What is Insurance?

what is an insurance

Do You Know What is an Insurance?

Insurance gives protection from financial loss. It used to protect from risk of contingent or uncertain loss. You can also call it a form of risk management. The insurance provider also called an insurance company, insurance carrier, and insurer. When someone (A person or entity) buys insurance also known as the policyholder. Insurance gives a guarantee to a person or an entity in the event of a covered loss to compensate. 

When the insurance company charges the amount of money by the insurer to the policyholder is called the premium. When a policyholder take a policy from an insurance company there have some conditions and circumstances, by that policyholder will get compensated from the insurance company.

History of Insurance (Old method and Modern Method)

Many years ago, Chinese and Babylonian merchants practiced risk transfer or distribution in the third and second millennia BC. [1] Chinese merchants redistributed their goods on several ships to control erosion caused by a shipwreck while traveling on the river. The arrangements made by the Babylonians were recorded in the famous Code of Hammurabi, c.

Around 60,000 BC, merchant groups together created a ‘conventional average’ for transporting goods that allowed them to be insured.

In Europe, insurance is introduced in large quantities. At the time, trade was carried on by the river, so Lloyd’s Coffee House became the first organized market for marine insurers. At that time only trade was insured. At that time there was not so much insurance type as there is now.

In 1681, Nicholas Bourbon, the first economist, and eleven associates founded a company called Agni Bima to insure homes. At that time, the company had insured the first 5,000 houses.

Principles of Insurance

Many large insurance companies have sprung up around the world to offer policies on almost all types of things. Moreover, people take out insurance policies for themselves and their families. Most people insure for the future. So insurance companies are much more financially advanced today.

Insurance companies have made rules and regulations for their customers. If the insured company or person suffers loss before the due date of the insurance, then the insured gets a refund through them or the nominee as per that rule. So today big industries, companies, shops, individuals take out insurance policies to secure the future.

Method of Insurance

There are some methods of insurance according to Chartered Insurance Institute study book as follows:

1. Co- Insurance: that risk is shared between the insurers

2. Dual Insurance: risk overlapping coverage with two or more policies (Separate payment not for individual policies).

3. Self Insurance: In this situation the insurance company and the entity do not get the risk.

Reinsurance: When insurer passes on to another insured some of all of the risk.

Types of Insurance

The amount of risk that will be covered by insurance is determined by its amount. There are different types of insurance policies, so depending on the insurance policy which risk will be covered in the policy and which will not. The risks are divided into types of insurance.

There are some types of insurance as follows:

Auto- Insurance: In this insurance, policyholder get protection from financial loss when the policy holder’s vehicle gets damaged or theft by someone,  also get liability coverage and medical coverage.

Gap Insurance: When the entire loan doesn’t cover by your insurance company, then the excess amount on your auto loan cover by the Gap insurance. Generally, auto insurance offered by finance companies but insurance company also offers many auto insurances for the consumers.

Health Insurance: Medical treatment costs are covered by Health Insurance. When a health insurance policyholder suffers from health disease, then health insurance protects the policyholder for the medical cost.  In many developing countries Govt. gives the facility of health insurance for all citizens.

Income protection insurance:  When policy gets an injury or becoming unable to work for his illness, then disability insurance policies give to the policyholder financial support. It provides payment for monthly support to the policyholder. Disability insurance gives benefits to the policyholder who becomes permanently unable to work or can’t go for their work again.

Casualty insurance: In this insurance policyholder get insures against accidents and it is not tied with any specific property. In this insurance, another type of insurance like liability insurance, workers’ compensation, also auto could be classified.

Life insurance: A decedent’s family and also other designated beneficiaries can get monetary benefits from this insurance. Most of the people for their future safety takes this life insurance. If the policyholder dies after giving some premium (an installment of the policy) of this life insurance policy, then the nominee gets the financial help (the full coverage amount) from the insurance company.

Burial insurance: this insurance gives payment for final expenses after the death of policyholder as the cost of a funeral.

Property insurance: Risks of property like- fire, weather damage or theft are covered by this property insurance and provide financial protection after the damage. There are some insurance that may include in property insurance, some of those are listed below:

  • 1. Aviation Insurance
  • 2. Boiler Insurance
  • 3. Builder’s Risk Insurance
  • 4. Crop Insurance
  • 5. Earthquake Insurance
  • 6. Fidelity Bond
  • 7. Flood Insurance
  • 8. Home Insurance
  • 9. Landlord Insurance
  • 10. Marine Insurance
  • 11. Renter’s Insurance
  • 12. Surety Bond

Liability Insurance: Only Negligence of the insured can be covered by Liability policies, willful or intentional acts will not apply by the insured. Some liability insurances are-

  • 1. Public Liability
  • 2. Directors and Officers Liability Insurance
  • 3. Environmental Liability Insurance
  • 4. Errors and Omissions Insurance
  • 5. Prize Indemnity Insurance
  • 6. Professional Liability Insurance

Payment Protection Insurance: When the borrower is insolvent then this insurance repays some or all of loan. Some form of Payment Protection Insurance is- Mortgage Insurance, Trade Credit Insurance, Collateral Protection Insurance.

Top insurance companies in the world

World’s top 10 Insurance companies’ are-

  • 1. AIA Group Ltd: Founded in 1919, Headquarter in Singapore (Hong Kong)
  • 2. AIG: Founded in 1919 (In Shanghai), American International Group. Headquarter in New York
  • 3. Allianz SE: Founded in 1890, headquarters in Germany, working in over 70 countries.
  • 4. AXA: Working in 56 countries and 102 million customers, founded in 1816, Headquarter in Paris
  • 5. Berkshire Hathaway: Founded in 1889.
  • 6. China Life Insurance: LFC founded in 1949.
  • 7. ING Group: ING Group is a Dutch Multinational group, founded in 1991
  • 8. Ping An of China: Founded in 1988, the market cap is $211.4 billion
  • 9. Prudential Financial: Founded in 1875, used to sell burial insurance, market cap $39 billion
  • 10. MetLife:  Over 50 countries serving 100 million customers. Market cap 47.4 billion

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