Insurance is a contract between two parties, In Insurance Contract, one party is the insured and another party is the insurer. Insurance provides various advantages to the various field. The elementary purpose of insurance is to provide protection against future risk, accident and uncertainty. According to William Beveridge, Functions of Insurance can be divided into three categories - 1) Primary Function, 2) Secondary Function, and 3) Indirect Functions or other Functions.
Meaning of Insurance
Insurance is a contract between the insurer and insured under which the insurer undertakes to compensate the insured for the loss arising from the risk insured against.
In simple words, Insurance is a contract in which one party (the insurer), for a consideration (the premium), assumes a particular risk of the other party (the insured) and promises to pay to the other party or his beneficiary, a certain or ascertainable sum of amount on the happening of specified contingency against which the insurance is asked for.
Definitions of Insurance -
According to Encyclopaedia Britannica, " Insurance may be defined as a social device whereby a large group of individuals, through a system of equitable contributions, may reduce or eliminate the measurable risk of economic loss common to all member of the group"
According to Justice Tindall, "Insurance is a contract in which a sum of money is paid to the assured in consideration of insurer's incurring the risk of paying a large sum upon a given contingency."
According to MacLearn, "Insurance is a method of spreading over a large number of persons a possible financial loss too serious to be conveniently borne by an individual.
Primary functions of Insurance
Primary Functions of Insurance are as follows -
1) Provide protection -
The most important function of insurance is to provide protection against future risk, accident, and uncertainty.It is one check the reality of the misfortune happening and pays the cost of damages of losses.
2) Ensure Certainty -
No one knows what will happen next, the future is uncertain. Any misfortune happening may occur at any stage of life the amount of loss and time of losses both are uncertain. Insurance is a device which helps change uncertainty into certainty. Insurance provides certainty of payment for the uncertain loss.
3) Evaluate Risk -
In our daily life we anticipate various kinds of unforeseen risks and therefore the loss arising from such risks is also unpredictable. Insurance fixes the likely volume of a risk and by assessing diverse factors that give rise to risk. According to Layman "Insurance is a guard against pecuniary loss arising on the happening of unforeseen event and a device to share the Loss".
4) Distribution of risk / Collective Risk Sharing -
Insurance is it wise to share the financial loss. It is a cooperative effort where the risk is distributed among the group of People. Thus, no one have to bear the losses occurred due to uncertainty.
What is Life Insurance and what are Kinds/Types of Life Insurance.
Objectives of Life Insurance Corporation
Secondary Functions of Insurance