CHARACTERISTICS OF INSURANCE
The insurance has the following general characteristics and it is very typical in case of life, marine, fire and general insurance.
1. Risk sharing
Insurance is considered as a device to share the financial loss which might afflict the individual or his / her family members. The unforeseen event may be death of a breadwinner of a family in case of life insurance, dangers associated with the sea in case of marine insurance, loss of property and / or life in case of fire, and other untoward events in case of general insurance, theft or damage to vehicle in case of motor insurance. The loss arising from these damages can be compensated if they are insured by paying the required premium.
2. Co-operation
The most important feature of any insurance is the co-operation of a large number of persons who come together voluntarily to share the financial loss that may arise due to a specific risk for which protection is sought. There is no compulsion on the part of the insurer to enroll the customers and seek protection against a specific threat. Rather, insurance may be construed as a voluntary action of the enlightened customers who want protection against specific risks and the insurer provides the affordable protection to the needy by collecting nominal premium because the insurer will be unable to compensate all the insured with his / her own money.
3. Risk Assessment
Evaluation of risk is the important factor that decides on the amount of premium to be calculated. When the threat perception is more, a higher premium will be charged. There are different ways of evaluating the risk and the probability of loss is evaluated at the time of insurance.
4. Payment at the time of contingency
The insurer compensates the insured by paying compensation in the event of loss; i.e. payment is made at the time of contingency. For payment to be made there is a prerequisite of contingency to happen. This is especially true in case of life insurance where payment is made at the end of the term or in case of death and either or both the events are sure to happen. In other insurance types like marine or fire insurance, the contingency may or may not happen and payment to the insured is not certain.
5. Quantum of compensation
The value of compensation depends on the extent of loss suffered by the insured from a particular risk provided the maximum capped value is not surpassed. In case of life insurance, the claim is settled for which it was insured at the happening of the event provided the policy is valid and in force. In case of property and general insurance, the dependents will be required to prove the happening and the extent of damage caused.
6. Larger the number, better the care
The number of insured persons shall be large enough to spread the loss immediately, smoothly and economically. When the number of insured is smaller, it would translate into a higher premium and hence it becomes unaffordable and unpopular. Hence, it is imperative to enroll large number of persons to make the premium not only cheaper but also affordable and marketable.
7. Insurance by choice and not by chance
The productivity of a community is increased by means of insurance because it eliminates worry and increasing the initiative. The uncertainty is changed to certainty because the insurer gives the assurance to compensate the loss monetarily in the event of loss. For e.g. in the absence of property insurance, the choice left to the property owner is limited and he could not get full protection to the whole property. Similarly in case of life insurance, in the absence of life coverage, the time taken to accumulate a considerable saving takes a longer time whereas death may happen at any time and in the event of loss of breadwinner of the family, the other members have to fend for themselves. Nothing is more uncertain than life and life insurance cover provides the only sure fire way to changing that uncertainty to certainty.
8. Insurance, a charity?
Charity is practiced without giving consideration whereas insurance is a business and without premium it is not possible to run the business. It offers security and safety to the individual and society in return of premium and thereby compensates the loss suffered. It is a well laid out business or profession wherein the loss is adequately compensated in a timely manner.
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