Ch.1 L1.1 Nature & Scope of Insurance

Chapter 1:
LECTURE 1.1: NATURE AND SCOPE OF

INSURANCE
Meaning of Insurance:
If one goes by the word meaning insurance is a contract between
two parties whereby the insurer agrees to indemnify the insured
upon the happening of a stipulated contingency, in consideration of
the payment of an agreed sum, whether periodical or fixed (the
premium). Insurance falls into the main groups of life, property,
marine, aviation, health, transport, motor vehicle – third party
liability, and personal accident and sickness.
The term “assurance” is generally limited to the first of these,

because the event in respect of which the policy is taken out –
namely the death of the person – is assured, or certain. Only the
time of the death is uncertain.
The meaning of insurance in context of insurance business is not

easy to define. There are hundreds of definitions of insurance by
hundreds of persons. In fact, the insurance is the subject matter
relating from man to man and a person to person.
One needs insurance of life, another insurance of property and

someone else for risk of business. A very rich may like insurance of
his property and his wealth. A common man would like to keep
secure his small earnings as secured.
The ultimate meaning comes to ensure security of what a person

thinks very important for him. Every one wants to be secure, or be
content on certain conditions, to secure against any sort of peril
may it be of life, against fire, accident, falling ill or otherwise. It is
therefore that everyone wants to secure him in one or the other way
But no one knows when the eventuality shall arise and remains in
doldrums waiting for the eventuality.
In the present-day affairs insurance means financial protection

against losses arising out of happenings of an uncertain event. In
order to protect against such losses, one has to bear some financial
burden also. This can be ensured by paying certain amount,
depending on the risk covered and the amount of expected loss in
the form of paying premium to any of the insurance companies.
In, simple words the meaning of insurance is to keep a person

fearless and unworried about the future happenings which always
remain uncertain. It absolves the risk of uncertainty and provides a
piece of mind because the insurance facilitates reimbursement
during crises situations and compensate for any potential future
losses.
In view of the above discussion, it is apparent that seeking an

insurance cover is to transfer the risk from oneself to the insurance
company. It is therefore can also be said as risk management tool
for unfortunate events like death, accident, disability, sickness and
retirement.
All these unfortunate events can either be met by paying from one’s
own pocket or one may choose to transfer the risk on some
consideration i.e., paying of premium to the insurance company
which will pay on one’s behalf Insurance company: the company
that underwrites the policy and this is where you transfer the risk to
by paying a fee which is called the insurance premium.
Definition of Insurance:
Insurance is contract between two parties (one the insurer and
second the insured) whereby the insurer agrees to undertake the
risk of the insured in consideration of some amount known as
premium and in return promises to compensate a fixed sum of
money to the insured party on happening of an uncertain event like
DEATH.
In case of survival the insurer has to pay after the expiry of a certain
period in case of life insurance or to indemnify the insured party on
happening of an uncertain event in case of general insurance.
In simple words insurance is sharing collective responsibility by a

large number of people to compensate few people in case of crises
Managing the collective responsibility (pooling persons) the
insurance companies work as trustee to take care of such collective
responsibility and the insurance regulations provide specific
guidelines to ensure the insurance functions due serve the society as
per the expectations of pooling members.
Nature And Scope of Insurance:

1. By nature insurance is a devise of sharing risk by large number of
people among the few who are exposed to risk by one or the other
reason.
2. If a large number of subscribers to insurance serve the purpose of

compensation too few among them exposed to uncertain risks
appears as a co-operative look.
3. Valuation of risk is determined as per predefined terms and

conditions of the insurance policies.
4. Insurance provides facility of financial help in case of

contingency.
5. However it depends on the value of insurance for which payment

is made in case of contingency. This provides basis of the amount to
be paid.
6. Insurance is a policy regulated under laws and therefore the

amount of insurance can neither be paid as gambling nor as charity.
Need of Insurance:
Life of everyone is full uncertainties. Nobody knows what is going to
happen in next moment. This element of unknown situation always
hounds around the mind of a person and keeps him worried to
think as to what will happen in future in case of any mishappening.
This worry is to think about the future of the person and his family.
Among a number of worries the main and very important is
economic uncertainty of himself or his family.
If anyone is satisfied with his present earnings, he also thinks

whether or not his present-day capacity of earning will last for long.
Perhaps there remains an iota of fear that it may not last for the
long. On this very point everyone thinks about to secure his future.
Under the impression of securing future, one thinks about the

adoption of saving and investment plans. He not only thinks about
himself but also about his family. In case of any miss happening,
everyone is worried as to what shall happen to his family.
Everyone knows that there is no substitute in case of death of an

earning member of the family and no compensation is able to fulfil
the gap in case of death of the earning member. But for supporting
economically up to some extant the method adopted is known as
insurance.
The life insurance is such a cover that provides security to the family
of insured in case of his death. Life Insurance in such cases provides
some solutions to the worries of family members.
Once upon a time it was very difficult to convince people for getting
an insurance cover but today it has become a need of the day. Today
the life insurance does not cover the risk of life only but also
provides many added benefits also in the field of saving and
investments.
People need insurance because the unexpected does happen.

Whether it is a fire, a car wreck, illness or a death, the financial
consequences can be devastating if you are uninsured. Insurance
helps people have peace of mind when life’s unexpected events
happen.

Ch.1 L1.1 Nature & Scope of Insurance

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Chapter 1:

LECTURE 1.1: NATURE AND SCOPE OF

The term “assurance” is generally limited to the first of these,

The meaning of insurance in context of insurance business is not

One needs insurance of life, another insurance of property and

The ultimate meaning comes to ensure security of what a person

In the present-day affairs insurance means financial protection

In, simple words the meaning of insurance is to keep a person

In view of the above discussion, it is apparent that seeking an

In simple words insurance is sharing collective responsibility by a

Nature And Scope of Insurance:

2. If a large number of subscribers to insurance serve the purpose of

3. Valuation of risk is determined as per predefined terms and

4. Insurance provides facility of financial help in case of

5. However it depends on the value of insurance for which payment

6. Insurance is a policy regulated under laws and therefore the

If anyone is satisfied with his present earnings, he also thinks

Under the impression of securing future, one thinks about the

Everyone knows that there is no substitute in case of death of an

People need insurance because the unexpected does happen.

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