Page 12 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 1: Evolution and Meaning of Insurance

Self Assessment Notes

Fill in the blanks:
3. The first kind of formal insurance business was ………………………… insurance.
4. The Romans used ……………………….. clubs as a form of life insurance, providing funeral
expenses for members.

1.3 Meaning of Insurance

Now, let’s find out what exactly is meant by insurance.
Encarta Encyclopaedia explains insurance as–

Insurance is a contractual arrangement that provides for compensation by an insurer to an
insured part if a specify set of circumstances occurs. These circumstances could be death, personal
injury, accident, loss or damage to property or any other number of occurrences that can be
compensated for an economic value.
The insurance company operates by collecting small contributions from many people who are
exposed to risks. The money thus collected in the form of contributions is used to settle the
claims of those people who fall victim of such risks. The contributions thus collected by the
insurance company are known as premium.
Insurance is seen as an investment, to some individuals. But here the question arises, is insurance
an investment? The answer would be, no, insurance is not an investment. Insurance is a way
through which people share their risks with others. It is a way of getting protection against the
damages associated with some mishaps. No matter how careful one may be, he/she must need
one or other type of insurance.
It is well understood by now that when you buy insurance, it means that you are sharing your
risks with others. Basically, the insurance firm is a risk management firm that can help anyone
to minimize the risks associated with an individual’s day to day activities. Man is vulnerable to
dangers and by virtue of this need insurance to help him cope in an unfriendly world.
Another thing one has to know when buying insurance is “insurance policy”. The insurance
policy is the guideline of the insurance company. Insurance policy will assist you in choosing a
better option for your insurance needs.

Examples of Insurance

Some readers may already have used insurance to reduce economic risk. You may purchase
collision insurance for your car, which will pay toward having your car repaired or replaced in
case of an accident. You can also buy coverage that will pay for damage to your car from causes
other than collision, for example, damage from hailstones or vandalism.

!
Caution In many places, to drive a car legally, you must have liability insurance, which
will pay benefits to a person that you might injure or for property damage from a car
accident.
Insurance on your residence will pay toward repairing or replacing your home in case of
damage from a covered peril. The contents of your house will also be covered in case of damage
or theft. However, some perils may not be covered.

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