When we are going to learn about the Insurance we can identify various types of concepts related to the insurance. Among that, the term of “Risk” is vary basic and most impotent concept we must learn before learning about insurance because almost all the times insurance are dealing with this risks and try to give same financial compensation to reduce the financial lose by this risk related activities.
What is risk means?
When considering about the term “Risk” can identify various types of definitions. the following are the basic definition of the Risk.
According to the Risk Management Plan article, the definition of Risk Management is..
“Risk management is the systematic process of identifying, analyzing, and responding to project Risk. It includes maximizing the probability and consequences of positive events and minimizing the probability and consequences of adverse events to project objectives.”
And another definition of Risk is…
“Exposure to the chance of injury or loss; a hazard or dangerous chance.”
Considering about the Risk can be nearly anything. It can be the upcoming performance of an activity that has never been performed before and therefore the outcome or duration is very uncertain. Therefor when dealing with the risks we have to face very difficult situations. and we have to bear same financial losses in same situations.So, we can get many actions for preventing or reduction and control to the loss occur by the risk such as Avoidance, Loss Prevention,Loss Reduction, Separation, Duplication, Diversification etc.
We can control risks by using above ways but can not testify the possibility of doing risk is zero. in that situation we have to bear the financial loss. but people have been created same mechanism to reduce the financial loss occur by the risk that is called “Insurance”. Insurance never reduce risks only cover the financial loss of the risk.
Introduction of Insurance
When considering about the insurance it also can identify various types of definitions. the following definitions are related to the term of “Insurance”.
Basically insurance can define “Insurance is a risk transferring mechanism”.
“Insurance is a contract between the insurance company (insurer) and the policyholder (insured). In return for a consideration (the premium), the insurance company promises to pay a specified amount to the insured on the happening of a specific event.”
When considering definitions of insurance its manly deal of two parties. they are insurer and insured.the following example can see how these parties are deal with the insurance.
Example-: suppose you have a homeowners insurance policy. You pay $700 per year in premiums for a policy with a face value of $150,000, which is what the insurance company estimates it would cost to completely rebuild your house in the event of a total loss. One day, a huge wildfire envelopes your neighborhood and your house burns to the ground. You file a claim for $150,000 with your insurance company. The company approves the claim. You pay your $700 deductible, and the insurance company covers the remaining $145,000 of your loss. You then take that money and use it to hire contractors to rebuild your house.
Dealing with the any type of insurance contract, we have to deal and follow same rule and ethics related with the insurance.they are called insurance principles. and there are six principle basically can identify each of the six principles of insurance defines a fundamental rule of action or conduct that addresses the legal side of the insurance industry.these principles applies to both the insured and insurer throughout the life of an insurance contract, from the date of application to the date of cancellation. In total, the six principles of insurance make up legal, binding guidelines for entering into an insurance contract and for preparing, lodging and managing lawful insurance claims. These insurance principles are as follows.
Principle of Utmost Good Faith
Principle of Indemnity
Principle of Subrogation
Principle of Contribution
Principle of Insurable Interest
Principle of Proximate Cause
in this post we try to bring basic background about insurance and its related concepts.in future post we bring you to in depth knowledge about insurance principles and various types of insurance contract and usage of that.