It can be made from two points:
Insurance is a co-operative device to spread the loss caused by a particular risk to which a number of people are exposed to and agree to insure them against the risk.
Therefore, insurance is:
- Co-operative device
- To spread the risk amongst the persons who are insured against it
- To share the losses according to the probability of loss to the risk of each member of society
- To provide security against losses to the insured
Insurance has been defined to be that in which a sum of money as a premium is paid in consideration of the insurer’s incurring the risk of paying a large sum upon the contingency. The insurance thus is a contract whereby:
- Certain sum, called premium is charged in consideration,
- Against the said consideration, a large sum is guaranteed to be paid by the insurer who received the premium,
- The payment will be made in certain definite sum, i.e., the loss or the policy amount whichever My be, and
- The payment is made only upon a contingency.
Moreover, insurance can be defined as a consisting one party (the insurer) agrees to pay to the other party (the insurer) or his beneficiary, a certain sum upon a given contingency (the risk) against which the insurance is sought.