What is insurance – protect everything you love with a right policy


Nothing is more important than our life and our ability to make a living. Risk, Hazard and uncertainty are incidental to life.We may meet an untimely death. We may suffer from accident, destruction of property from fire, sea, floods, earthquakes and many other causes.But we don’t know what is insurance and how it works.

Where there is uncertainty, there is risk as well as insecurity.

It is impossible for a man to bear by himself 100% loss to his own property or interest arising out of an unforeseen contingency.

Definition of insurance

It is all about providing a financial safety net that helps us to take care of ourselves and those we love when we need it the most.

Main Concept of Insurance : Spreading risk among many .

In a nutshell :

  • It is a form of risk management.
  • Transfer of risk of a loss from one entity to another in exchange for a premium.

To conclude, insurance may be defined as a contract whereby one party agrees to indemnify the other party against a loss which may arise or to pay a certain sum of money (premium) on the happening of a certain event in return of compensation.

Why Insurance Plan?

  • You have worked hard to get to where you are in life.
  • It may have taken years, and you have finally arrived at your niche – you are a professional in demand.
  • Only one thing may challenge you now – disability or death!
  • Do you know what would become of your family financially if you became disabled? If you have a plan at work, do you know how it would pay, for how long, how much, and under what conditions it would stop?

Common terms of insurance

  • Insurer or Insurance Company : The agency or organization or company which helps in entering into this arrangement is called insurance company.
  • Insured/Assured : The individual /person who gets his life/property insured is called Insured/Assured of this policy.
  • Policy : The agreement or contract between insurer and insured, which is put in writing, is called Policy.The policy is only evidence of contract ,it is not the contract itself.
  • Insurance Contract :A contract is an agreement between the insurer and the insured and the information of that contract is subject to the normal requirements of the low of contract for it to be valid .
  • Proposal Form : Proposal form means a request form from the proposer to the insurer for giving protect against risk.The proposal form plays an important role in providing information to the insurer and based on this information, decisions can be made by the insurer.
  • Premium :Premium is the consideration in relation to the contract of insurance.Mode of Premium
    • Weekly or monthly to a collector who calls for the payment
    • Annually, half-yearly, quarterly or monthly.
  • Underwriting :is a link between the proposal and the policy and to calculate the risk
  • Underwriters :Underwriters are professionals who evaluate and analyze the risks involved in insuring people and properties. They assume the risk of a future event and charge premiums or pricing for accepted insurable risks .

What is Risk

Risk is the uncertainty of happening of an unforeseen event or contingency which is never desired which will give rise to some financial loss and the factors which may influence the outcome of a loss. We also say-

  • Risk is the uncertainty as to the occurrence of loss
  • Risk is the possibility of an unfortunate occurrence
  • Risk is the possibility of loss
  • Risk is the combination of hazard
  • Risk is unpredictability the tendency that actual results may vary from predicted result.
  • Risk indicates some form of uncertainty about an out come in a given situation.

Component of Risk

  • Uncertainty
  • Level of risk
  • Peril and Hazard
  • Cost of risk

What is Uncertainty

Uncertainty is one of the unavoidable facts of life. It is always risk and it has some possibility. At the end of the facts, it is certain. If we measure financially, it is the possibility of economic loss.The example is:

  • A child playing in the middle of a busy road.
  • A workman using a machine while being unaware that it is faulty and dangerous.

So we could say that the concept of uncertainty implies doubt about the future based on a lack of knowledge. Uncertainty exists regardless of whether this doubt has recognized by those who may most directly involved.

What is Peril

A peril is an occurrence or circumstance that causes or may potentially cause a loss. Examples of perils include fire, flooding, hailstorms, tornadoes, hurricanes, auto accidents, or home accidents, such as falling.

In insurance industry, the two related terms “Peril” and “Hazard” are often used  . Essentially, a peril is something that causes, or has the potential to, cause loss, while a hazard is something that makes the occurrence of peril (loss) more likely.

