INSURANCE : AN INTRODUCTION

1. INSURANCE : AN INTRODUCTION PRESENTED BY AJAY K. JAIN B.E.(Mechanical), M.B.A.(Finance) Website: www.sukhnidhey.com Mobile: 98280 11115, 98291 11115

2. WHAT IS INSURANCE ? • The business of insurance is related to the protection of the economic value of assets • Every asset has a value • Every asset has a purpose to perform • There is a normally expected life time for the asset during which time it is expected to perform • However, if the asset gets lost earlier, being destroyed or made non functional, through an accident or other unfortunate event then INSURANCE is a mechanism that help owner and sufferer to reduce such adverse consequences.

3. PURPOSE AND NEED OF INSURANCE: CONTINUED • Assets are insured because they are likely to be damaged through an accidental occurrence. Such possible occurrences are called PERILS. • Fire, flood, lightening, earthquakes, breakdowns are examples of perils. • The damage that these perils may cause the asset, is the RISK. • Insurance is relevant only if there are uncertainties without which things can not be insured against.

4. MEANING OF RISK IN INSURANCE • Possibility of loss or damage which may or may not happen. • Risk should be uncertain. • Exposure to danger • Loss producing event • Used to refer to the property covered by insurance 1.Bad risk 2.Good risk The term ‘Risk’ refers to the subject matter of insurance.

5. PURPOSE AND NEED OF INSURANCE: CONTINUED • Mechanism of insurance 1. People who are exposed to same risk come together and agree to share the loss and make good to the person who lost. 2. By this method the risk is spread among them and likely big impact on one is reduced to smaller manageable impacts on all. 3. The manner in which the loss is to be shared can be determined before hand. 4. Insurance companies collect in advance and create a fund from which the losses are paid.

6. PURPOSE AND NEED OF INSURANCE: CONTINUED • Human life is also an asset. • This asset also can be lost through unexpectedly early death or made non functional through sickness and disabilities caused by accidents. • Accident may or may not happen. • Death will happen but timing is uncertain. • Hence insurance is necessary to help those dependent on the income in case of early death. • A person may have arrangements for his needs after his retirement which have been made on the basis of some expectations. If these expectations do not become true there could be difficulties. • These are risks which need to be safeguard by means of insurance.

7. PURPOSE AND NEED OF INSURANCE: CONTINUED • Insurance does not protect the asset. • Insurance does not prevent the loss of asset due to peril. • Peril cannot be avoided through insurance • The peril can sometimes be avoided, through better safety and damage control management. • Insurance only tries to reduce the impact of the risk on the owner of asset/ dependent on that asset. • Insurance only compensate (may not be fully) the economic or financial losses.

8. PURPOSE AND NEED OF INSURANCE: CONTINUED • The concept of insurance has been extended beyond the coverage of tangible assets even though the advantage of spread may not be available in these cases. • Thus the essence of insurance is to share losses and substitute certainty by uncertainty. • Hence insurance makes the consequences of risk bearable which is difficult for any one individual to bear as the community shares the burden.