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    Characteristics of Insurance

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    BasappaSarkar
    Insurance is characterized by the following: 1) It is a legal contract between an insurer and insured where the insurer agrees to compensate for losses in exchange for premium payments. 2) It involves the insurer undertaking the risk of losses by the insured. 3) It is a cooperative device where many insured individuals share the burden of risks so those who suffer losses are reimbursed. 4) The insurer is bound to reimburse for specified losses upon the occurrence of events outlined in the policy.

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    Characteristics of Insurance

    Uploaded by

    BasappaSarkar
    14K views9 pages
    Insurance is characterized by the following: 1) It is a legal contract between an insurer and insured where the insurer agrees to compensate for losses in exchange for premium payments. 2) It involves the insurer undertaking the risk of losses by the insured. 3) It is a cooperative device where many insured individuals share the burden of risks so those who suffer losses are reimbursed. 4) The insurer is bound to reimburse for specified losses upon the occurrence of events outlined in the policy.

    Original Description:

    Features of Insurance

    Original Title

    characteristics of insurance

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    Insurance is characterized by the following: 1) It is a legal contract between an insurer and insured where the insurer agrees to compensate for losses in exchange for premium payments. 2) It involves the insurer undertaking the risk of losses by the insured. 3) It is a cooperative device where many insured individuals share the burden of risks so those who suffer losses are reimbursed. 4) The insurer is bound to reimburse for specified losses upon the occurrence of events outlined in the policy.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    14K views9 pages

    Characteristics of Insurance

    Uploaded by

    BasappaSarkar
    Insurance is characterized by the following: 1) It is a legal contract between an insurer and insured where the insurer agrees to compensate for losses in exchange for premium payments. 2) It involves the insurer undertaking the risk of losses by the insured. 3) It is a cooperative device where many insured individuals share the burden of risks so those who suffer losses are reimbursed. 4) The insurer is bound to reimburse for specified losses upon the occurrence of events outlined in the policy.

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    The characteristics of insurance is discussed under

    the following heads:

    1. A CONTRACT:
    The most important feature of insurance is that it is legal
    contract between the insurer and insured, under this
    insurer promises to compensate the insured for the loss
    which is mentioned in the policy and the insured promise
    to pay a fixed rate of premium which is consideration in
    this contract for the promise of the insurer.
    It is a type of contract where one party agrees to
    compensate in case of loss suffered by another party.
    2. UNDERTAKING OF RISK:

    In insurance contract, bearing and protecting of risk is the subject


    matter of the contract. For example paying of insured amount in
    case of death of the assured, loss by fire or happening of marine
    perils.
    The risk is undertaken by the insurer to compensate the insured
    on the happening of the risk mentioned in the policy. The
    insurance company bears the risk and make good the loss.
    It restores the person standing as it was before the loss, it
    provides a mental relief to the insured that in case of loss, the
    insurer will undertake his risk.
    3. A COOPERATIVE DEVICE:

    Insurance is cooperative device of sharing the burden of risk


    of one on the shoulders of many. All the insured contribute
    the premium out of which the person who actually suffers
    loss is compensated or is paid up, insurance is a device to
    share the financial loss of few among many others.
    4. REIMBURSMENT ON THE HAPPENING OF EVENTS:

    On the happening of a specified event, the insurance


    company is bound to make good the loss to the insured.
    Happening of an event is specific in life insurance that is
    death, but it is not so in case of marine, fire or
    accidental insurance.
    In life insurance, a fixed amount is paid but in indemnity
    insurance (fire, marine, etc) amount of payment is
    uncertain depending upon the quantum of damage.
    5. PREMIUM:

    Payment of premium by the insured is another feature of


    an insurance contract.
    Like other contracts, the factor of consideration is
    fulfilled by the premium because it is the subject for
    which insurer promises to undertake or bear the risk if
    insured.

    In absence of premium, the promise will be NUDAM


    PACTUM, hence void.
    To conclude insurance is a method to transfer the risks
    from insureds to insurers who agrees to it for a
    consideration known as premium and promises to bear
    and compensate the insured on the specified extent of
    loss.
    6. CONTRACT OF ADHESION:

    It means it is contract which is not arrived by mutual


    negotiations between the parties, It means he has to adhere
    to the policy in which way it is offered there is no chance if
    bargain.

    It means the insured accepting the policy must accept whole


    of it he cannot accept one part of and leave the another. All he
    can do is that he can select the most appropriate policy
    among various policies which the insurer is offering.
    7. DEVELOPMENT OF LARGER INDUSTRIES:

    Insurance helps industries to develop who have


    more risk in their setting up, the owner may get
    the industries assets insured and in case of loss he
    will be compensated.

    The financial institution may be ready to give


    credit to such industrial units which have insured
    their assets including plant and machinery etc.
    8. PROVIDE PROTECTION:
    Insurance provides protection against future risk, accidents, uncertainty.

    CONCLUSION:

    The above-mentioned feature makes us clear that insurance is a


    contract between two parties and it is a cooperative device to
    undertakes the loss, it protects the insured against the loss by
    the insurer in return of premium paid by the insured.

    Thus, it is clear that insurance makes good the loss

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