What is Hazard

Hazards are the factors(action, condition, circumstance, or situation) which may influence the happening loss. Hazards are not themselves the cause of loss, they can increase or decrease the effect should a peril operate.

Considering  the hazard  an insurance company is deciding whether or not it should insure some risk and what premium to charge.

Examples of hazards include House is on the bank of the river and over flood can damage the house. Here flood is peril and river is hazard. Examples of hazards include dangerous behaviors, such as skydiving or base jumping, that increase the likelihood of injury.

Hazards are commonly divided into three classifications:

  • Physical Hazards : Physical hazards indicate to actions, behaviors, or physical conditions that make a hazard. Smoking is considered a physical hazard because it increases the probability of a fire occurring. Smoking is also  a physical hazard in regard to health insurance because it increases the probability of severe illness.
  • Moral Hazards : Moral hazard indicates immoral behavior such as lying or fraud which depends on character, integrity “and mental attitude of the insured. These are not visible and cannot be recognize or ascertained by mere inspection of the risk .In every risk an element of moral hazard, may be in varying degree, is always present.
    Insurer are concerned with moral hazards that may lead to fraudulent claims, such as an auto accident victim who exaggerates the injuries he suffered.
  • Morale Hazards: are those hazards that tend to lead people or institutions to adopt a more careless or reckless attitude and exercise less caution to prevent injury, thus increasing the possibility an injury or loss occurs.

 People less careful about avoiding injuries or illness, due to the fact they know they have insurance to cover medical costs.


Chance is also the possibility .It is the additional things for good things/ bad things. Chances is the resistance power of uncertainty.Such as:

  • To get job is the chance.

Chance implies some doubt about the outcome in a given situation , the difference is that the out come is normally a favourable outcome.


Probability is the uncertainty that a given event, one of many possible events, will or will not occur, it can be measured by statistical methods.

Perception of risk

Perception of risk is the health and wealth of uncertainty. It is the combination of three words- Risk, Perils, Hazard.

What are the Precondition of insurance contract?

  • Must aware of the risk.
  • Must have the desire to transfer that risk to another party.
  • Must knew what cover is available in that market.

Fundamental Features or Principles of Insurance:

The contract of insurance is based on certain fundamental principles  and these principles help us to get a clear features about insurance .Six principles are given bellow:

Utmost Good Faith:

Insurance contract based on mutual trust and confidence .It is a contract of ubberrima fides or contracts based on ‘utmost good faith’ and the doctrine caveat emptor( i.e., let the buyer beware, does not apply to the contracts of insurance.) does not apply here.Both the parties must disclose all material facts.
Concealment of any fact will entitle the insurer to deprive the assured of benefits of the contract.Each party mush reveal to other party all information which would influence the other’s decision to enter into the contract.

Insurable Interest:

The insured must have an actual interest called the insurable interest in the policy of the insurance. A person is said to have an insurable interest in property or life if he is benefited by its existence and is prejudiced by its destruction. Without insurable interest the contract of insurance is void.Some example are given below:

  • Against a loan a banker has an insurable interest in the property mortgaged .
  • An individual person has insurable interest in his own life and every part of it.
  • A creditor can insure the life of his debtor.
  • A person has insurable interest in his own  building .
  • An employer has insurable interest of his employees because of his financial interest in them.
  • A businessman has insurable interest in his machinery ,building, plant ,stock, goods ,export ,import items etc.
  • Husband has interest in the life of his wife and wife in the life of her husband.
  • A proprietor of a drama company has an insurable interest in the lives of actresses.
  • A servant has insurable interest in the life of his employer.

Is it necessary in all forms of insurance?

Insurable interest is necessary to support every insurance contract. In case of Life Insurance, insurable interest must be present at the time when the insurance is effected. It is not necessary that the insured should have insurable interest at the time of maturity also.

Under fire insurance, insurable interest must be present both at the time of loss and at the time of insurance. In  Marine Insurance, insurable interest must be present at the time of loss. It may or may not present at the time of insurance.


