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The term ‘Insurance’ refers to a contract between two parties, one known as insured and the other insurer. Insurance provide a cover to all sorts of business risks.

  • Document containing the contract is known as ‘Insurance Policy’.

  • Person whose risk is insured is called ‘Insured’ or ‘Assured’.

  • Person or the company which insures is known as ‘Insurer’, or ‘Assurer’.

  • Consideration in return for which the insurer agrees to compensate the insured is known as ‘Premium’.

Importance of Insurance

  • Protection against risk: Various risks involved in business in form of a provision to compensate for the loss suffered by the insured.

  • Pooling of risk: Effect of the loss is spread over a large number of people.

  • Helps in securing loans: Insurance makes their security convenient to secure loans and advances from the financial institutions.

  • Protection against liabilities under various labour laws: Accidents leading to fatal injury, partial injury, disablement, as well as sickness and maternity.

  • Contribute to economic development: Insurance companies contributed fund to economic development are invested in various types of securities and projects.

  • Generation of employment: Provide employment to a large number of people on regular basis and working as insurance agents.

  • Social security: Life insurance provides security against risks and social security is provided to workers through the employee’s state insurance scheme.

Types of Insurance

(a) Life Insurance

  • Life insurance is a contract that protects you against such types of situation.

    • Two basic types of life insurance policies:

      • Whole-life policy

      • Endowment Policy

    • Some situation like:

    • Person may face an untimely death on account of an accident or some illness.

    • Family of the deceased faces financial hardship.

    • Attaining old age one may not have enough money to manage a comfortable living.

    • Need a large sum of money such as marriage of a son or daughter, higher professional education, etc.

  • Protection against the uncertainty of life.

  • Its scope has been extended to other areas like health insurance, disability insurance, pension plan, etc.