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Introduction To Insurance

Updated on June 27, 2010

Objectives

At the end of this hub, we are going to understood

The basic concepts relating insurance.

Brief history of insurance.

The meaning of words 'peril' and 'risk'.

Different kinds of risks.

What is Insurance?

The bussiness of insurance is related to the protection of the economic values of assets.

Every asset is expected to last for a certain period of time during which it will provide the benefits.

Insurance is the mechanism that helps to reduce the effects of such adverse situations. It promises to pay to the owner or beneficiary of the asset, a certain sum if the loss occurs.

Brief History of Insurance

The first fire insurance company, called the Fire Office, was started in 1680.

The origins of insurance bussiness as in vogue at present, is traced to the Lloyd's Coffee House in London.

I India, insurance began in 1818 with life insurance being transacted by an English company, the Oriental Life Insurance Co. Ltd.

The first indian insurance company was the Bombay Mutual Assurance Society Ltd., formed 1896 in Mumbai.

Life Insurance Corporation of India (LIC) was formed on 1st September 1956.

Purpose And Need of Insurance

Possible accidental occurrences are called perils.

Breakdowns, fire, floods, lightning, earthquakes etc. are the examples of perils.

Perils are the events.

Risks are the conseqential losses or damages.

In the case of human being, death is certain, but the time of death is uncertain. The person is insured because of this uncertainty.

Insurance does not protect the asset. It does not prevent it's loss due to the peril.

Insurance only compensates for the losses. Insurance not fully compensates the losses.

Only economic consequences can be insured. If the loss is not financial, insurance may not be possible.

Classification of Risks

First classification is based on the extent of the damage likely to be caused.

Critical or Catastrophic risks are those which may lead to the bankruptcy of the owner.

Less damaging risks are Unimportant risks, like temporary illness.

Another classification is between Financial and Non-Financial Risks.

A third classification is between Dynamic and Static risks.

Fundamental risks are those that affect large populations while Particular risks affect only specific persons.

One more classification is between Pure risks and Speculative risks.

So This is the classification of risks.

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