Monday, October 21, 2013

Concepts of Insurance

Insurance is a vital sector of any Economy ..without insurance no one will venture into many forms of commercial activities as risks and resulting hazards can create economic havoc. Insurance is defined by many people in many different ways but is a mutual fund entered into by a group of people who share the same risk and risk probability and upon occurrence of the risk damages would be borne by the mutual fund which means that utmost good faith must exist among the constituents of the fund. Utmost good faith is called Uberremei Fedei. Insurance companies act as an agent in organizing the insurance activity.

There are two kinds of insurance contracts. Contracts of Benefit and Contracts of indemnity. Life Insurance policies are contracts of Benefit and General insurance policies are contracts of Indemnity. Indemnity is simply restoration of loss in the event of contingency. There are many kinds of life-insurance policies including pensions and annuities.

Re-insurance , Co-insurance, Subrogation are all certain concepts of insurance. Subrogation prevents unjust enrichment which means the insured can only get one set of claim for damage. Simply said if A and B meet with an accident and the fault is that of B and A gets reimbursement from the Insurance company the right of A to claim for damages ends. He cannot sue B and avail additional damages though the insurance company can sue A. In the event B getting any settlement from A the insurance company can take back the amount paid by the company .

Any general insurance involves covering huge possibility of losses and Co-insurance is some kind of joint insurance between the insured and the insurer. In Re-Insurance it is Insuring the insured..the insurance organization insures itself for some premium with another agency.

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