DAY 13 | MANAGEMENT OF BANKING AND INSURANCE | I SEM | B.COM | MEANING OF INSURANCE | L1

Summary

This session explains the concept of insurance as a cooperative tool for sharing the financial burden of risks. Insurance spreads potential losses among a large group of people based on probability, offering financial protection during emergencies. The speaker highlights the contractual nature of insurance, where individuals pay a premium in exchange for coverage in case of unforeseen events. Key features include risk sharing, beneficiary clauses, and evaluating the risk to determine premium costs. The speaker emphasizes that insurance is crucial for providing security and mitigating the impact of unexpected occurrences in life.

Takeaways

• 😀 Insurance is a cooperative device used to spread the financial loss caused by risks across a group of people.
• 😀 It operates on the principle of risk-sharing, where individuals contribute premiums to cover potential losses.
• 😀 Insurance is a contract between the insured and the insurer, where the insured pays a premium for coverage against specified risks.
• 😀 Premiums are calculated based on the probability of a loss occurring, with higher risks resulting in higher premiums.
• 😀 The insurer pays a larger sum to the insured or their beneficiaries only when a contingency (e.g., accident, death, natural disaster) occurs.
• 😀 Insurance helps protect individuals, families, and assets by providing financial backup during emergencies or unforeseen events.
• 😀 The payment of the insurance claim depends on the occurrence of a specific event, not on regular intervals or general financial need.
• 😀 The law of large numbers is applied to insurance, where a large sample of insured people helps reduce the cost for each member.
• 😀 Insurance relies on cooperation among various parties, including the insurer, agents, and policyholders, to effectively spread risk.
• 😀 A comprehensive insurance policy that covers a wide range of risks and contingencies is essential for adequate protection.
• 😀 Insurance policies may have beneficiaries (family members) who receive the payout in case of an insured person's death or emergency.

Q & A

What is the basic definition of insurance?

Insurance is defined as a cooperative device that spreads the financial loss caused by specific risks over a group of people who agree to insure themselves against those risks.

Why is insurance considered important in daily life?

Insurance is important because it helps protect individuals, families, and assets against unexpected events like accidents, natural calamities, or health issues, ensuring financial security during emergencies.

What role does probability play in insurance?

Probability is used to evaluate the likelihood of a loss occurring. Insurance companies assess the probability of such events and calculate premiums accordingly, ensuring that the financial risk is spread out over a large group.

How do insurance premiums get calculated?

Premiums are calculated based on the risk evaluation of the individual or business. Higher-risk situations, like a business with more potential for failure, result in higher premiums.

What is the contractual definition of insurance?

Insurance is a contract where the insured pays a premium in exchange for protection against specific risks. The insurance company agrees to pay a larger sum in the event of a covered emergency or loss.

What is the difference between paying a premium and receiving insurance coverage?

Paying a premium is the cost the insured must regularly pay to the insurance company. In return, the insured is protected against certain risks and can receive compensation if the covered event occurs.

Why is the principle of 'sharing of risk' important in insurance?

Sharing the risk is a core feature of insurance, where the financial burden of an unforeseen event is spread across a large number of people, making it more manageable for everyone involved.

How does the 'cooperative device' feature work in insurance?

The cooperative device in insurance refers to the collective participation of a large number of people, agents, and the insurer, all working together to spread and manage the financial risks involved.

What does the term 'contingency' refer to in insurance?

In insurance, 'contingency' refers to an unexpected event, such as death, accident, or property damage, that triggers the insurance payout based on the terms of the policy.

What is the 'law of large numbers' and how does it apply to insurance?

The 'law of large numbers' assumes that losses happen randomly and are accidental. It allows insurance companies to predict and manage risks by evaluating large groups of people to estimate potential losses accurately.