but not all insurance policies are indemnity contracts. For
example, personal accident and life assurance policies are not contracts of
indemnity as it is impossible to calculate the value of a lost life or limb
(whereas the value of a car or other property can be calculated). Insurance
works on the principle of transferring risk from an individual to a group.
