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INTRODUCTION TO INSURANCE

INTRODUCTION TO INSURANCE. MEANING OF INSURANCE. Insurance is a contract of indemnity under which insurance company or insurer agrees to pay a certain sum of money to compensate loss caused by the occurrence of uncertain event in consideration of certain periodical payments i.e. premium.

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INTRODUCTION TO INSURANCE

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  1. INTRODUCTION TO INSURANCE

  2. MEANING OF INSURANCE • Insurance is a contract of indemnity under which insurance company or insurer agrees to pay a certain sum of money to compensate loss caused by the occurrence of uncertain event in consideration of certain periodical payments i.e. premium.

  3. DEFINITION OF INSURANCE • Insurance may be defined in two ways: • Functional definition. • Legal definition.

  4. Functional Definition • “Insurance is a co-operative device to spread loss caused by a particular risk over a number of persons who are exposed to it, who agree to insure themselves against that risk.” • _prof. R.S.Sharma

  5. LEGAL DEFINITION • “insurance is a contract in which sum of money is paid by the assured in consideration of the insurer’s incurring the risk of paying a large sum upon a given contingency.” • _Chief Justice Tindal

  6. Features of Insurance • Offer and Acceptance. • Lawful objects. • Contract. • Consideration. • Co-operative device. • Protection against financial risks. • Good faith. • Contract of indemnity. • Certainity and Contingency. • Insurance is not gambling. • Subrogation. • Insurable interest. • Insurance is not named as charity.

  7. FUNCTIONS OF INSURANCE • Functions of insurance can be divided into three categories: • Primary insurance. • Secondary insurance. • Other functions.

  8. Primary functions • It provides certainity. • It distributes risks. • It provides security.

  9. Secondary functions • It provides capital. • It increases efficiency. • It helps in judging the viability of major projects. • Insurance helps in loss reduction.

  10. Other functions • Economic development. • Expansion of foreign trade. • It provides funds to invest. • Encouraging savings. • It checks inflation. • Self-confidence and goodwill. • Social security. • Credit facilities.

  11. Evolution of insurance

  12. Life insurance • In 1536- Richard Mortin issued the first policy on Williams Gybbon’s life. • In 1696- The mercer’s company came into existence. • In 1698- ‘Hand in Hand Society’ • In 1721- Parliament passed an act. • In 1818- First foreign company i.e.Oriental Company was in India. • In 1829- ‘Madras equitable company’ . • in 1956- Mostly Indian companies entered into joint venture with the foreign companies to do jointly the business of life insurance. • Some of which are: • HDFC standard life insurance co. Ltd. • Max-New york Life insurance co. Ltd. • SBI Life Insurance Co. Ltd

  13. GENERAL INSURANCE Formed under Act.,1972.

  14. General insurance companies such as • New India insurance companies Ltd. • Oriental fire and general insurance companies Ltd. • National insurance companies Ltd. • Reliance General insurance company.

  15. Details of general insurance are as follows • Property insurance- (fire insurance & marine insurance) • Liability insurance- (theft, fidelity, motor & machine insurances )

  16. Importance of Insurance • Importance of insurance may be studied under four heads: • Importance to an individual • Importance to business • Importance to commerce and industry • Importance to society.

  17. Importance to an Individual • Insurance provides security and safety. • It provides peace of mind. • It eliminates dependency. • It serves as a source of savings. • Life insurance as a sound investment. • It protects mortgage property. • Others (family needs, old age needs and so on)

  18. Importance to business • Financial help. • Reduces uncertainty of business losses. • It improves efficiency. • Indemnification. • Grant of credit facilities. • Continuous business. • Employee’s security.

  19. Importance to commerce and industry • Economic development. • Earns foreign exchange. • Source of capital formation. • Source of income

  20. Importance to society • Protection to society’s wealth. • Economic growth. • Standard of living. • Social security benefits. • Equitable distribution of loss. • Removal of social evils. • Accelerate the production cycle. • Reduction in inflation. • Huge funds.

  21. Insurance as a social security tool • Security and safety. • Peace of mind. • Encourage savings. • Provides investment. • Meets various needs. • Helps in loss reduction. • Increases efficiency. • Enhancement of credit. • Control inflation rate. • Confidence in work.

  22. Insurance and economic development • Relationship between insurance and economic development. • Factor affecting E.D. • Investment necessary. • Huge funds. • Accelerate the production cycle. • Protection against risk. • Promotes foreign trade. • Promotes financial stability.

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