Banking Module 3

1. Define the concept of insurance.

Briefly explain the purpose, need &
benefits of getting insurance for an
individual & a businessman?
Insurance has been defined by various experts in different ways. Willett, for
example has defined it as "that social device for making accumulations to meet
uncertain losses of capital which is carried out through the transfer of risks of
many individuals to one person or to a group of persons". Pfeffer was of the view
that "insurance is a device for the reduction of the uncertainty of one party, called
the insured, through the transfer of particular risks to another party, called the
insurer, who offers a restoration, at least in part, of economic losses suffered by the
insured".

Insurance is based on the concept of risk pooling or risk sharing of losses.

Basically under this concept, all individuals suffering a similar risk, place an
agreed sum into a pool and the monies collected are used to indemnify any
contributing individual against any loss arising out of the risk. The pool can either
be managed by the individuals or paid to and managed by a company. In the
former, the plan is known as mutual insurance while in the latter, the company
managing the pool is known as a stock life insurance company.
For example, supposing in a certain typhoon prone community, there are 2000
houses, each worth $100000 and each is exposed to the same probability of being
destroyed by a typhoon. In a particular year, if the statistics indicate that two of the
houses will be destroyed by typhoon, this means that each house owner is
relatively safe as he only faces a 0.1% chance that his house will be destroyed.
However, should he be so unlucky as to constitute the 0.1%, his loss will be
devastating. However, by setting up a common fund of $200000 to be used to
compensate any two houseowners hit by typhoon, each house owner gains the
assurance that any loss arising from the risk is minimised. Further, to accumulate
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this fund, each household only needs to contribute an affordable premium of $100.
Each house owner therefore, pays a premium of $100 to buy peace of mind.
Life Quote Center is where you can get best life insurance rates. Different Life
Insurance companies have different quotes. Life Quote Center provides instant
term quotes for you so that you can get determine what is the best Sum Assured
that you can be covered according to your budget. The website provides
information about Life Insurance and to make your comparison and decision
better, Life Quote Center provides financial ratings for insurers or life Insurance
companies.
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2. Explain various functions of

insurance?
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3. Write a note on the characteristics
& the importance of insurance?
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4. What is a contract of insurance?

What are the various types of
insurance contract?
An insurance contract is a document representing the
agreement between an insurance company and the
insured. Central to any insurance contract is
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the insuring agreement, which specifies the risks that
are covered, the limits of the policy, and the term of
the policy. Additionally, all insurance contracts specify:

 conditions, which are requirements of the insured,

such as paying the premium or reporting a loss;
 limitations, which specify the limits of the policy,
such as the maximum amount that the insurance
company will pay;
 exclusions, which specify what is not covered by
the contract.
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5. What do you mean by insurance?
Discuss elaborately the principles of
insurance?
insurance is a means of protection from financial loss. It is a form of risk
management primarily used to hedge against the risk of a contingent, uncertain loss.

An entity which provides insurance is known as an insurer, insurance company, or

insurance carrier. A person or entity who buys insurance is known as an insured or
policyholder. The insurance transaction involves the insured assuming a guaranteed and
known relatively small loss in the form of payment to the insurer in exchange for the
insurer's promise to compensate the insured in the event of a covered loss. The loss
may or may not be financial, but it must be reducible to financial terms, and must involve
something in which the insured has an insurable interest established by ownership,
possession, or preexisting relationship
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.

6. Define the term insurance? How it

is different from assurance? Explain
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the various kinds of life & non-life
insurance contract?
insurance is a means of protection from financial loss. It is a form of risk
management primarily used to hedge against the risk of a contingent, uncertain loss.

An entity which provides insurance is known as an insurer, insurance company, or

insurance carrier. A person or entity who buys insurance is known as an insured or
policyholder. The insurance transaction involves the insured assuming a guaranteed and
known relatively small loss in the form of payment to the insurer in exchange for the
insurer's promise to compensate the insured in the event of a covered loss. The loss
may or may not be financial, but it must be reducible to financial terms, and must involve
something in which the insured has an insurable interest established by ownership,
possession, or preexisting relationship

INSURANCE ASSURANCE

Meaning Insurance refers to an arrangement, which Assurance is a provision for

provides cover for an event that can coverage of an event, whose
happen but not necessarily, like flood, happening is certain, such as
theft, fire etc. death.

Based on Principle of indemnity Principle of certainity

Protection An anticipated event A definite event

against

Timing for Only at the happening of the uncertain Either on the happening of the
payment of event. event or on maturity.
claim

Duration Only for one year, renewable after year. Long term, running over number
of years.

Type General insurance Life insurance

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Purpose To indemnify the insured, against any kind To assure payment, on the
of risk. happening of the specified event.

Policy Taken to prevent a risk or provide against Taken against an event, whose
it. occurrence is certain.

Insurer Undertakes to reinstate the insured to Undertakes to pay the sum

his/her previous position. assured, when the event takes
place.

Insured Undertakes to pay premium regularly, in Undertakes to pay premium

exchange for indemnity against risk. regularly, in exchange for benefit,
on the occurrence of the event
covered.
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7. How was the insurance industry
developed in India? Describe the
major reform in the Indian
insurance sector?
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