A insurance contact is a contract of indemnity. The indemnity principle is applicable to all types of insurance except life insurance. The insurer agrees to make good the loss but the insured, however, is not entitled to make a profit out of the loss.It means that the assured in the case of loss against which the policy has been made shall be fully compensated and never more than the value of the policy.
In life insurance, the insurer is liable to pay the sum mentioned in the policy upon the happening of death, or expiry of a certain period.

Contribution :

The principle of contribution is applied to any insurance which is a contract to indemnity. It does not apply to life and personal accident insurance.The objective of contribution is to distribute the actual amount of loss among different insurers who are liable for the same risk.
Sometimes a property is insured with more than one company on one risk.In case of loss, any one insurer may make the payment to the insured the full amount of loss covered by the policy. After paying this amount, he is allowed to claim a contribution from his co-insurers in proportion to the amount which each has undertaken to pay in case of loss.

Subrogation :

The principle of subrogation is a corollary/supplementary to the principle of indemnity and applies only to fire and marine insurances.It does not apply to life and personal accident insurance.

Generally, subrogation is a technique used by insurer to reclaim the money paid out for insurance claims. Three parties are involved: the insured (the policyholder), the insurer (the insurance company), and the party responsible for the damages. Subrogation starts with the insurer paying for losses associated with an insurance claim.

Subrogation is the representative of one person or group for another in a legal setting. According to this principle, after payment the insurer becomes entitled to all the rights of insured subject matter  because he has paid the actual loss of the property. He is substituted the insured in place of other persons who act on the right and claim of the property .

Now, the insurer decides to pursue the party that caused the damages. In an effort to recover the money that it paid you, it sues that third party – effectively representing your interests in a court.

Causa Proxima or Proximate Cause:

Proximate cause looks for what is the reason behind the loss, is that is an insured peril or not.The efficient cause of a loss is called the proximate cause of the loss. The principle of proximate cause virtually revolves around the claims administration and, more precisely, diagnosing the pay-ability or otherwise of a claim on the question of perils covered by a policy.

A policy may cover certain perils mentioned specifically therein (known as insured perils), whilst some perils may be specifically excluded (known as excepted perils) and some may still be neither included nor excluded (known as uninsured perils).

The efficient cause of a loss is called the proximate cause that sets in motion a train of events which brings about result, without the intervention of any force started and worked actively from a new and independent source.

The determination of real cause depends upon the working and practice of insurance and circumstances to losses. A loss may not be generated merely by one event.

Importance of insurance

Let’s look at five key reasons.

  • Save us and our family : Our family depend on our financial support to enjoy a modest standard of living, which is why insurance is especially important once we start a family. It means the people who matter most in their life may be protected from financial suffering if the unforeseen happens.
  • Minimize or decrease stress during difficult times : None of us know what lies around the corner. Unexpected tragedies such as illness, injury or permanent disability, even death – can leave us and our family facing tremendous emotional stress, and even grief. With insurance in place, our financial stress will be reduced, and we can focus on recovery and rebuilding our lives.
  • To enjoy economic security : No matter what the financial position is today, an unexpected event can see it all unravel very quickly. Insurance offers a payoff that if there is an unforeseen event we can hopefully continue to move forward.
  • Peace of mind : No amount of money can replace your health and well-being or the role you play in your family. But we can at least have peace of mind knowing that if anything happened to me, our family’s financial future security is assisted by insurance.
  • A legacy to leave behind : A lump sum death benefit can secure the financial future for our children and protect their standard of living.

Type of insurance :

From the risk point of view, main types of insurance are given below :

types of insurance

Life Insurance

It is different from other insurance because that, here, the subject matter of insurance is the life of a human being.The insurer will pay the fixed amount of insurance at the expiry of the certain period or at the time of death.

When earning capacities are reduced or stop due to premature death or old age insurance provides protection to the family .

