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.

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

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

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

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.

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

Primary functions  It provides certainity.  It distributes risks.  It provides security.

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

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.

Evolution of insurance 

Life insurance  In Richard Mortin issued the first policy on Williams Gybbon’s life.  In The mercer’s company came into existence.  In ‘Hand in Hand Society’  In Parliament passed an act.  In First foreign company i.e.Oriental Company was in India.  In ‘Madras equitable company’.  in 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