INSURANCE

Introduction

Insurance is a form of management used to offer a financial payment when unplanned or unexpected losses occur. It is a transfer of the risk of a financial loss from one entity (that is exposed to risks) to another (the insurer) in exchange for payment of a premium.

Someone who wants protection against financial hardship should consider insurance.

Protections offered by insurance

Insurance may include

•            Protecting family after one's death from loss of income

•            Ensuring debt repayment after death

•            Protecting against the death of a key employee or person in a business

•            Buying out a partner or co-shareholder after his or her death

•            Protecting the business from business interruption and loss of income

•            Protecting yourself against unforeseeable health expenses

•            Protecting your home against theft, fire, flood and other hazards

•            Protecting yourself against lawsuits

•            Protecting yourself in the event of disability

•            Protecting your car against theft or losses incurred because of accident

How does insurance work?

•       Insurance works by pooling risk.

•       A large group of people pays their premiums into what we will call the insurance bucket or pool.

•       Not all insured individuals will suffer losses at the same time or at all.

•       You pay for the probability of the loss and for the protection that you will be paid for losses in the event they occur.

Risks

Life is full of risks - some are preventable or can at least be minimized avoidable and some are completely unforeseeable.

What's important to know about risk when thinking about insurance is the type of risk, the effect of that risk, the cost of the risk and what you can do to mitigate the risk.

Insurance Contract

•       Insurance Contract is a legal document that spells out the coverage, features, conditions, and limitations of an insurance policy?

•      You don't have to pay for the insurance and then find out that what you thought was covered isn't included.

•       It is critical that you read the contract and ask questions if you don't understand the coverage.

Importance of Insurance to Businessmen

The importance of insurance to a businessman can be understood from the following points.

1. Security and Safety: It gives a sense of security and safety to the businessman. It enables him to receive compensation against actual loss. He can concentrate on his business with a secure feeling that in case of losses arising from insurable risk, his losses will be compensated.

2. Distribution of risk: Risk in insurance is spread over a number of people rather than being concentrated on a single individual.

3. Normally expected profit: An insured trader can enjoy a normal margin of profit all the time. He is protected from unexpected losses because of insurance.

4. Easy to get loans: A trader can get bank loans easily if his stock or property is insured, as the insurance provides a sense of security to the lenders.

5. Advantages of Specializations: Businessmen can concentrate on their business activities without spending more time on safeguarding their property. The insurance companies, on the other hand, can provide specialized insurance services.

6. Social cooperation: The burden of loss is shouldered by so many persons. Thus, insurance provides a form of social cooperation.

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