Module 1
Training Material
Introduction to Insurance Part 1
- What is insurance?
- How insurance works
- Purpose of insurance
- Insurance as a social security tool (Government insurance schemes)
- Industry trends and growth potential
- Why we need Life Insurance
- History of Life Insurance
What is Insurance?
Insurance may be defined as the transfer of risk from the insured to the insurer.
The insured is the person (or firm or company) confronted by risk, who transfers the risk to the
insurance company. This company specialized in the assumption of risk and accepts the risk.
- The insurer or insurance company accepts the risk for a fee which is called ‘PREMIUM’
- The insurance company assess the loss and ‘underwrites’ the risk for a ‘PREMIUM’
Insurance as security is a necessity for all human beings.
It is human to be afraid of uncertainties, fears and death. It is best to have a sense of security and
certainty against possibility of losses in the times of a crisis. Be it a car accident, a hospitalization or
even death, insurance can help a person overcome the fear of such crises.
The concept of insurance is not recent. We have always lived in a group or community to be
secure. In earlier days, whenever an earning member of a family would die (because of an illness)
the other members of the social group (or a family or clan) would contribute to help the survivors.
The contribution was in the form of food, clothing and shelter.
Later, as commercial considerations grew stronger and stronger; nuclear families became a
common practice. In such a scenario, helping hands were few and if a family lost an earning
member (or faced a financial crisis) few came forward to help out.
This is when the concept of insurance as we know it today came gained prominence.
,How insurance works?
Let us assume that a particular city has a population of 1
lakh. In the city, on an average, during a year:
- 200 people die in accidents
- 800 people get injured and disables
- 2,000 people die of natural causes
- 7,000 people die of diseases
This data as per statistics is
certain. So what’s uncertain?
While we know the risks posed to any individual, it is not certain how many individuals and which
individuals may be actually harmed by that risk.
A 60-year-old retired school teacher in that city faces as much risk of accident-related death, as is
a 32- year-old father of two.
Grown-ups and dependents will have their own set of fears against such risks.
What could be a probable solution to the problem is that if all 10,000 persons (or most of them) were
to contribute a small of money each year to a common pool. This common pool of money could be
used to help those who were actually affected by a crisis.
In a way, many would contribute to mitigate the losses of a few.
This method of sharing losses of a few by many is the basis or core philosophy of insurance.
Purpose of Insurance
Things that every human being fears:
- Fear of not being able to make ends meet to procure basic necessities of food,
clothing and shelter (Roti, Kapda, Makaan).
- There is fear of not being able to provide for ourselves and for those dependent on us.
- After all, it is only when one is able to meet the basic necessities is one able to
acquire assets like vehicles, property or jewellery.
- And then there is additional fear of saving the assets from destruction. (The
assets could be destroyed through accidents, in fire or in an earthquake, and the
income may be cut off due to old age or due to uncertainties like accidents,
illness or disabilities.)
, Therefore, to overcome these problems, and cover oneself against such risks,
Insurance plays a very important role.
We need insurance for security and safety.
- Life insurance provides security against premature death and payment in old age
to lead a comfortable life.
- In general insurance, one could insurance one’s property, car and health
against contingencies, both natural and man-made.
- The uncertainty due to fire, accident, death, illness, disability in the human
life, is compensated financially by general insurance.
- Insurance is the only way to assist and provide adequate cover at the
times of sufferings.
- Life insurance provides protection and investment while general insurance
provides only protection to the human life and property respectively.
Insurance as a security tool
The Indian Government has certain acts, which make sure that insurance is used as a tool for
social security for all.
Here are a few acts you should know of:
1) Workman Compensation Act, 1923:
This act fixes the liability for the employer, so that he / she is liable to provide and pay
compensation to his / her victims if they were involved in an accident on duty.
2) Employee State Insurance Act, 1948:
The purpose behind this legislation was to provide medical aid to workers
and their families in industries located in certain notified areas.
3) Motor Vehicle Act, 1988:
Third party liability insurance is compulsory and no uninsured vehicle is
allowed to ply the roads or in any public place in India. The act now provides
that irrespective of the fact that the fault was of the driver / owner or not
(no-fault) the victim of an accident will be entitled to a compensation payment
in case of death or grievous bodily injury.
