Nature of Insurance - Risk Management and Insurance, Principles of Insurance Video Lecture | Principles of Insurance - B Com

let's talk about the nature of insurance
so what is an insurance a basic
definition is insurance is a protection
against financial loss and why do people
buy insurance because they want
protection now here's the key though
what really causes people to buy
insurance we know every people need
insurance because there are risk and how
do we define risks the definition of
risk is the chance of loss so again
insurance is basically defined as the
protection against a financial loss and
the reason why people buy insurance is
because risk is present the chance of
loss or uncertainty of loss lian this
definition of risk there are its two sub
categories the first one we'll call your
risk pure risk is a type of risk where
there is a chance of loss only no chance
for gain this type of risk is insurable
example of this risk is getting second
let's say someone get cancer obviously
the person wasn't planning to get cancer
this is an unforeseen thing so the
person gonna need to have treatments and
these treatments are expensive your
risks are type of risks which have no
potential for gain what does the person
gain from getting cancer
nothing another example of pure risk is
a house getting burnt down what does a
person gains from that lightening
strikes the house it burnt down nothing
this is why people buy insurance to
cover the financial loss that will occur
the second subcategory of risk is a
speculative risk this is a special type
of risk where there is a chance for gain
and the potential for loss this is not
insurable you can buy insurance for a
speculative risk example of these are
gambling and buying natura tickets so
for instance a person buys a lottery
ticket and the jackpot amounts to 100
million pesos
the person buying the ticket could win
by spending 20 pesos on the ticket or he
could lose his 20 pesos that risk is a
speculative risk which is not insurable
if they were it would be very risky
agents do not insure risk with potential
for gain now let us know how insurers
manage the premiums collected from
policyholders ensures make money in two
ways the first is through underwriting
the process by which insures select the
risks to insure and decide how much in
premiums to charge right accepting the
risk and second by investing the
premiums they collect from insured
parties
here are some other basic terms premium
it is whatever everybody has to pay for
their protections provided whether it's
for auto insurance health insurance any
type of insurance this is what people
pay to insure companies another term is
the insurance policy this is actually
the legal contract or agreement between
the insurance company and the insured
these are legally enforceable contracts
the insured receives a country called
the insurance policy which deals the
conditions and circumstances under which
the insured will be compensated loss on
the other hand is the reduction of the
value of the asset and in order to be
paid with a loss a claim must be
submitted to the insurance company
there are two parties to an insurance
and insurer is a company selling the
insurance and insured our policyholder
gives the person or entity buying the
insurance policy there are now a wide
range of insurance contracts here are
the general types of insurance home
insurance health insurance accident
sickness and unemployment insurance
casualty life property liability credit
other types insurance financing vehicles
and close community self insurance