Insurance - Insurance: What is insurance? The business of...

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Insurance: What is insurance? The business of insurance is related to the protection of economic value of assets. Every asset has a value. Assets are insured because they are likely to be destroyed or made non functional through an accidental occurrence. Such possible occurrences are called perils. Fire flood breakdowns lightning earth quakes are called perils. The damage that these perils may cause the assets is the risk that the asset is exposed to. The risk only means that there is possibility of loss or damage. It may or may not happen. There has been an uncertainty about the risk. Insurance is done against the contingency that it may happen. Conceptually the mechanism of insurance is very simple. People who are exposed to the Same risks come together and agree that if any one of the members suffers a loss, the others will share the loss and make good to the person who lost. The share could be collected from the members after the loss has occurred or the likely shares may be collected in advance at the time of admission of the group. Insurance companies collect in advance and create a fund from which the losses are paid. Insurance does not protect the asset. It does not prevent the loss due to the peril. Only economic or financial losses can be compensated by insurance. The concept of insurance is extended beyond the coverage of tangible assets. Contract of Insurance : When the insured pays the premium and the insurer accepts the risk, the contract of insurance is concluded. The policy issued by the insurer is the evidence of the contract. The contract of insurance is completed when one party accepts the offer made by the other party. The offer usually comes from the proposer and the offer is known as the proposal. Insurers indicate acceptance by the issue of a cover note or a letter of acceptance. In the later event, the acceptance letter becomes another offer which is accepted by the payment of premium by the insured. No contract is valid unless there is due consideration. In the case of insurance contracts, premium is the consideration from the insured and the promise to indemnify is the consideration by the insurer. Minors and persons of unsound mind cannot enter into insurance contracts. The object of
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Insurance - Insurance: What is insurance? The business of...

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