𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞, 𝐃𝐞𝐟𝐢𝐧𝐢𝐭𝐢𝐨𝐧 𝐨𝐟 𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞, 𝐂𝐡𝐚𝐫𝐚𝐜𝐭𝐞𝐫𝐢𝐬𝐭𝐢𝐜𝐬 𝐨𝐟 𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞, 𝐍𝐚𝐭𝐮𝐫𝐞 𝐨𝐟 𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞, 𝐅𝐮𝐧𝐜𝐭𝐢𝐨𝐧𝐬 𝐨𝐟 𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞 (2024)

Insurance: in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate (indemnify) the insured in the case of a large, possibly devastating loss. The insured receives a contract called the insurance policy which details the conditions and circ*mstances under which the insured will be compensated.

General Insurance: Insuring anything other than human life is called general insurance. Examples are insuring property like house and belongings against fire and theft or vehicles against accidental damage or theft. Injury due to accident or hospitalisation for illness and surgery can also be insured. Your liabilities to others arising out of the law can also be insured and is compulsory in some cases like motor third party insurance.

Definition of Insurance

Insurance is a cooperative form of distributing a certain risk over a group of persons who are exposed to it. – Ghosh and Agarwal
Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency. – Justice Tindall
Insurance may be described as a social device whereby a large group ofindividuals, through a system of equitable contributions, may reduce oreliminate certain measurable risks of economic loss common to allmembers of the group. – Encyclopedia Britannica
Insuranceis an instrument of distributing the loss of few among many. – Disnadle
Thecollective bearing of risk is Insurance. – W. Beverideges
Aprovision which a prudent man makes against fortuitous or inevitablecontingencies, loss or misfortune. – Thomas
Insuranceis a device for the transfer to an insurer of certain risks of economicloss that would otherwise come by the insured. – Allen Z. Mayerson
Insurancehas been defined as a plan by which large numbers of people associatethemselves, to shoulders of all, risks attach to individuals. – MageeD.H.
Insurancemay be defined as a social device providing financial compensation forthe effects of misfortune, the payments being made from the accumulatedcontribution of all parties participating in the scheme. – D.S. Hansell
Insuranceby lessening uncertainty, frees the individual from same element ofrisk. – Relph H. Wherry & Monroe Newman
Insuranceis purchased to offset the risk resulting from hazardous which exposes aperson to loss. – Robert I. Mehr and EmersonCammack
Insuranceis a contract by which one party, for a compensation called the premiumassumes particular risk of the other party and promises to pay to him orhis nominee a certain or ascertainable sum of money on a specifiedcontingency. – E.W. Patterson

Characteristics of Insurance

It is a contract forcompensating losses.
Premium is charged forInsurance Contract.
The payment of Insuredas per terms of agreement in the event of loss.
It is a contract ofgood faith.
It is a contract formutual benefit.
It is a futurecontract for compensating losses.
It is an instrument ofdistributing the loss of few among many.
The occurrence of theloss must be accidental.
Insurance must beconsistent with public policy.

Nature of Insurance

Sharing of Risks
Co-operative Device
Valuation of Risk
Payment made oncontingency
Amount of Payment
Large Number ofInsured Persons
Insurance is notgambling
Insurance is notcharity

Functions of Insurance

Primary Function

Provision of certaintyof payment at the time of loss
Provision ofprotectionRisk sharing

Secondary Function

Prevention of loss
Provision of Capital
Improvement ofefficiency
Ensuring welfare ofthe Society…

Insurance, Definition of Insurance, Characteristics of Insurance, Nature of Insurance, Functions of Insurance

Insurance is a mechanism that provides financial protection to individuals or organizations against unexpected losses. It is an arrangement between two parties, the insurer and the insured, where the insurer agrees to compensate the insured for a loss in exchange for a premium. The concept of insurance has been around for centuries and has evolved over time to meet the changing needs of society.

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FAQs

What is insurance definition and characteristics? ›

Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect against the risk of a contingent or uncertain loss.

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What is the nature definition and function of insurance? ›

Legally insurance has been defined as a contract where the insurer agrees to compensate the insured against the losses incurred due to any unforeseen contingency. The contract also involves a consideration which is called a premium. The maximum available benefit amount is called sum assured or sum insured.

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What is insurance characterized as? ›

Under California law, for example, insurance is “a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.”1 On its face, this definition could apply to any contract that includes an indemnification clause.

What is the definition and nature of general insurance? ›

General insurance is an agreement between a policyholder and insurer wherein the insurance company protects your valuable assets from fire, theft, burglary, or any other unfortunate accident. Often, general insurance is confused with life insurance. But, the two terms have vast differences.

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What are the basic characteristics of term insurance? ›

Term life is typically less expensive than a permanent whole life policy – but unlike permanent life insurance, term policies have no cash value, no payout after the term expires, and no value other than a death benefit.

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What is the purpose of insurance definition? ›

Purpose of insurance

Its aim is to reduce financial uncertainty and make accidental loss manageable. It does this substituting payment of a small, known fee—an insurance premium—to a professional insurer in exchange for the assumption of the risk a large loss, and a promise to pay in the event of such a loss.

How to explain insurance? ›

Insurance is a way to protect yourself from financial risks by paying a company a small amount of money, called a premium. If something bad happens, like a car accident or a house fire, the insurance company helps cover the costs so you don't have to pay for everything yourself.