Chapter 01 Introduction to insurance
Insurance Quotient Boosters
- We may face dangerous threats at any time to our life or our assets like health, car or house. The financial impact of recovering from them may be devastating.
- Insurance is a financial tool specially created to reduce the huge financial impact of unforeseen events and create financial security.
- A small premium is collected from a large no. of people for the insurance, to provide financial relief to the few people who may actually face the calamity at a given time.
Life is full of uncertainties that put us and our property at risk. The risk may not be under our control but the damage control can surely be. We can take appropriate measures to reduce the financial impact of these risks and protect ourselves financially.
Insurance helps us to protect ourselves and the things we value, such as our homes, our cars and our valuables, from the financial impact of risks. The risks may be big or small - natural calamities like floods, storms and earthquakes, to man-made calamities like theft, car accidents, fires and even from the costs of legal action against us.
Insurance is a financial tool specially created to reduce the huge financial impact of unforeseen events and create financial security.
You pay a small amount, known as a premium, to protect you against a certain type of loss that could happen. If you actually do face that loss, you will receive a specific sum of money to help you recover from it. Hence, with insurance, you are assured that in case you face a loss, you can recover from it.
Insurance works on the law of large numbers. Even though an event like an accident or a fire can come as a terrible economic blow to someone, when we take the society as a whole, only a few would suffer such a loss in any given year. If a small contribution is collected from everyone in the community and pooled to create a common fund, the amount so pooled can be used to pay money to the few unfortunate members who have been subject to the loss.
Thus, contributions by many in the form of premiums, pay for the loss of a few. Let’s take the example of Chatur Nagar, a village where all 400 houses have been insured.
