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Life is full of uncertainties. The chances

of occurrence of an event causing losses

are quite uncertain. There are risks of death and disability for human life; fire

and burglary risk for property; perils of

the sea for shipment of goods and, so

on. If any of these takes place, the

individuals and/or, organisations may

suffer a great loss, sometimes beyond

their capacities to bear the same. It

is to minimise the impact of such

uncertainties that there is a need for

insurance. Investment in factory

buildings or heavy equipments or other

assets is not possible unless there is

arrangement for covering the risks, with

the help of insurance. Keeping this in

mind, people facing common risks come

together and make small contributions

to a common fund, which helps to

spread the loss caused to an individual

by a particular risk over a number of

persons who are exposed to it.

Insurance is thus a device by which

the loss likely to be caused by an

uncertain event is spread over a

number of persons who are exposed to

it and who prepare to insure themselves

against such an event. It is a contract

or agreement under which one party

agrees in return for a consideration to

pay an agreed amount of money to

another party to make a loss, damage

or injury to something of value in

which the insured has a pecuniary

interest as a result of some uncertain

event. The agreement/contract is put

in writing and is known as ‘policy’. The

person whose risk is insured is called

‘insured’ and the firm which insures the

risk of loss is known as insurer/

assurance underwriter.