Let us see on what basis premiums are calcualted:
Premiums are the amount of money paid yearly or monthly or quaterly based on the policy taken by us.
The premium for insurance is based on expectations of the losses. These expectations are based on studies of occurences in the past and the use of statistical principles.There is,in statistics,a "law of large numbers".When you toss a coin,the chance,or probability,of a head or tail coming up is half.If the coin is tossed 10 times,one cannot be sure that the head will come up 5 times. If the coin is tossed 1 million times,the number of heads variation will be less as a percentage.So also,the larger the numbers(of risks)included in the pool,the better the chnaces that the assumptions regarding the probability of the risk occuring,will be realized in practice.In order to be amenable to statistical predictions,insures have to insure large numbers of risks.The larger the spread of the business,the better the experience in relation to expectations.The probability of risk being the basis of premium calculation,large numbers are necessary to ensure that the premium charged is viable or adequate.
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Showing posts with label premiums. Show all posts
Showing posts with label premiums. Show all posts
Friday, November 27, 2009
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.
Please post your valuable comments on this post.
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.
Please post your valuable comments on this post.
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