Article

Insurance
September 12 , 2012

Insurance is a contract that guarantees payment of a certain sum of money to the insured person on occurrence of certain predetermined events. The insured pays premiums to the insurer in return for the guarantee.

The concept of insurance is similar to what happens in a close community where people make free-will contributions to provide support to a member who has just suffered a loss that is beyond his capacity to deal with alone. Since many individuals contribute, the burden of one person's loss is shared and borne by those many. If one of the contributors later suffers from a loss, he can expect to be supported by the remaining and also the one for whom he had contributed earlier.

Through insurance such financial loss is formally shared among a huge population exposed to similar risk. Actuaries estimate the probability of risk actually happening in a given population size from examination of demographics. Thus insurance companies decide the amount of premiums each person ought to contribute so that they can keep from going bust and also accommodate profits.

Depending on the object or phenomenon being insured, insurance may be life insurance, health insurance, motor insurance, travel insurance, personal accident insurance and so on.

We buy insurance policies to act as a hedge against the risk of loss, whose financial impact can be very heavy on us. Through insurance the burden of risk is shared among many thousands by contributing affordable sums periodically.

Over the years insurance changed from simply providing protection to managing investments of policy holders. In India such combinations are far too common in life insurance policies. Life insurance market has seen rampant mis-selling like no other financial product in India.

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