Insurance-Meaning, Characteristics, Functions and Types.ppt

Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect against the risk of a contingent or uncertain loss.

1. Insurance
Dr. KAVITHAMANI R
Assistant Professor
PG & Research Department of International Business
Sri Ramakrishna College of Arts & Science
Coimbatore - 641 006
Tamil Nadu, India
1
Banking and Insurance Law

2. Insurance is a financial arrangement in which individuals or
entities pay premiums to an insurance company in exchange
for protection against financial losses or risks. The insurance
company provides compensation or reimbursement for
covered losses, helping to mitigate the financial impact of
events such as accidents, illnesses, or property damage.
Insurance - Meaning
Sri Ramakrishna College of Arts & Science

3. •Risk Pooling:
Insurance operates on the principle of pooling resources from
many policyholders to cover the losses of the few. It allows
the burden of financial risk to be spread across a large
number of people.
•Premium Payment:
To get insurance coverage, the insured party must pay a
regular fee known as the premium. The amount varies
depending on factors such as the type of insurance, the
coverage amount, and the risk profile of the insured.
Characteristics of Insurance
Sri Ramakrishna College of Arts & Science

4. •Risk Transfer:
By purchasing insurance, the policyholder transfers the financial
risk of a specific event (e.g., an accident or illness) to the
insurance company. The company assumes responsibility for
covering the costs, reducing the financial burden on the insured.
•Legal Contract:
Insurance is based on a formal contract, known as the policy,
between the insurer (insurance company) and the insured. The
terms and conditions of coverage, as well as the rights and
obligations of both parties, are clearly defined in this document.
Characteristics of Insurance
Sri Ramakrishna College of Arts & Science

5. •Indemnity:
Most insurance policies follow the principle of indemnity,
meaning that the insurer will compensate the insured for the
actual loss suffered, up to a specified limit, rather than
providing a profit or windfall.
•Contingency:
Insurance is based on uncertain events. It only pays out if a
specified event (such as an accident, fire, or death) happens.
These events are typically unpredictable but have a high
probability of occurring in a given group.
Characteristics of Insurance
Sri Ramakrishna College of Arts & Science

6. •Risk Management:
Insurance helps individuals and businesses manage risk by
reducing the financial impact of unforeseen events. It
provides a safety net, allowing people to recover and
continue without facing major financial ruin.
Characteristics of Insurance
Sri Ramakrishna College of Arts & Science

7. Sri Ramakrishna College of Arts & Science
Functions of Insurance
•Protection Against Financial Loss:
The primary function of insurance is to protect the policyholder against
financial losses caused by specific events (e.g., accidents, illnesses, theft,
natural disasters). The insurer compensates for the loss, reducing the
financial burden on the insured.
•Risk Sharing:
Insurance allows the risk of large losses to be shared among many people,
rather than burdening one individual or entity. This pooling of resources
helps spread risk and offers a level of financial stability.
•Encouragement of Savings:
Certain insurance policies, like endowment policies or life insurance,
combine coverage with an element of savings. This encourages individuals
to save money for the future, while also offering financial protection.

8. Sri Ramakrishna College of Arts & Science
Functions of Insurance
•Social Security:
–Insurance plays a key role in the broader social security system. Health
insurance, pension plans and life insurance contribute to society's
financial security, providing support in times of illness, old age, or
death.
•Risk Prevention:
–Many insurance companies provide risk management advice and
services to policyholders, encouraging them to adopt preventive
measures. For example, offering discounts for installing fire alarms or
health checkups for life insurance policyholders.
•Economic Stability:
–Insurance companies invest the premiums they receive, contributing to
economic growth. These investments generate returns, support
businesses, and promote financial stability in the economy.

9. 1. Life Insurance
•Provides financial protection to the beneficiaries of the insured in the
event of death. Life insurance can also include savings and investment
elements.
•Types: Term Life Insurance, Whole Life Insurance, Endowment Policies,
Unit-Linked Insurance Plans (ULIPs).
2. Health Insurance
•Covers medical expenses incurred due to illness, injury, or hospitalization.
•It can also cover preventive care and provide financial assistance for
medical treatments.Types: Individual Health Insurance, Family Floater
Plans, Critical Illness Insurance, Group Health Insurance.
Types of Insurance
Sri Ramakrishna College of Arts & Science

10. 3. Motor Insurance
•Covers vehicles (cars, bikes, etc.) against damages caused by accidents,
theft, or natural calamities.
•Types: Third-Party Liability Insurance, Comprehensive Insurance, and
Standalone Own Damage Insurance.
4. Home Insurance:
•Provides coverage for damage or loss to a home due to fire, theft, or
natural disasters.
•It can also cover personal belongings and other valuables.
•Types: Building Insurance, Contents Insurance, and Combined Insurance
(Building + Contents).
Types of Insurance
Sri Ramakrishna College of Arts & Science

11. 5. Travel Insurance
•Offers coverage for medical emergencies, trip cancellations, lost luggage,
or travel delays while traveling.
•Types: Single Trip, Annual Multi-Trip, Family Travel Insurance, and
Student Travel Insurance.
6. Disability Insurance
•Provides income replacement or financial support if the insured is unable
to work due to an injury or illness.
•Types: Short-Term Disability, Long-Term Disability, and Income
Protection Insurance.
Types of Insurance
Sri Ramakrishna College of Arts & Science

12. 7. Marine Insurance:
•Provides coverage for goods, ships, and cargo against loss or damage during
sea voyages.
•Types: Hull Insurance, Cargo Insurance, and Freight Insurance.
8. Pet Insurance:
•Provides coverage for veterinary expenses and health care for pets.
•Types: Accident-Only Coverage, Comprehensive Coverage, and Wellness
Plans.
9. Crop Insurance:
•Offers protection for farmers against loss of crops due to natural disasters or
other unforeseen events like drought or floods.
Insurance is essential in managing risk, offering financial protection, and providing
a safety net for individuals and businesses. By paying premiums, people can protect
themselves from the potentially devastating effects of unforeseen events.
Types of Insurance
Sri Ramakrishna College of Arts & Science