The Business of Insurance

In this post you will come to know about the working principle of insurance:

Insurance companies are called insurers.The business of insurance is to

* bring together persons with common insurance interests(sharing the same risks)

* collect the share or contribution(called premium)from all of them, and

* pay out compensations(called claims)to those who suffer from the risks.

In India, the IRDA(Insurance Regulatory Development Authority) has, in 2005,issued Regulations enabling micro-insurance(braodly meaning insurance for small Sums Assured, like 5 to 50 thousands)to be done by both life and general insurers on the basis of mutual tie-ups.A policy may be issued by a life insurer covering both life and non-life risks,but premium on account of the non-life business will be passed on to a general insurer and the claim amount collected from the latter.

The business of insurance is one of sharing.It spreads losses of an individual over the group of individuals who are exposed to similar risks.People who suffer loss get relief because at least part of their loss is made good.People who do not suffer loss are relieved because they were spared the loss.

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