Monday, 14 February 2022

What is the principal and features of insurance?

 Life is full of unpredictability. One never know when they might be surprised with a new present from the god side, and sometimes, they might need to face severe losses as well.

The losses is not limited to the loss of human life or disability for human, it might include major loss in business, damage of very expensive asset, falling down of building, and many more. The disasters are unpredictable and can knock the life anytime.

The major disasters in human life include risk regarding death and disability in human life, risk regarding property, business losses risk, car damages and many more. The losses in any of the case might exceed the capability of the person and he or she might not be capable enough to bear the losses. In such incidences, insurance provides a support helping in minimizing the losses and financially assists the person in their difficult times. 

Preventing the disaster and uncertainty is not in our control, but we can definitely plan before for minimizing the impact of possible risk.   Insurance is one of the most competent way of risk management for minimizing the impact of the disaster. One never knows what is coming up to. Risk management from the beginning and planning for the future is the best way to optimize the life as well as business. Insurance helps the business to be capable for  dealing with the possible risks and disaster and minimize the losses.

Insurance helps by providing small contribution in sharing risk of losses with people. Basically, Insurance assists financially in all the disaster conditions. Insurances are further categorized in different types based on their features, services, and motives. Like the Life insurance helps the family of the dead person deal with the financial crises. Similarly the insurances of any assets helps the company get the financial support on breaking down of any insured expensive asset.

Different types of insurances include life insurances, health insurance, business insurance, and so on. Insurance is a written agreement between insurance company and person or business where a person agreed on paying a particular amount of money on monthly or yearly basis for covering the risk of uncertain events. And, in the case of any disaster or damage to the insured property, the insurance company give financial assistance for minimizing the loss.

Here in this guide, we will discuss the primary principles of the insurance.

Principles of insurance

The main principle of insurance states where people and organization choose to spend a little money in the form of premium in order for covering the uncertainty or the financial loss in case of damage of the insured property.

The insurance makes the person or the company to pay a particular amount of premium amount on monthly or yearly basis and assures to help them cover the financial loss in the case of damage to the insured property or person. 

This way, the insurance company basically shares the risk with the client and help them financially to deal with the disastrous event.

The major principles of insurance include:

Utmost good faith

Both the party needs to show good faith toward to each other. There is need for an agreement between the insurance company and the client stating all the terms and conditions, features, services, premium amount, etc clearly.

Both the client and the company should not mislead each others on legal grounds. The insurance company are required to disclose all the facts, terms and conditions, features, actual premium amount, etc to the insurer. And, similarly the insurer should also be honest in terms of the condition and the risk possibility for the property. 

Insurable interest

No one will buy insurance in the case when it does not offer covering of financial losses in the disastrous time. The primary principle of the insurance is to help the family as well as the organization to cover and deal with the financial loss in the case of disaster.

By paying the premium amount, the insurer is actually making the insurance company liable for paying the amount in case of any damage to the insured property of the person. The company should be responsible for helping the client come out of their financial difficulties.     

Indemnity

Insurance is a contractual agreement where the insurance company claims for helping the insured person or the company to provide them compensation in form of financial help on damage of the insured object in against of premium amount. Indemnity is the principle of insurance company  as it is their duty to offer the protection and the security against the loss or damage of the insured property.  

Proximate

The main claim of the insurance company is that they offer the financial support on the damage or financial loss of the insured property. As per this principle, if any insured property damaged because of two or more reason, the company should offer the compensation for the most dominant damage.

Subrogation

The principle of suborgation allows the insurance company to ask for the claim amount from the third damaging party. If in any case when the damage to the insured property is done by any third party, the person can claim from compensation from the insurance company. And, the insurance company can further claim the third party who have done the damage to pay for the compensation amount.      

Contribution

Sometimes, person insures their property from several insurance company. In the damage of such insured property, the compensation should be paid by all the insurance company based on the premium amount.

 

Mitigation

Mitigation is also an essential principle where the insurance company works for mitigating the financial risk on the case of disaster.

Function of insurance

The main functions of the insurance company includes providing certainty to the insured for dealing with the financial burden, protecting the risk and sharing risk in case of damage, and assisting the company or the person in dealing with all kind of financial losses.   

 The Bottom line

So these are the major principles and primary functions of the insurance. I hope this will help you understand the role of insurance in assisting financially during the disastrous event.

 

                  

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