Insurance is a contract or a policy which provides financial protection or reimbursement losses to individual or entities from an insurance company. It acts as a risk management policy which helps us to shield against the uncertain, contingent risk. Insurance policy (contract) consists of various terms and conditions under which the insured will be financially compensated.
The principle on which insurance is based is as follows –
- Contract nature –
It should be simple and valid. A person entering in a contract should be free of consent.
- Principle of Faith –
Both side parties should have faith on each other.
- Principle of Security –
It means security and protection under the loss or financial burden. In this principle, it is also stated that insured will be compensated to that much amount which he lost economically and not beyond that.
- Principle of Subrogation –
If a loss is occurred by the third party then an injured person can legally claim the amount from the third party under this principle.
- Principle of Nearest cause –
When loss is a result of two or more cause then the prominent and dominant cause will be taken into consideration.
- Principle of Interest –
An Insured person should have an interest in order to go for an insurance policy. For example in Life insurance, it refers to life insured
Types of Insurance
There are many type of insurance such as Life, Health, Property, Credit, Causality, Gap, Auto, Closed community and government self-insurance etc.
There are two types of Insurance Companies –
- Life insurance company, which sell life insurances, annuities and pensions products.
- Non-life or property/casualty insurances companies, which sell other types of insurances.
The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature – coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year.