INTRODUCTION TO INTRODUCTION TO INSURANCEINSURANCE

MEANING OF INSURANCEMEANING OF INSURANCE

Insurance is a contract of indemnity under Insurance is a contract of indemnity under which insurance company or insurer which insurance company or insurer agrees to pay a certain sum of money to agrees to pay a certain sum of money to compensate loss caused by the compensate loss caused by the occurrence of uncertain event in occurrence of uncertain event in consideration of certain periodical consideration of certain periodical payments i.e. premium.payments i.e. premium.

DEFINITION OF INSURANCEDEFINITION OF INSURANCE

Insurance may be defined in two ways:Insurance may be defined in two ways: Functional definition.Functional definition. Legal definition.Legal definition.

Functional DefinitionFunctional Definition

““Insurance is a co-operative device to Insurance is a co-operative device to spread loss caused by a particular risk spread loss caused by a particular risk over a number of persons who are over a number of persons who are exposed to it, who agree to insure exposed to it, who agree to insure themselves against that risk.” themselves against that risk.”

_prof. R.S.Sharma_prof. R.S.Sharma

LEGAL DEFINITIONLEGAL DEFINITION

““insurance is a contract in which sum of insurance is a contract in which sum of money is paid by the assured in money is paid by the assured in consideration of the insurer’s incurring the consideration of the insurer’s incurring the risk of paying a large sum upon a given risk of paying a large sum upon a given contingency.”contingency.”

_Chief Justice Tindal_Chief Justice Tindal

Features of InsuranceFeatures of Insurance Offer and Acceptance.Offer and Acceptance. Lawful objects.Lawful objects. Contract.Contract. Consideration.Consideration. Co-operative device.Co-operative device. Protection against financial risks.Protection against financial risks. Good faith.Good faith. Contract of indemnity.Contract of indemnity. Certainity and Contingency.Certainity and Contingency. Insurance is not gambling.Insurance is not gambling. Subrogation.Subrogation. Insurable interest.Insurable interest. Insurance is not named as charity.Insurance is not named as charity.

FUNCTIONS OF INSURANCEFUNCTIONS OF INSURANCE

Functions of insurance can be divided into Functions of insurance can be divided into three categories:three categories:

Primary insurance.Primary insurance. Secondary insurance.Secondary insurance. Other functions.Other functions.

Primary functionsPrimary functions

It provides certainity.It provides certainity. It distributes risks.It distributes risks. It provides security.It provides security.

Secondary functionsSecondary functions

It provides capital.It provides capital. It increases efficiency.It increases efficiency. It helps in judging the viability of major It helps in judging the viability of major

projects.projects. Insurance helps in loss reduction.Insurance helps in loss reduction.

Other functionsOther functions

Economic development.Economic development. Expansion of foreign trade.Expansion of foreign trade. It provides funds to invest.It provides funds to invest. Encouraging savings.Encouraging savings. It checks inflation.It checks inflation. Self-confidence and goodwill.Self-confidence and goodwill. Social security.Social security. Credit facilities.Credit facilities.

Evolution of insurance Evolution of insurance

Life insuranceLife insurance In 1536- Richard Mortin issued the first policy on Williams Gybbon’s In 1536- Richard Mortin issued the first policy on Williams Gybbon’s

life.life. In 1696- The mercer’s company came into existence.In 1696- The mercer’s company came into existence. In 1698- ‘Hand in Hand Society’ In 1698- ‘Hand in Hand Society’ In 1721- Parliament passed an act.In 1721- Parliament passed an act. In 1818- First foreign company i.e.Oriental Company was in India.In 1818- First foreign company i.e.Oriental Company was in India. In 1829- ‘Madras equitable company’ .In 1829- ‘Madras equitable company’ . in 1956- Mostly Indian companies entered into joint venture with the in 1956- Mostly Indian companies entered into joint venture with the

foreign companies to do jointly the business of life insurance.foreign companies to do jointly the business of life insurance. Some of which are:Some of which are: HDFC standard life insurance co. Ltd.HDFC standard life insurance co. Ltd. Max-New york Life insurance co. Ltd.Max-New york Life insurance co. Ltd. SBI Life Insurance Co. LtdSBI Life Insurance Co. Ltd