4) Public Liability Act, 1991:
The public liability act makes is compulsory for all individuals, companies,
industries (remember the Bhopal Gas Tragedy of 1984) involved in handling
of hazardous substances to insure against any untoward happening so that
immediate succor is available to the victims from the insurance companies.
5) Personal Accident Social Security Scheme:
, The scheme provided for a payment of Rs. 3,000/- in the event of death due to
an accident of any person in the age group of 18 to 60 who is the earning
member of the poor family. The premium is borne by the Central Government
and the expenses for implementation of the scheme by the state government.
6) National Agricultural Insurance Scheme or the Rashtriya Krishi Bima Yojna
introduced in 1999 with the objective of providing insurance coverage and
financial support to farmers in the event of failure of crops as a result of
calamities, pests and diseases.
7) Hut Insurance Scheme:
The scheme provides that in case of destruction of Hut due to fire, the
Government gives compensation of Rs. 1,000 for hut and Rs. 500 for
belongings shall be paid.
Growth Potential for the Insurance Sector in India
With the largest number of life insurance policies in force in the world, Insurance happens to be a
mega opportunity in India. It’s a business growing at the rate of 15-20 percent annually and
presently is of the order of Rs. 450 billion.
Yet nearly 80 percent of the Indian population is without life insurance cover, while health and
non-life insurance continues to be below international standards.
The population is also subject to weal social security and pension systems with hardly any old age
income security.
This itself is an indication that growth potential for the insurance sector is immense.
10 Reasons Why We Need Life Insurance
Life insurance is one of those things that every person is expected to have:
1) To provide for the risk of dying too early or living too long.
2) To replace the lost income for the family: to provide money to replace the income
of the bread-winner in the case of the unfortunate death so that the family can
maintain its standard of living,
3) To pay medical expenses associated with death: Unfortunately, many
deaths are prolonged and a mountain of medical bills can accumulate.
4) To pay off a mortgage or other debts: A life insurance death benefit allows the
surviving family to eliminate monthly house payments, car payments, or other
debt obligations.
5) To provide money for settling the estate: If there is an estate to be settled,
death benefits are paid immediately upon death, so money will be
available to pay costs related to the estate (example: taxed) while it’s being
settled.
Training Material
Introduction to Insurance Part 1
- What is insurance?
- How insurance works
- Purpose of insurance
- Insurance as a social security tool (Government insurance schemes)
- Industry trends and growth potential
- Why we need Life Insurance
- History of Life Insurance
What is Insurance?
Insurance may be defined as the transfer of risk from the insured to the insurer.
The insured is the person (or firm or company) confronted by risk, who transfers the risk to the
insurance company. This company specialized in the assumption of risk and accepts the risk.
- The insurer or insurance company accepts the risk for a fee which is called ‘PREMIUM’
- The insurance company assess the loss and ‘underwrites’ the risk for a ‘PREMIUM’
Insurance as security is a necessity for all human beings.
It is human to be afraid of uncertainties, fears and death. It is best to have a sense of security and
certainty against possibility of losses in the times of a crisis. Be it a car accident, a hospitalization or
even death, insurance can help a person overcome the fear of such crises.
The concept of insurance is not recent. We have always lived in a group or community to be
secure. In earlier days, whenever an earning member of a family would die (because of an illness)
the other members of the social group (or a family or clan) would contribute to help the survivors.
The contribution was in the form of food, clothing and shelter.
Later, as commercial considerations grew stronger and stronger; nuclear families became a
common practice. In such a scenario, helping hands were few and if a family lost an earning
member (or faced a financial crisis) few came forward to help out.
This is when the concept of insurance as we know it today came gained prominence.
,How insurance works?
Let us assume that a particular city has a population of 1
lakh. In the city, on an average, during a year:
- 200 people die in accidents
- 800 people get injured and disables
- 2,000 people die of natural causes
- 7,000 people die of diseases
This data as per statistics is
certain. So what’s uncertain?
While we know the risks posed to any individual, it is not certain how many individuals and which
individuals may be actually harmed by that risk.
A 60-year-old retired school teacher in that city faces as much risk of accident-related death, as is
a 32- year-old father of two.
Grown-ups and dependents will have their own set of fears against such risks.
What could be a probable solution to the problem is that if all 10,000 persons (or most of them) were
to contribute a small of money each year to a common pool. This common pool of money could be
used to help those who were actually affected by a crisis.
