There are always some risks involved in setting up of any line of work and often some of these risks lead to financial losses. These risks can be overcome and financial losses can be managed through the mechanism of insurance or other measures.
Insurance refers to a financial risk management tool i.e. used to protect the financial well-being of the insured (i.e. policy holder). It is an agreement by which one party called the ‘insured’ transfer its risks to the other party called the “insurer” for a periodic payment called premium. In return, the insurer agrees to pay a defined amount of money or provide a defined service if a covered event occurs during the policy term. In most cases, the policy holder pays part of the loss (deductible) and the insurer pays the rest. Some examples are car insurance, health insurance, disability insurance, business insurance, etc. The importance of insurance in trade and industry is to provide steadiness & stability, increases risk taking ability and provides protection against losses.
In other words, insurance is a promise of compensation (claim) for specific potential future losses in exchange for a periodic payment (Premium). It allows one entity (Insured) to transfer its risks to another entity (Insurer) for a payment called premium. In India, it is Insurance Regulatory and Development Authority of India (IRDAI) that keeps eye on insurance sector and ensures that customers are not tricked.
Here, an insurer (or insurance carrier) is a company selling the insurance; an insured is a person or entity buying the insurance policy, premium is the payment made by the insured to the insurer and claim is the compensation i.e. paid if the insured event occurs during the policy term.
Classification of Insurance
- Life deals with human life. Example- Life Insurance Corporation (LIC).
- Non-life deals with property, persons, profits & liabilities. Example – General Insurance Corporation of India (GIC Re).
Life Insurance Corporation (LIC)
The Life Insurance Corporation of India (LIC) is the largest insurance company in India, founded in September 1, 1956 by an act of Parliament. Its aim is to ensure and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development. It offers a variety of insurance products to its customers such as insurance plans, pension plans, unit-linked plans, special plans and group schemes. Its headquarters is in Mumbai, Maharashtra.