Insurance Study Materials ( Part- B)

Principles of Insurance:Insurance Study Materials
Risk transference, sometimes called ‘pooling’, involves the transfer of risk from the individual to a pool of the insurance company’s policyholders. The insurance company charges a fee, the premium (or part thereof), for accepting the risk and ‘pools’ the premiums from a group of policyholders into a general fund to fund the death benefits under contract.

The law of large numbers basically relies on the principle that the larger the pool, the more predictable the amount of losses will be in a given period. Since not all members of the pool are the same age or in the same health condition, we can assume not all of them will be making a claim at the same time.

The six principles of insurance are:Insurance Study Materials
►    Indemnity – Insurance is a contract of indemnity where the insurance company indemnifies the insured against certain risks for a consideration known as premium.
►    Insurable interest – means the loss of which will directly affect the insured.
►    Utmost good faith – means that the insured and the insurance company will not willfully hide anything from each other.

►    Mitigation – means the insured will not behave irresponsibly and will take due care so that the risk of loss or the loss is minimized.
►    Subrogation – means the insurance company acquires legal rights to act on behalf of the insured i.e. the insurance company steps into the shoes of the insured.
►    Causa Proxima or Proximate Cause – means the proximate cause of loss to ascertain whether the loss is covered under the policy.

Kinds of Insurance:

Life Insurance-is an insurance coverage that pays out a certain amount of money to the insured or their specified beneficiaries upon a certain event such as death of the individual who is insured. This protection is also offered in a
Family takaful plan- a Shariah-based approach to protecting you and your family.
The coverage period for life insurance is usually more than a year. So this requires periodic premium payments, either monthly, quarterly or annually.
The risks that are covered by life insurance are:
    Premature death
    Income during retirement
    Illness 
The main products of life insurance include:
    Whole life, Endowment , Term, Investment-linked, Life annuity plan, Medical and health
General insurance is basically an insurance policy that protects you against losses and damages other than those covered by life insurance. For more comprehensive coverage, it is vital for you to know about the risks covered to ensure that you and your family are protected from unforeseen losses.
The coverage period for most general insurance policies and plans is usually one year, whereby premiums are normally paid on a one-time basis.
The risks that are covered by general insurance are:
    Property loss, for example, stolen car or burnt house
    Liability arising from damage caused by yourself to a third party
    Accidental death or injury
Social Insurance:- is to provide protection to the weaker section of the society who are unable to pay the premium for adequate insurance. Pension plan, disability benefits, unemployment benefits etc.
Property Insurance:-
(a)    Marine Insurance-provides protection against loss of marine perils
(b)    Fire Insurance-cover risk of fire
(c)    Miscellaneous Insurance- the property, Goods, machine, furniture, automobile, valuable articles etc.

Uses to an Individual:-
(1)    Insurance Provides Security and Safety
(2)    Insurance affords Peace of Mind
(3)    Insurance protects Mortgaged Property
(4)    Insurance eliminates dependency
(5)    Life Insurance encourages saving
(6)    Life Insurance provides profitable Investment
(7)    Life Insurance Fulfils the needs of a person: such as Family needs, Old-age needs, Re-adjustment needs, special needs etc.

Uses to business:
(1)    Uncertainty of Business losses is reduced.
(2)    Business-efficiency is increased with insurance
(3)    Key Man Identification
(4)    Enhancement of Credit
(5)    Business continuation
(6)    Welfare of employees

Uses to the Society:
(1)    Wealth of the Society is Protected
(2)    Economic Growth of the Country
(3)    Reduction in Inflation. Insurance Study Materials