INTRODUCTION TO INTRODUCTION TO INSURANCEINSURANCE

MEANING OF INSURANCEMEANING OF INSURANCE

Insurance is a contract of indemnity under Insurance is a contract of indemnity under which insurance company or insurer which insurance company or insurer agrees to pay a certain sum of money to agrees to pay a certain sum of money to compensate loss caused by the compensate loss caused by the occurrence of uncertain event in occurrence of uncertain event in consideration of certain periodical consideration of certain periodical payments i.e. premium.payments i.e. premium.

DEFINITION OF INSURANCEDEFINITION OF INSURANCE

Insurance may be defined in two ways:Insurance may be defined in two ways: Functional definition.Functional definition. Legal definition.Legal definition.

Functional DefinitionFunctional Definition

““Insurance is a co-operative device to Insurance is a co-operative device to spread loss caused by a particular risk spread loss caused by a particular risk over a number of persons who are over a number of persons who are exposed to it, who agree to insure exposed to it, who agree to insure themselves against that risk.” themselves against that risk.”

_prof. R.S.Sharma_prof. R.S.Sharma

LEGAL DEFINITIONLEGAL DEFINITION

““insurance is a contract in which sum of insurance is a contract in which sum of money is paid by the assured in money is paid by the assured in consideration of the insurer’s incurring the consideration of the insurer’s incurring the risk of paying a large sum upon a given risk of paying a large sum upon a given contingency.”contingency.”

_Chief Justice Tindal_Chief Justice Tindal

Features of InsuranceFeatures of Insurance Offer and Acceptance.Offer and Acceptance. Lawful objects.Lawful objects. Contract.Contract. Consideration.Consideration. Co-operative device.Co-operative device. Protection against financial risks.Protection against financial risks. Good faith.Good faith. Contract of indemnity.Contract of indemnity. Certainity and Contingency.Certainity and Contingency. Insurance is not gambling.Insurance is not gambling. Subrogation.Subrogation. Insurable interest.Insurable interest. Insurance is not named as charity.Insurance is not named as charity.

FUNCTIONS OF INSURANCEFUNCTIONS OF INSURANCE

Functions of insurance can be divided into Functions of insurance can be divided into three categories:three categories:

Primary insurance.Primary insurance. Secondary insurance.Secondary insurance. Other functions.Other functions.

Primary functionsPrimary functions

It provides certainity.It provides certainity. It distributes risks.It distributes risks. It provides security.It provides security.

Secondary functionsSecondary functions

It provides capital.It provides capital. It increases efficiency.It increases efficiency. It helps in judging the viability of major It helps in judging the viability of major

projects.projects. Insurance helps in loss reduction.Insurance helps in loss reduction.

Other functionsOther functions

Economic development.Economic development. Expansion of foreign trade.Expansion of foreign trade. It provides funds to invest.It provides funds to invest. Encouraging savings.Encouraging savings. It checks inflation.It checks inflation. Self-confidence and goodwill.Self-confidence and goodwill. Social security.Social security. Credit facilities.Credit facilities.

Evolution of insurance Evolution of insurance

Life insuranceLife insurance In 1536- Richard Mortin issued the first policy on Williams Gybbon’s In 1536- Richard Mortin issued the first policy on Williams Gybbon’s

life.life. In 1696- The mercer’s company came into existence.In 1696- The mercer’s company came into existence. In 1698- ‘Hand in Hand Society’ In 1698- ‘Hand in Hand Society’ In 1721- Parliament passed an act.In 1721- Parliament passed an act. In 1818- First foreign company i.e.Oriental Company was in India.In 1818- First foreign company i.e.Oriental Company was in India. In 1829- ‘Madras equitable company’ .In 1829- ‘Madras equitable company’ . in 1956- Mostly Indian companies entered into joint venture with the in 1956- Mostly Indian companies entered into joint venture with the

foreign companies to do jointly the business of life insurance.foreign companies to do jointly the business of life insurance. Some of which are:Some of which are: HDFC standard life insurance co. Ltd.HDFC standard life insurance co. Ltd. Max-New york Life insurance co. Ltd.Max-New york Life insurance co. Ltd. SBI Life Insurance Co. LtdSBI Life Insurance Co. Ltd

GENERAL INSURANCEGENERAL INSURANCE

Formed under Act.,1972.Formed under Act.,1972.

General insurance companies such General insurance companies such asas

New India insurance companies Ltd.New India insurance companies Ltd. Oriental fire and general insurance Oriental fire and general insurance

companies Ltd.companies Ltd. National insurance companies Ltd.National insurance companies Ltd. Reliance General insurance company.Reliance General insurance company.

Details of general insurance are as Details of general insurance are as followsfollows

Property insurance- (fire insurance & Property insurance- (fire insurance & marine insurance)marine insurance)

Liability insurance- (theft, fidelity, motor & Liability insurance- (theft, fidelity, motor & machine insurances )machine insurances )

Importance of InsuranceImportance of Insurance

Importance of insurance may be studied Importance of insurance may be studied under four heads:under four heads:

Importance to an individualImportance to an individual Importance to businessImportance to business Importance to commerce and industryImportance to commerce and industry Importance to society.Importance to society.

Importance to an IndividualImportance to an Individual

Insurance provides security and safety.Insurance provides security and safety. It provides peace of mind.It provides peace of mind. It eliminates dependency.It eliminates dependency. It serves as a source of savings.It serves as a source of savings. Life insurance as a sound investment.Life insurance as a sound investment. It protects mortgage property.It protects mortgage property. Others (family needs, old age needs and Others (family needs, old age needs and

so on)so on)

Importance to businessImportance to business

Financial help.Financial help. Reduces uncertainty of business losses.Reduces uncertainty of business losses. It improves efficiency.It improves efficiency. Indemnification.Indemnification. Grant of credit facilities.Grant of credit facilities. Continuous business.Continuous business. Employee’s security.Employee’s security.

Importance to commerce and Importance to commerce and industryindustry

Economic development.Economic development. Earns foreign exchange.Earns foreign exchange. Source of capital formation.Source of capital formation. Source of incomeSource of income

Importance to societyImportance to society

Protection to society’s wealth.Protection to society’s wealth. Economic growth.Economic growth. Standard of living.Standard of living. Social security benefits.Social security benefits. Equitable distribution of loss.Equitable distribution of loss. Removal of social evils.Removal of social evils. Accelerate the production cycle.Accelerate the production cycle. Reduction in inflation.Reduction in inflation. Huge funds.Huge funds.

Insurance as a social security Insurance as a social security tooltool

Security and safety.Security and safety. Peace of mind.Peace of mind. Encourage savings.Encourage savings. Provides investment.Provides investment. Meets various needs.Meets various needs. Helps in loss reduction.Helps in loss reduction. Increases efficiency.Increases efficiency. Enhancement of credit.Enhancement of credit. Control inflation rate.Control inflation rate. Confidence in work.Confidence in work.

Insurance and economic Insurance and economic developmentdevelopment

Relationship between insurance and Relationship between insurance and economic development.economic development.

Factor affecting E.D.Factor affecting E.D. Investment necessary.Investment necessary. Huge funds.Huge funds. Accelerate the production cycle.Accelerate the production cycle. Protection against risk.Protection against risk. Promotes foreign trade.Promotes foreign trade. Promotes financial stability.Promotes financial stability.