CHAPTER .

INTRODUCTION:

MEANING OF INSURANCE:

Every risk involves the loss of one or other kind. In older time, the contribution by the person
was made at the time of loss. Today, only one business, which offers all walks of life, is
insurance business. Owing to growing complexity of life, trade and commerce, individual
and business firms and turning to insurance to manage various risks. Every individual in this
world is subject to unforeseen uncertainties which may make him and his family vulnerable.
At this place, only insurance helps him not only to survive but also recover his loss and
continue his life in a normal manner.

Insurance is an important aid to commerce and industry. Every business enterprise

involves large number of risks and uncertainties. It may involve risk to premises, plant and
machinery, raw material and other things. Goods may be damaged or may be destroyed due
to fire or flood. Some risk can be avoided by timely precautions and some are unavoidable
and are beyond the control of a business. These unavoidable risks can be protected by
insurance.

Insurance may be defined as form of contract between two parties (namely insurer and
insured or assured) whereby one party (insurer) undertakes in exchange for a fixed amount of
money (premium) to pay the other party (Insured), a fixed amount of money on the
happening of certain event (death or attaining a certain age in case of life) or to pay the
amount of actual loss when it takes place through the
risk insured (in case of property).
ORIGIN OF INSURANCE:

The origin of insurance consisted of the development of the modern business of insurance
against risks, especially regarding property, death, automobile accidents and medical
treatment. The industry helps to eliminate risk (as when fire insurance companies demand the
implementation of safe practices and the installation of hydrants), spreads risk from the
individual to the larger community and provide an important source of long term finance for
both the public and private sectors. The insurance industry is generally profitable and
provides an attractive employment opportunity for white collar workers.

In some sense, we can say that insurance dates back to early human society. We know of two
types of economies in human societies; natural or non-monetary economies (using barter and
trade with no centralized or standardized set of financial instruments) and monetary
economies (with markets, currency, financial instruments and so on). Insurance in the former
case entails agreements of mutual aid. If one familys house gets destroyed, the neighbours
are committed to help rebuild it.

The first method of transferring or distributing risk in a monetary economy, were

practiced by Chinese and Babylonian traders in the 3 rd and 2nd millennia BC, respectively.
The Babylonian developed systems that was recorded in the famous Code of Hammurabi, c.
1750 BC, and practiced by early Mediterranean sailing merchant. If a merchant received a
loan to find his shipment, he would pay the lender and additional sum in exchange for the
lenders guarantee to cancel the loan should the shipment be stolen or lost at sea.

The Greeks and Romans introduced the origins of health and life insurance c. 600 BC
when they guilds called benevolent societies, which cared for the families of decreased
members. Guilds in the middle Ages served a similar purpose. The Jewish Talmud also deals
with several aspects of insuring goods. Before insurance was established in the late 17 th
century, friendly societies existed in England, in which people donated amounts of money
to a general sum that could be used for emergencies.
NECESSITY OF LIFE INSURANCE:

A life insurance policy is a contract between an insurance company and you as a policy
holder. By paying a pre-decided premium amount every year to the company for a fixed
term, your family members get a protection cover in events of critical illness or death.

Through Life Insurance, you ensure that your family stays financially independent in case of
an unexpected eventuality. That objective itself makes it an integral component of life
planning.

An insurance policy covers you as the insured and ensures sustenance of your beneficiaries-
the individuals you have enlisted under the policy to be looked after in case of any
unforeseen circumstances. It provides financial support and assistance to your dear ones
including spouse, children, aging parents or even your business partners and employees.