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Nature and Scope of Insurance
Nature & Scope of Insurance | studynotes1.com
What is Meaning of Insurance/ Nature and Scope of Insurance
Meaning of Insurance
Insurance is a social arrangement through which a plan is taken to guarantee possible compensation in return for payment of premium specified by the company or the state. Insurance is considered to be the best invention of social cooperation. Human life is plagued by a variety of problems. It is not possible to predict when any kind of natural or man-made disaster will occur. It is a unique way of social security to prevent fires in natural disasters, earthquakes, tsunamis, landslides, lightning strikes, fires in man-made disasters, short circuits, bomb blasts, thefts, burglary, dishonesty as well as various kinds of damage and loss. A natural or man-made event can lead to disability or death. So it is time for the person’s family to live an unfortunate life and face financial crisis. Insurance is a way of compensating for the financial and social losses that result. The Insurance Regulatory Authority of India (IRA) was set up in 1999 to regulate all types of insurance business.
Nature and Scope of Insurance | studynotes1.com
What are the 6 Definition of Insurance/ Nature and Scope of Insurance
The concept of insurance is widely seen. The term has been defined by many insurance experts. Some of these interpretations are based on the contract while some interpretations are based on the way this insurance works.
1) Definition of Insurance is given by Prof. D.S. Hansell :
“A social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contributions of all parties participating in the scheme.”
2) Definition of Insurance is given by Dr. W. A. Dinsdale :
“Insurance is a device for the transfer of risks of individual entities to an Insurer, who agrees, for a consideration (Called the Premium), to assume to a specified extent losses suffered by the Insured.”
Nature and Scope of Insurance
3) Definition of Insurance is given by Riegel R and Miller J.S. :
“Insurance is a social device whereby uncertain risks of individuals may be combined in a group and thus made more certain; small periodic contributions by the individuals providing a fund out of which those who suffer losses may be reimbursed.”
4) Definition of Insurance is given by J. B. Maclean :
“Insurance is a method of spreading over large number of persons a possible financial loss too serious to be conveniently borne by an individual.”
Nature and Scope of Insurance
5) Definition of Insurance is given by Prof. Allan L. Mayerson :
“Insurance is a device for the transfer to an insurer of certain risks of economic loss that would otherwise be borne by the insured.”
6) Definition of Insurance is given by Justice Lawrence :
“Insurance is a contract by which the one party, in consideration of a price paid to him adequate to the risk, becomes security to the other that he shall not suffer loss, damage, or prejudice by the happening of the perils specified to certain things which may be exposed to them.”
Nature and Scope of Insurance | studynotes1.com
What is Nature of Insurance / Nature and Scope of Insurance
1. Social invention
Insurance is a great social invention of collective collaboration. In the concept of insurance, many people come together and accept the risk as decided by everyone and that risk is divided and the person who is going to suffer potential loss or damage is compensated for the loss in exchange for insurance premiums. In this way many elements of the society come together to create a specific type of fund and the person or organization that has suffered a loss is compensated. This is how financial protection is provided. Many individuals and organizations come together voluntarily to compensate for financial losses and provide protection from certain and uncertain dangers. This reduces the severity of potential future losses. In this way insurance is an invention of social cooperation. Nature and Scope of Insurance
2. Risk determination
In insurance, the risk is determined by the price value. Any type of risk is of a definite or uncertain nature. Taking out business insurance to avoid potential future risks in business life. The risk is determined in advance by the insurance contract when issuing and receiving the policy. In return for the assurance given by the insurance purchaser, the insurer agrees to reimburse in case of any specified loss in return for a fixed premium. The market value of the property is determined at the time of taking the policy. The higher the market value of the property, the greater the risk. Insurance premiums are charged according to the risk. Risk can be determined by other types of insurance. But in life insurance it is impossible to determine the risk or loss.
Nature and Scope of Insurance | studynotes1.com
3. Large number of insured persons:
Many people from different walks of life participate in the concept of insurance. In the case of insurance, it is easy to divide the actual loss into several persons, so that a number of persons or properties are insured. Due to the fact that many insurers have taken out insurance, the cost of insurance work is divided into several insurers. Since many insurers take out insurance, the risk of insurance loss is also divided among many individuals. Also the insurance premium comes down.
4. Risk Sharing and Risk Transfer:
Insurance is an important means of risk sharing, as well as risk transfer through insurance can be transferred to many insured. Depending on a particular incident, a person or his family may face a certain type of danger or if a person dies prematurely or becomes disabled, the financial crisis falls on that person. There is also the possibility of huge losses due to natural or unnatural disasters in the business as well as financial protection from natural disasters, fires, landslides, river floods, earthquakes, tsunamis, cloudbursts, as well as artificial disasters or man-made disasters. All policyholders accept community risk in the form of installments. This risk is transferred to a number of insurers. Risk transfer is the basic premise of insurance.
Nature and Scope of Insurance | studynotes1.com
5. Legal Agreement:
The insurance contract depends on the insurance laws and the constitution. As mentioned in the insurance contract, the insured and the insurer have a legal obligation to abide by each other’s agreements. The value is considered in the form of premiums to the insured as mentioned in the insurance contract and only then the contract is agreed to as well as the terms and conditions of the contract. Different types of insurance exist today as well as the type of insurance is determined by its functioning and risk and risk. Life insurance is based on life insurance. Since life is uncertain, the risk cannot be determined. Death is unpredictable. Also, it is not possible to say exactly how much damage will be done to a person. Risk can be determined in other types of insurance. In the case of marine insurance, fire insurance, accident insurance, etc., the compensation is determined by determining the risk by legal agreement.
6. Probability theory
Insurance work is based on probability theory. The probability theory estimates the amount of future losses, and the insurer agrees to pay direct or potential compensation by determining the risk based on this theory. In return for the insurance contract, the insured pays the premium to the insured for a specified period. Therefore, it is not possible to estimate how much loss will be incurred by the insured and the insured, hence the procedure of insurance is based on the principle of probability.Nature and Scope of Insurance
7. Insurance business
Insurance is a kind of business. Even though it has been called a social invention, it is a kind of business. In the early days, the purpose of the insurance business was to provide social security and financial security. But the insurance sector has evolved in modern times. Also, insurance has emerged as a business sector. The insurance business needs skilled individuals as well as organizations and with their help social security is provided. The insurance business has developed its own independent operating system. The insurance business also has its own set of laws, regulations and codes of conduct. Insurance is based on that.
Nature and Scope of Insurance | studynotes1.com
What is Scope of Insurance
All types of insurance contracts are made in the concept of insurance. For example, life insurance, marine, fire, and air insurance and narrow insurance are based on some basic principles in the contract. The principle of indemnity as an exception in life insurance which does not apply in the case of life insurance, as the contract in life insurance is a contingency contract. An insurance policy is a legal agreement between an insurance company and the insured. And for that agreement to be valid, certain terms, conditions and code of conduct must be complied with. The two parties to the agreement are bound by the agreement. They are legally bound to abide by the agreement. Therefore, it is necessary to study the principle included in the contract. Some guidelines or universal rules and procedures are required to actually carry out a task or action. The procedure of insurance needs to be followed by rules, facts or code of conduct. The universal rules, facts, and procedures are called guiding elements. It determines the workings of each individual. Also the responsibility of each person is determined. It is convenient for each of them to carry out their duties.
Nature and Scope of Insurance | studynotes1.com
