Insurance Overview

Insurance is a social device for spreading the chance of financial loss among a large number of people. It allows an individual to share risk with others, reducing the potential for disastrous financial consequences. The essence of insurance is the sharing of losses and co-operation among a large group of people.

Advantages of Insurance

To Business

1. Economic Security: Provides financial support in case of unforeseen business losses.
2. Increases Business Efficiency: Reduces worry about risks, enhancing focus on business growth.
3. Enhances Credit: Can provide evidence of financial stability.
4. Business Continuation: Helps in recovering from major losses and disasters.
5. Welfare of Employees: Offers security for employees and their families.
6. International Trade: Facilitates safer and more secure international business transactions.

To Individual

1. Security and Safety: Provides peace of mind against unexpected personal losses.
2. Eliminates Dependency: Reduces reliance on others in case of financial trouble.
3. Protects Mortgaged Property: Safeguards against loss of property.
4. Promotes Savings: Encourages saving through life insurance policies.
5. Tax Exemption: Offers tax benefits under certain policies.
6. Profitable Investments: Some insurance policies can be financial investment avenues.

To Society

1. Source of Employment: Creates job opportunities in the insurance sector.
2. Protection of Wealth: Ensures societal wealth is safeguarded.
3. Reduction in Inflation: Helps in stabilizing the economy by reducing monetary stress.
4. Economic Growth: Contributes to the overall economic development of the country.
5. Capital Formation: Aids in accumulating funds for large-scale investments.

Functions of Insurance

Primary Functions

1. Provides Certainty: Offers financial security and peace of mind.
2. Provides Protection: Shields against various financial risks.
3. Risk-Sharing: Distributes risks among a large group of people.

Secondary Functions

1. Prevention of Loss: Encourages taking measures to prevent losses.
2. Provides Capital: Mobilizes funds for economic use.
3. Improves Efficiency: Reduces financial uncertainties and improves efficiency.
4. Economic Progress: Contributes to the overall economic growth.

Principles of Insurance

1. Principle of Utmost Good Faith: Both parties involved in the insurance must disclose all relevant information honestly.
2. Principle of Proximate Cause: Determines the actual cause of the loss.
3. Principle of Insurable Interest: The insured must have an insurable interest in the subject of insurance.
4. Principle of Indemnity: Ensures that the insured does not profit from the insurance but is restored to the same financial position as before the loss.
5. Principle of Subrogation: Transfers the legal rights of the insured to the insurer after compensation.
6. Principle of Contribution: Allows insurers to share the cost of claims when multiple policies are involved.
7. Principle of Mitigation: Encourages minimizing the impact of a loss.

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