In a way, many would contribute to mitigate the losses of a few.
This method of sharing losses of a few by many is the basis or core philosophy of insurance.
Purpose of Insurance
Things that every human being fears:
- Fear of not being able to make ends meet to procure basic necessities of food,
clothing and shelter (Roti, Kapda, Makaan).
- There is fear of not being able to provide for ourselves and for those dependent on us.
- After all, it is only when one is able to meet the basic necessities is one able to
acquire assets like vehicles, property or jewellery.
- And then there is additional fear of saving the assets from destruction. (The
assets could be destroyed through accidents, in fire or in an earthquake, and the
income may be cut off due to old age or due to uncertainties like accidents,
illness or disabilities.)
, Therefore, to overcome these problems, and cover oneself against such risks,
Insurance plays a very important role.
We need insurance for security and safety.
- Life insurance provides security against premature death and payment in old age
to lead a comfortable life.
- In general insurance, one could insurance one’s property, car and health
against contingencies, both natural and man-made.
- The uncertainty due to fire, accident, death, illness, disability in the human
life, is compensated financially by general insurance.
- Insurance is the only way to assist and provide adequate cover at the
times of sufferings.
- Life insurance provides protection and investment while general insurance
provides only protection to the human life and property respectively.
Insurance as a security tool
The Indian Government has certain acts, which make sure that insurance is used as a tool for
social security for all.
Here are a few acts you should know of:
1) Workman Compensation Act, 1923:
This act fixes the liability for the employer, so that he / she is liable to provide and pay
compensation to his / her victims if they were involved in an accident on duty.
2) Employee State Insurance Act, 1948:
The purpose behind this legislation was to provide medical aid to workers
and their families in industries located in certain notified areas.
3) Motor Vehicle Act, 1988:
Third party liability insurance is compulsory and no uninsured vehicle is
allowed to ply the roads or in any public place in India. The act now provides
that irrespective of the fact that the fault was of the driver / owner or not
(no-fault) the victim of an accident will be entitled to a compensation payment
in case of death or grievous bodily injury.
4) Public Liability Act, 1991:
The public liability act makes is compulsory for all individuals, companies,
industries (remember the Bhopal Gas Tragedy of 1984) involved in handling
of hazardous substances to insure against any untoward happening so that
immediate succor is available to the victims from the insurance companies.
5) Personal Accident Social Security Scheme:
, The scheme provided for a payment of Rs. 3,000/- in the event of death due to
an accident of any person in the age group of 18 to 60 who is the earning
member of the poor family. The premium is borne by the Central Government
and the expenses for implementation of the scheme by the state government.
6) National Agricultural Insurance Scheme or the Rashtriya Krishi Bima Yojna
introduced in 1999 with the objective of providing insurance coverage and
financial support to farmers in the event of failure of crops as a result of
calamities, pests and diseases.
7) Hut Insurance Scheme:
The scheme provides that in case of destruction of Hut due to fire, the
Government gives compensation of Rs. 1,000 for hut and Rs. 500 for
belongings shall be paid.
Growth Potential for the Insurance Sector in India
With the largest number of life insurance policies in force in the world, Insurance happens to be a
mega opportunity in India. It’s a business growing at the rate of 15-20 percent annually and
presently is of the order of Rs. 450 billion.
Yet nearly 80 percent of the Indian population is without life insurance cover, while health and
non-life insurance continues to be below international standards.
The population is also subject to weal social security and pension systems with hardly any old age
income security.
This itself is an indication that growth potential for the insurance sector is immense.
10 Reasons Why We Need Life Insurance
Life insurance is one of those things that every person is expected to have:
1) To provide for the risk of dying too early or living too long.
2) To replace the lost income for the family: to provide money to replace the income
of the bread-winner in the case of the unfortunate death so that the family can
maintain its standard of living,
3) To pay medical expenses associated with death: Unfortunately, many
deaths are prolonged and a mountain of medical bills can accumulate.
4) To pay off a mortgage or other debts: A life insurance death benefit allows the
surviving family to eliminate monthly house payments, car payments, or other
debt obligations.
5) To provide money for settling the estate: If there is an estate to be settled,
death benefits are paid immediately upon death, so money will be
available to pay costs related to the estate (example: taxed) while it’s being
settled.
