Wednesday, January 13, 2010

Fundamentals of Insurance

Fundamentally, Insurance is a sharing device. It is a method of spreading and transferring the risk. The losses to assets resulting from natural calamities like fire, flood, earthquake, accidents, etc. are met out of the common pool contributed by large number of persons who are exposed to similar risks.

The pool is created by the contribution of money called Premium from many, and a few who suffer losses are compensated by the Insurer. Its imperative that insured person should not make any gains out of Insurance. The business of insurance is related to the protection of economic value of assets.

As an individual any person is an asset who offers emotional and financial support to his/her family by being there. But in a fateful circumstance of death, the person’s emotional support can not be re-obtained. However, Insurance can replace financial support which is key for the sustenance of the dependents, provided the person is insured.

Insurance, hence can be understood as a phenomenon that provides continuity in case of any loss and prevents life being seized at that particular point of time by offering monitory support to move forward.

In nutshell life insurance can be understood as the financial presence of the deceased person, whereas on the other hand General insurance is sharing of financial loss. Both, in nature are protection against any happening or damage.


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