INSURANCE :INSURANCE : AN INTRODUCTION AN INTRODUCTION

PRESENTED BYPRESENTED BY

AJAY K. JAINAJAY K. JAINB.E.(Mechanical), M.B.A.(Finance)B.E.(Mechanical), M.B.A.(Finance)

Website: Website: www.sukhnidhey.comwww.sukhnidhey.com

Mobile: 98280 11115, 98291 11115Mobile: 98280 11115, 98291 11115

WHAT IS INSURANCE ?WHAT IS INSURANCE ? The business of insurance is related to the The business of insurance is related to the

protection of the economic value of assetsprotection of the economic value of assets Every asset has a valueEvery asset has a value Every asset has a purpose to performEvery asset has a purpose to perform There is a normally expected life time for the There is a normally expected life time for the

asset during which time it is expected to performasset during which time it is expected to perform However, if the asset gets lost earlier, being However, if the asset gets lost earlier, being

destroyed or made non functional, through an destroyed or made non functional, through an accident or other unfortunate event then accident or other unfortunate event then INSURANCE is a mechanism that help owner and INSURANCE is a mechanism that help owner and sufferer to reduce such adverse consequences.sufferer to reduce such adverse consequences.

PURPOSE AND NEED OF PURPOSE AND NEED OF INSURANCE: CONTINUEDINSURANCE: CONTINUED

Assets are insured because they are likely Assets are insured because they are likely to be damaged through an accidental to be damaged through an accidental occurrence. Such possible occurrences are occurrence. Such possible occurrences are called PERILS.called PERILS.

Fire, flood, lightening, earthquakes, Fire, flood, lightening, earthquakes, breakdowns are examples of perils.breakdowns are examples of perils.

The damage that these perils may cause The damage that these perils may cause the asset, is the the asset, is the RISKRISK..

Insurance is relevant only if there are Insurance is relevant only if there are uncertainties without which things can not uncertainties without which things can not be insured against.be insured against.

MEANING OF RISK IN MEANING OF RISK IN INSURANCEINSURANCE

Possibility of loss or damage which may or may Possibility of loss or damage which may or may not happen.not happen.

Risk should be uncertain.Risk should be uncertain. Exposure to dangerExposure to danger Loss producing eventLoss producing event Used to refer to the property covered by Used to refer to the property covered by

insuranceinsurance

1.Bad risk1.Bad risk

2.Good risk2.Good risk

The term ‘Risk’ refers to the subject matter of The term ‘Risk’ refers to the subject matter of insurance.insurance.

PURPOSE AND NEED OF PURPOSE AND NEED OF INSURANCE: CONTINUEDINSURANCE: CONTINUED

Mechanism of insuranceMechanism of insurance1. People who are exposed to same risk 1. People who are exposed to same risk come together and agree to share the loss come together and agree to share the loss and make good to the person who lost.and make good to the person who lost.2. By this method the risk is spread among 2. By this method the risk is spread among them and likely big impact on one is reduced them and likely big impact on one is reduced to smaller manageable impacts on all.to smaller manageable impacts on all.3. The manner in which the loss is to be 3. The manner in which the loss is to be shared can be determined before hand.shared can be determined before hand.4. Insurance companies collect in advance 4. Insurance companies collect in advance and create a fund from which the losses are and create a fund from which the losses are paid.paid.

PURPOSE AND NEED OF PURPOSE AND NEED OF INSURANCE: CONTINUEDINSURANCE: CONTINUED

Human life is also an asset.Human life is also an asset. This asset also can be lost through unexpectedly This asset also can be lost through unexpectedly

early death or made non functional through early death or made non functional through sickness and disabilities caused by accidents.sickness and disabilities caused by accidents.

Accident may or may not happen.Accident may or may not happen. Death will happen but timing is uncertain.Death will happen but timing is uncertain. Hence insurance is necessary to help those Hence insurance is necessary to help those

dependent on the income in case of early death.dependent on the income in case of early death. A person may have arrangements for his needs A person may have arrangements for his needs

after his retirement which have been made on the after his retirement which have been made on the basis of some expectations. If these expectations basis of some expectations. If these expectations do not become true there could be difficulties.do not become true there could be difficulties.

These are risks which need to be safeguard by These are risks which need to be safeguard by means of insurance.means of insurance.

PURPOSE AND NEED OF PURPOSE AND NEED OF INSURANCE: CONTINUEDINSURANCE: CONTINUED

Insurance does not protect the asset.Insurance does not protect the asset. Insurance does not prevent the loss of Insurance does not prevent the loss of

asset due to peril.asset due to peril. Peril cannot be avoided through insurancePeril cannot be avoided through insurance The peril can sometimes be avoided, The peril can sometimes be avoided,

through better safety and damage control through better safety and damage control management.management.

Insurance only tries to reduce the impact Insurance only tries to reduce the impact of the risk on the owner of asset/ of the risk on the owner of asset/ dependent on that asset.dependent on that asset.

Insurance only compensate (may not be Insurance only compensate (may not be fully) the economic or financial losses.fully) the economic or financial losses.

PURPOSE AND NEED OF PURPOSE AND NEED OF INSURANCE: CONTINUEDINSURANCE: CONTINUED

The concept of insurance has been The concept of insurance has been extended beyond the coverage of tangible extended beyond the coverage of tangible assets even though the advantage of assets even though the advantage of spread may not be available in these cases.spread may not be available in these cases.

Thus the essence of insurance is to share Thus the essence of insurance is to share losses and substitute certainty by losses and substitute certainty by uncertainty.uncertainty.

Hence insurance makes the consequences Hence insurance makes the consequences of risk bearable which is difficult for any of risk bearable which is difficult for any one individual to bear as the community one individual to bear as the community shares the burden.shares the burden.