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Insurance Overview

Meaning

An act of insuring, or assuring, against potential future losses in exchange for a periodic payment called premium. In other words, one of the parties undertakes to indemnify or guarantee another party against loss by certain specified risks.

Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risks of similar types.

Definition

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium.

Benefits of Insurance

  • Financial Security of Life and Assets in case of an unfortunate event
  • Tax Relief by way of deductions from Income, which lowers tax burden
  • Encourages saving and helps in Financial Planning for the Future
  • Life Insurance Policies can be used as a security to obtain a Loan

Historical Perspective

The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly, in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more risky for coverage.

The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge the same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880. The General insurance business in India, on the other hand, can trace its roots to the Triton (Tital) Insurance Company Limited. The first general insurance company was established in the year 1850 in Calcutta by the British. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies.

Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the provident fund Act of 1912. Several frauds during 20's and 30's sullied insurance business in India. By 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict State Control over insurance business. The insurance business grew at a faster pace after independence. Indian companies strengthened their hold on this business but despite the growth that was witnessed, insurance remained an urban phenomenon.

Types of Insurance

There are many types of Insurance products available today covering both Life and Non-Life. In Non-Life, apart from personal covers such as accident covers and health insurance, there are products covering liabilities under a particular law and or common law. The various products are designed to cater to different needs of an individual or industry such as fire insurance policy on multi-storied building, policy on personal property which includes things like jewelry, electronic equipment and even owned vehicle's.

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