Insurance Services Part 1

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For trading business there are lots of things to need for maintain like in shops many articles are stored for sale, in factories where machines are installed to manufacture products. All these involve lot of money and there is always a risk of loss on their way. For example, storing goods in the shop for sale involves lot of money spent on buying those products and there is always a risk that the products may get damaged before they are sold. The damage may be due to accidents like fire, natural calamities or even because of riot or theft. Similarly, in factories the machines may break down causing heavy loss. Under all these circumstances there is always a loss incurred by the businessman. Not only the assets or properties of businessman, human being them self is not out of danger because of the risk involved in some of the activities undertaken by him on day-to-day basis. Human being may suffer any disease or face accident which may cause a great loss to his family.

Meaning of Insurance

Insurance is the means by which risks of loss or damage can be shifted to another party called the insurer on the payment of a charge known as premium. The party whose risk is shifted to the insurer is known as the insured. Obviously, insurer is generally an organization (Insurance Company), which is willing to share the loss or damage and it is also qualified to do so.

“Insurance is a contract between the insurer and insured whereby the insurer undertakes to pay the insured a fixed amount, in exchange for a fixed sum known as premium, on the happening of a certain event (like at a certain age or on death), or compensate the actual loss when it takes place, due to the causes mentioned in the contract.”

Insurance is a form of cooperation through which all the insured, who are subject to a risk, pay premium and only one or few among them who actually suffer the loss or damage is/are compensated. Actually, the number of parties exposed to a risk is very large and only a few of them might actually suffer loss during a certain period. The insurer (company) acts as an agency to spread the actual loss suffered by a few insured parties among a large number of parties.

Objectives

• Explain the nature of business risks;

• Define insurance;

• Explain the importance of insurance;

• Identify different types of insurance;

• Describe the salient features of life insurance, fire insurance, marine insurance and other types of insurance; and

• State the principles applicable to a contract of insurance.

Nature of Business Risks

There is various risk arise in trading like, to face the loss as a result of the change in market conditions, result in loss of income or profit, goods may be lost in course of transportation, may be accidental fire in the godown, workers of the factory may go on strike. You may not be able to anticipate or control some of these possibilities. This is the concept of risk. Risk is the possibility of loss or damage due to factors over which the businessman has little or no control.

All business activities are subject to uncertain events or happenings and may suffer loss or damage. Timely precaution can be taken to avoid some of the losses. But certain losses and damages have either to be borne by the businessman himself, or if possible, shared with others.

The possibility of loss or damage can be divided into two broad categories: Uncertainties and Risks. Uncertainties are the events, which cannot be foreseen. But risks can be anticipated in the light of past experience. The chances of fire in the factory or godown depend upon precautions taken to prevent its occurrence, or having necessary preparedness to keep the resulting loss to a minimum level. So, is the case with loss or damage by theft or accidents.

There is a significant place in business which contain great risks. While goods are transported from place to place, there may be accidents causing, damage or loss of goods. Trains may be derailed, bridges may collapse, or airplane may crash due to engine trouble. Trucks may be looted on their way to another city. Damage may be caused to goods sent by ship at the time of loading or unloading at sea ports. Such damages or losses be compensating over insurance.

Types of Risks

Speculative Risk: Risks relating to business judgment based on speculation. For example, change in fashion, govt. policy etc.

Pure Risk: Risks where the chance of loss is predictable.

Property Risk: Related to Loss of property.

Personnel Risk: Related to life or health of the people.

Financial Risk: Related to financial transactions of the business.

Marketing Risk: Risk associated with marketing of goods.