The daily activity of life carries the risk of financial losses. Any possible theft, fire, sudden death can affect the lives of people and their dear ones. In order to protect them against these dangers, the concept of insurance came into the picture. Insurance is a promise of financial protection by reimbursing for any future loss arising out of an uncertain event. As against this protection, the person will have to pay an amount to the insurance provider/company which is known as the premium. These premiums have to be paid periodically whose amount is calculated according to the total insurance amount.
In an insurance contract, the one who gets the protection for losses is known as the insured and the one who provides insurance is known as the insurer. The losses that would be covered are listed in the contract known as a policy.
There are various insurance companies that provide a wide variety of insurance options; an insurance purchaser can buy one as per his need and preference. Since there are a lot of companies that sell insurance they are now available with affordable premiums. Insurance is basically a risk management tool as the quantified risk of various volumes can be insured.
Definition of Insurance
Insurance is a contract between two parties whereby one party agrees to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance. The party bearing the risk is known as the ‘insurer’ or ‘assurer’ and the party whose risk is covered is known as the ‘insured’ or ‘assured’.
How Insurance works?
Insurance works on the principle of risk-sharing amongst the people who are exposed to similar kinds of risk. These people come together and contribute towards forming a pool of funds by paying premiums. Any loss that occurs to the insured in case of any uncertain happening is paid out of this pool. The insurance companies act as a trustee to this pool and charges a premium to guarantee the insured on losses. Now you must be wondering how the insurance companies make money in this? Well, here there would be more people contributing to the pool than the ones making claims for losses.
Types of Insurance
Based on the various unforeseen dangers that can affect human life, various types of insurance are available and increasing. The following are the most common and important type of insurance:
- Life insurance: In this type, the insurance company pays in case of the demise of the policyholder or when the policy matures. In this way the descendant’s family receives financial benefits in case of the sudden death of the family member.
- Automobile insurance: This covers any loss that has occurred because of the accident of the vehicle. Sometimes it also covers the financial expenditure of the medicines caused to the automobile driver.
- Health insurance: This policy covers the expenses relating to treatment and medical expenditures. One subcategory of this type of insurance also includes the injuries or accidents caused at the workplace.
- Credit insurance: When the person insured under this policy fail to repay debts, loans, and mortgages due to certain unavoidable situation of death, job loss or accident, the insurer pays for the same.
- Property insurance: this provides protection related to theft, fire, burglary, natural calamities such as earthquakes, floods, etc. as mentioned in the policy.
Apart from these, there are other various types of insurance that provide protection to the insured in its own unique way.
Types of Insurance Companies
Insurance companies can be into two main divisions which are as follows:
- General Insurance Companies: these companies provide insurance in all other types of insurance except life insurance.
- Life Insurance Companies: these companies deal with life insurance, pension products and annuities are life insurance companies.
Principles of Insurance
The following are the principles of insurance:
1. Principle of Uberrimae Fidei (Utmost Good Faith)
In simple words, this principle means that the insured and the insurer must have absolute belief, trust between them. Both the parties involved in the contract (insured and insurer) should disclose all the relevant facts asked for as the subject matter of insurance.
2. Principle of Insurable Interest
This principle means that the insured person must suffer a loss due to the non-existence or damage of the object insured. Basically, the insured person must have insured interest in the object being insured.
3. Principle of Indemnity
This principle states that the purpose of insurance should not be of making profits out of the claims but to provide protection against potential damage. This principle is not applicable to life insurance since the value of a human cannot be measured in money.
4. Principle of Contribution
This is particularly when a person has insured the same object from multiple insurers. In this case, the insured can claim against the actual loss either from one insurer or would be contributed by all the insurers.
5. Principle of Subrogation
This principle states that if there are losses to the insured property and the person is compensated for the same cannot claim the property and the ownership of the same shifts to the insurer.
6. Principle of Loss Minimization
According to this principle, the insured should be responsible to protect the insured property. He should try his best to minimize the losses in the occurrence of any accident or damage to the insured object.
7. Principle of Causa Proxima (Nearest Cause)
According to this principle if there are more than one cause of occurrence of the damage to the insured object the nearest cause should be taken into account to decide the amount of compensation that the insurer would be liable to pay.
Career in Insurance
If you feel confident in your selling skills and get along well with people and the importance of insurance interests you, Insurance can be a great career option for you. At the entry level, you could be offered the job as an insurance agent or a sales executive. The job prospects are huge in this field with the increasing number of companies in this sector and the awareness among the people towards insuring their risks.
The following are the skills that would be required in order to excel in this field:
- Communication skills in order to be able to explain to people the importance of insurance and why it would be the best with your company
- Ability to understand people’s problem and sell them the best insurance cover
Job options in the Insurance sector
This involves predicting the risk of writing insurance policies. The actuaries are the ones that determine the risk of providing insurance cover. One needs to have analytical, mathematical and statistical skills in order to be successful here.
- Agent and Broker
This profile is the best if one likes interacting with people. They advise people with the best suitable insurance contract they should be covered under. The advantages of this job position are that it highly rewarding in terms of commission and has flexible time hours.
- Claims Adjuster
These are the people that settle people’s claims on loss that has occurred on the insured object. The person here needs to be tactful and someone who I goof at negotiation skills.
- Loss Control Specialist
This person is a specialist who will make sure that the accidents or losses are kept to a minimum. This is done by visits to businesses, factories to identify any potential hazards which can then be notified and eliminated. One should have the technical know-how for the same.
Underwriters are the ones who takes the decision whether to provide insurance to the applicant who seeks to get insured. He does a complete evaluation of the applicant’s risk and if they meet the insurance standards.
If one wants to get into this sector you need to have the necessary selling and negotiation skills. You need to be aware of all the laws, rules, and regulations applicable to the insurance industry. A bachelor’s or a master’s degree would be a sure requirement.