Insurance – definition

It can be made from two points:

1.Functional definition:

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:

  1. Co-operative device
  2. To spread the risk amongst the persons who are insured against it
  3. To share the losses according to the probability of loss to the risk of each member of society
  4. To provide security against losses to the insured

2.Contractual definition:

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:

  1. Certain sum, called premium is charged in consideration,
  2. Against the said consideration, a large sum is guaranteed to be paid by the insurer who received the premium,
  3. The payment will be made in certain definite sum, i.e., the loss or the policy amount whichever My be, and
  4. 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.

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