1.

7 Definition of Term and Concept

Insurance is a contract by which one party undertakes to indemnify another against

loss, damage or liability arising from an unknown or contingent event. According to the
Advanced Learners Dictionary Hornby (2005) Insurance refers to agreement by contract to
pay money especially in case of a misfortune such as illness, death or accident such as life or
car insurance (Ajani, 2013). Insurance is considered as one of the oldest and well known
financial products but there are still many who shy away from it and would not purchase it at
free will. Perhaps this is because insurance is quite a complex product and in the Asian
society, some find it a taboo to talk about unfortunate circumstances such as death, disability
or ill health. However, given life uncertainties, insurance helps to cushion and minimize the
loss that consumers and households incur in the event of unfortunate incidents (Yiing, Yi,
2012).
Life Insurance is a cooperative device which spreads risk of a person over a large
number of people against different types of contingencies such as death of a person due to
accident or sickness etc. It is an arrangement where losses of a few are extended over several
who are exposed to similar risks (Banne, Bhola, 2014). There are three main types of life
insurance policies in actuarial literature (Back, 2000). The first one is whole life insurance
which provides a death benefit for lifetime. Second is term life insurance which provide a
death benefit for a limited number of years and environment life insurance, which is a term
life insurance with a saving component (Okunnu, Adeyemi, 2008). The insurance sector in
Malaysia has shown rapid growth in recent years. However, on comparing with other Asian
countries, the penetration rate of life insurance remains low and there is still a large untapped
life insurance market in Malaysia (Yiing, Yi, 2012).