General Insurance

General insurance contains property , liability , and other forms of insurance.Fire and marine are strictly called property insurance.To a certain extent motor, theft, fidelity and machine insurances include the extent of liability . The appropriate form of liability insurance is fidelity insurance, whereby the insurer compensates the loss to the insured when he is under the liability of payment to the third party.

Social Insurance

The social Insurance is to provide protection to the helpless sections of the society who are unable to pay the premium for adequate insurance. Industrial insurance, sickness insurance, pension plans, disability benefits and unemployment benefits  are the different forms of social insurance.

Miscellaneous Insurance

Miscellaneous insurance like the property, goods, machine, furniture, automobiles, valuable articles, mortgage protection etc. can be insured against the damage or ruin due to accident or disappearance due to theft.

There are various forms of insurances for each type of the said property whereby not only property insurance exists but liability insurance and personal injuries are also insurer.

Historical development of insurance – How Evolved :

The main concept of insurance—that of spreading risk among many—has been around as long as human existence.The primary and economical means of transport was to use waterways, but boats carrying cargo were often destroyed in rapids along the rivers.

The great Code of Hammurabi allowed the transfer of risk from merchants to moneylenders, so that if their merchandise was lost or abandoned, then their loans to the moneylenders were forgiven.

Even specialized terminology was used to describe these loans: Bottomry loans used the ship as collateral whereas Respondentia loans used cargo as collateral.

The first written insurance policy founded in ancient times on a Babylonian obelisk monument with the code of King Hammurabi engraved into it. The code of Hammurabi was one of the first forms of written laws.

Marine Insurance :

Marine insurance is the primitive section of modern-day insurance, originating with the Lombard merchants in 13th century Italy, from where it spread to the continent and then to England. During the 1800s and 1900s, the British also dominated maritime trade and marine insurance.

Lloyd’s of London

Great Britain was a natural place for marine insurance to develop, and one of the major insurers of voyages was Lloyd’s of London.The coffee houses of London have indeed played a very vital role in the development of trade and commerce of the U.K.

One particular coffeehouse owner, Edward Lloyd, became the main meeting place because the proprietor manufactured paper, pens, and information regarding shipping available and provided information regarding available shipping, thus becoming Lloyd’s of London.

Since later part of the 17th century and early 18th century, this coffee house virtually turned into the most famous LLOYD’S which can boast of being the strongest and soundest insurance organization all over the world. Another practice which is still in existence is known as GENERAL AVERAGE which has in itself the element of sharing the loss of one by all. It is a very old custom and can be traced back to 916 B. C. during the time of Rhodians.

Fire insurance :

Fire insurance began soon after 1666, when the Great Fire of London burned for 5 days, destroying 85% of the city. In 1667,Nicholas Barbon formed a mutual society , originally called the Fire Office, then later renamed the Phoenix Fire Office, after the mythical bird that burned, but then reemerged from its own ashes. A policy that was filed in 1682 costing 30 shillings to insure property worth 100 British pounds for 7 years.

In 1752, Benjamin Franklin helped create the 1st fire insurance in the United States, aptly named the Philadelphia Contribution-ship for the Insurance of Houses from Loss by Fire.

Life insurance :

The 1st evidence of life insurance comes from Egypt, where in 2500 BC, stonemasons pooled their money to fund the burial of its members. Beginning in the 3rd century BC, Greece and Rome started forming benevolent societies that offered an early form of life insurance which paid the burial expenses of its members, and sometimes provided a payment to the widows and orphans of the deceased members.

During the Middle Ages, many craft guilds, especially those in England and Italy, also provided benefits to its members and their families in the event of injury, illness or death.
The first well-known life insurance policy was written in England in the late 1500s. The Insurance Company in North America sold the 1st life insurance policies in the United States to the public in 1792. In the 1800s, mutual insurance companies were formed, which was owned by policyholders, who shared profits.

The beginning of modern insurance

During the 1800s and 1900s, society and industry were becoming far more complex, thus giving rise to many other forms of insurance. For example, the 1st motor insurance was sold in 1897. In the 1920s, the sales of auto insurance greatly increased as the number of vehicles incremented.

