Insurance

Subject: Accountancy

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Overview

Insurance is the cooperative method of distributing the risk of an individual caused by death, fire, accident, etc. over a large number of individuals in exchange for a regular contribution called premium.
Insurance

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Insurance is a way, which provides security to the man and his property against the risk and uncertainty. It is the cooperative method of distributing the risk of an individual caused by death, fire, accident, etc. over a large number of individuals in exchange for a regular contribution called premium. In other words, it can be defined as the contract between two parties in which one party promises to pay a certain sum of money as a premium over the loss of life or physical properties and another party agrees to compensate in case of happening the events.

The following are some of the main definitions of insurance: -

“Insurance can be defined as a contract made by the person paying a certain amount based on estimated life and he or his representative gets the amount after his death or expiry of a policy period.” – Insurance Business Act, 2042

“Insurance is a co-operating device to spread loss caused by a particular risk over a number of persons who are exposed to it who agree to insure themselves against that risk.” – Prof. R. S. Sharma

From the above definition, it can be concluded that insurance is a co-operative device by which risks are distributed among a large number of persons. It provides security against the losses or risks to a man and his properties. It is a method of indemnifying financial loss occurred due to a particular risk.

Insurer and insured

An insurer is an insurance company which agrees to compensate the specified amount of losses occurred due to risk and uncertainty in return of a premium. It is the organization to which the risk of the loss is shifted. It is the party which provides financial protection against any specific risk of a person and organization.

An insured is a person or organization which takes insurance policy for getting financial compensation against the specified losses arising from risk and uncertainty from the insurer. It is a party who agrees to pay a premium to the insurer for the financial protection of his life and property. It is a party who transfers the financial risk to the insurer by paying the insurance premium.

Insurance Premium

The insured has to pay a certain sum of amount to the insurer in order to shift risk and uncertainty. The amount which is paid by the insured to the insurer to transfer the risk of financial losses of his life and property is called insurance premium. The insured gets financial compensation from the insurer against the amount of premium paid for a specific period. For providing financial protection to the properties, the insured pays the premium annually which is not refundable. However, the premium of the life insurance is paid on different installment for certain years. After the expiry of the period, the amount is refunded with a bonus.

Things to remember
  • Insurance is a way, which provides security to the man and his property against the risk and uncertainty. 
  • An insurer is a insurance company which agrees to compensate the specified amount of losses occurred due to risk and uncertainty in return of a premium.
  • An insured is a person or organization which takes insurance policy for getting financial compensation against the specified losses arising from risk and uncertainty from the insurer.
  • The amount which is paid by the insured to the insurer to transfer the risk of financial losses of his life and property is called insurance premium. 
  • It includes every relationship which established among the people.
  • There can be more than one community in a society. Community smaller than society.
  • It is a network of social relationships which cannot see or touched.
  • common interests and common objectives are not necessary for society.
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Questions and Answers

Insurance is a way, which provides security to the man and his property against the risk and uncertainty. It is the cooperative method of distributing the risk of an individual caused by death, fire, accident etc. over a large number of individuals in exchange for a regular contribution called premium.

Insurance is a way, which provides security to the man and his property against the risk and uncertainty. It is the cooperative method of distributing the risk of an individual caused by death, fire, accident, etc. over a large number of individuals in exchange for a regular contribution called premium. In other words, it can be defined as the contract between two parties in which one party promises to pay a certain sum of money as premium over the loss of life or physical properties and another party agrees to compensate in case of happening the events.

According to Insurance Business Act, 2042, “Insurance can be defined as a contract made by the person paying a certain amount based on estimated life and he or his representative gets the amount after his death or expiry of a policy period.”

According to Prof. R. S. Sharma, “Insurance is a co-operating device to spread loss caused by a particular risk over a number of persons who are exposed to it who agree to insure themselves against that risk.”

From the above definition, it can be concluded that insurance is a co-operative device by which risks are distributed among a large number of persons. It provides security against the losses or risks to a man and his properties. It is a method of indemnifying financial loss occurred due to particular risk.

The insured has to pay a certain sum of amount to the insurer in order to shift risk and uncertainty. The amount which is paid by the insured to the insurer to transfer the risk of financial losses of his life and property is called insurance premium. The insured gets financial compensation from the insurer against the amount of premium paid for a specific period. For providing financial protection to the properties, the insured pays the premium annually which is not refundable. However the premium of the life insurance is paid on different installment for certain years. After the expiry of the period, the amount is refunded with bonus.

An insurer is a insurance company which agrees to compensate the specified amount of losses occurred due to risk and uncertainty in return of a premium.

An insured is a person or organization which takes insurance policy for getting financial compensation against the specified losses arising from risk and uncertainty from the insurer.

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