Tag Archives: insurance
What is life Insurance
The business of insurance is related to the protection of the economic values of assets. Every asset has a value. The asset is valuable to the owner because he expects to get some benefits from it. It is a benefit because it meets some of his needs. The benefit may be an income or in some other form. In the case of a factory or a cow, the product generated by it is sold and income is generated. In the case of motorcar, it provides comfort and convenience in transportation. There is no direct income. Both are assets and provide benefits.
Every asset is expected to last for a certain period of time during which it will provide the benefits. After that, the benefit may not be available. There is life time for a machine in a factory or a cow or a motor car. None of them will last forever. The owner is aware of this and he can also manage his affairs that by the end of that period or lifetime, a substitute is made available. Thus he makes sure that benefits is not lost. However, the asset may get lost earlier. An accident or some other unfortunate event may destroy it or make it incapable of giving the benefits. Insurance is a mechanism that helps to reduce the effects or such adverse situations. It promises to pay to the owner or beneficiary or the asset, a certain sum if the loss occurs.
business of insurance
Insurance companies are called insurers. The business of insurance is to bring together persons with common insurance interest, collect the share or contribution from all of them and payout compensations to those who suffer from the risks.
Life insurance includes all risks related to the lives of human beings and general insurance covers the rest. General insurance has three classifications, FIRE (dealing with all fire related risks), MARINE(dealing with all transport related risks), MISCELLANEOUS (dealing with all other liability, fidelity, motor, crop, engineering, construction, aviation, personal accident etc,.. ). Personal accidents and sickness insurance which are related to human beings.
The premium for insurance is based on expectations of the loses. These expectations are based on studies of occurrences in the past and the use of statistical principles. The business of insurance is one of sharing. It spreads losses of an individual over group of individuals who are exposed to similar risks. People who suffer loss get relief because at least part of their loss is made good. People who do not suffer loses are relieved because they were spared the loss.
