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.