Meaning & Definition of Insurance
Hall defines insurance as "contract in writing whereby one party called the insurer, agrees in consideration of either a single or a periodical payment called the premium, to indemnify another party called the insured, against loss or damage resulting to him on the happening of certain events or to pay him a sum on the happening of a specified events or events”. According to Hall, insurance is a risk covering device against payment of a specified sum, known as premium. The risk against which the insurance has been taken may either arise or may not arise. But the insurance agrees to pay the compensation if the specified loss or damage results and the insured suffers. Against this suffering insurance is a cover.
Characteristics of Insurance
Since insurance is a contract, therefore, it should be written and it should contain characteristics. Following the important features and characteristics of insurance.
An Agreement Enforceable in Law. Insurance is an agreement which is enforceable in law. It cannot be otherwise. It is a non-transferable such an agreement which must satisfy all the essentials of a contact, that is, the parties in contact should be competent to enter into contract, they must freely agree and give their consent, they must agree for legal consideration and lawful objectives and all legal formalities must have been completed.
Two Parties – The Insurer and the Insured. An insurance contact, like others, must have to parties – the insurer who agrees to compensate whenever specified event or events take place and the insured who agrees to pay the consideration as agreed upon and abide by all the terms and conditions of the insurance contact.
Utmost Good Faith. In insurance contact the insured is legally liable to disclose all the materials facts (which may affect the very nature of the contact) to the insurer. It is on this basis the insurer agrees to compensate, thereby cover the risk. Nothing should be concealed. If however, something is concealed, the insurer may back out on the place that the principle of utmost good faith was not adhered to by the insured.
Premium. The insured agrees to pay either a single premium or a periodical premium for which the insurer covers and in case the specified events happens he agrees to pay the compensation specified therein.
Promise of Indemnity form Specified Risk. The insurer agrees to compensate when the specific events take place. This is a promise of indemnity from a specific risk by the insurer.
Importance of Insurance
A businessman who gets insurance against all possible risk of business frees himself form the risk against which has taken the insurance and thus makes himself available for more important and pressing business work.
An insured businessman feels safe and free. Anyone who takes up life policy or general policy like fire, natural calamity, accident etc. makes himself free not only free from family liability but with greater enthusiasm and better vision can work for the society as a whole. The society is benefitted. The nation gets responsible citizens who may be able to risk even their life for the cause of the nation. Society gets an efficient worker. Nation gets a responsible citizen. The business would get a devoted businessman. The insurer gets a worthy insured. The economy gets a boost because small savings collected in the form of premiums may be invested in nation building and economic progress. This brings a sense of gratitude to the entire population prosperity, social advancement, political stability and better commercial and industrial world may become the order of the day because of insurance contact.