In the mid-1800s Casualty insurance 1st appeared and sell insurance to  offer protection against accidents to railroad passengers. The Travelers Insurance Company sold its 1st policy in 1864.

Health insurance also largely started in the 1900s, especially as healthcare became more specialized and expensive. As factories and other industries began to use more machinery, many people were injured on the job, giving rise to workers indemnity in 1910. Also in the 1900s, many social insurance programs were performed, including the Social Security Act in 1935 and Medicare in 1965.

Before 1950, many state laws required insurance companies to specialize in particular kinds of coverage, but later, insurers were permitted to offer package policies that combined the various forms of coverage, such as homeowners insurance and liability.

Afterwords, to increase competition, other types of companies besides insurance companies, such as banks, were permitted to sell insurance. Insurance had become accepted practice. Farmers needed crop and  travelers wanted travel insurance.

Every person turned to insurers to buy peace of mind.

Benefits of Insurance

We realize that insurance plays a central role in financial well-being, helping to provide financial security when it’s needed most.Key reasons are :

  • Protection from financial hardship : Every family depend on financial support to enjoy a decent standard of living. If the unexpected happens insurance protected from financial hardship .
  • Diminish stress during difficult times : None of us know what lies around the corner. Unexpected tragedies such as illness, injury or permanent disability, even death – can leave us facing tremendous emotional stress, and even grief. With insurance in place, our financial stress will be reduced, and we can focus on recover reduce stress during financial hardships: try and rebuilding our lives.
  • To enjoy economic security : No matter what our financial position is today, an unexpected event can see it all unravel very quickly. It offers a payout so that if there is an unforeseen event we and our family can hopefully continue to move forward.
  • Peace of mind : No amount of money can replace our health and well-being – or the role we play in our family. But we can at least have peace of mind knowing that if anything happened to us, our family’s financial security is assisted by insurance.
  • Protects the Small Business : If a risk goes wrong, the big business will be able to survive. They can take a hit. But the little business can’t take a hit. As a result, they are more risk averse, and in some cases, they sell out to the big business.But insurance support the small business to recover from financial loss.
  •  Ensures Family and Business stability.
  • It is a protection for when risks go wrong.
  • Helped a community to recover after a crisis.
  • Providing a safety net for new opportunities.

How to find and recognize an fair-dealing and reliable good Insurance Company

The purpose of this blog is to share different things to consider when deciding where to place  insurance business.

  • The company’s reputation : We should take time to investigate the company before committing to them.
  • Legal Accreditation : It is also important to select an insurance company that is government approved and recognized.
  • Coverage : Select an insurer that provides appropriate coverage for  personal or business needs.
  • Financial strength : This one is also extremely important. There have been many cases where insurer failed and people had to lose their claims.
  • Locality : People now purchase insurance online and that’s not a bad thing as it offers comfort and convenience .But careful when buying insurance products online. It is better to go with an insurance company with physical presence in local area.
  • Customer Service : We would also need to find out how well this company treats its customers.
  • Price : While price should be a consideration when purchasing a policy.To find out which company has the best prices, ask for quotes from as many insurer as we can and then eliminate until  search the most suitable one .Remember the old saying, “You get what you pay for” .
  • Full disclosure : No hanky-panky games please! Always agree for an insurance company with full disclosure policy. Make sure that we  know all the terms and conditions of the policy we are purchasing.
  • Suitability of products : Find out if the company has products that are peculiar to your business needs.
  • Available discounts : Many insurer offer discounts. Find out what discounts apply to our situation.
  • Payment of claims : Lastly, you should find out how well this company pays insurance claims.

Each and every person requires the insurance .It is a method or process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose.It is not only a protection but is a sort of investment because a certain sum is returnable to the insured at the death or the expiry of a period.

If risk is like a shimmering coal that may spark a fire at any moment, Insurance is our fire extinguisher.


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