Insurance

Insurance

 Insurance is a form of agreement between an insurance company and private individuals and/or organizations.

 In exchange for a payment of a sum of money (premium), the private individuals and/or organizations are guaranteed compensation for losses to them resulting from certain risks like fire, burglary, flood, accident, etc



Purpose of Insurance

 Every business will faced some risks like fire, burglary, flood, accident, etc therefore by having insurance, the business can protect themselves from these kind of risks



Insurance principles:


Indemnity
 
 Its means that someone seeking to take out insurance should not be able to gain profit from a loss incurred
 
Insurable interest
 
 This principle stops private individuals and organizations from trying to gain from insurance and other people’s misfortune


 E.g. A business man who insures his shop against fire, where he believe that if his shop catches fire, he’ll suffer losses therefore a person who don’t have their own property cannot take out insurance to cover that property

Utmost good faith
 
 This means that both parties in the contract must act with utmost good faith (honesty) towards one another during the negotiations before an insurance contract is agreed and in the handling of claims afterwards


 Therefore the person who taking the insurance have to give correct and up to date information

Insurable risk
 
 Some risks can be measured based on statistical records


 Therefore insurance companies can offer such an insurance as they can calculate the cost of the risk

 Examples: fire, personal accident, motor accident, theft and burglary

Non – insurable risk
 
 Certain risk cannot be insured against because they cannot be measured based on past experiences


 Examples: Poor management or war