Departmental organizations, corporations, and government companies are mainly the three types of organizations that are active in the insurance business in India. The Definition of Insurance. 2. The function of an insurance company is to assess risk and offer policies to provide financial compensation in case of loss or a claim against you. The insured gets the amount of insurance at the time of expiry of the policy or due to premature death of the earning member of the family, the insured get the amount of insurance at the time of expiry of the policy or due to his premature death, his family members get insurance amount and this provides safety and security to the insured as well as his family members at the time of loss. • The wealth of society is protected; e.g., the loss/damage of property by fire or accident can be well indemnified by property insurance. • Insurance works by creating a pool of homogenous risks from which the losses of the unlucky few are paid for by the premiums of … Insurance converts uncertainty into certainty by providing the insurance amount at the time of loss. The dependents of the key man also require special provisions and financial assistance if his life is lost on duty. If possible, talk with owners of businesses similar to yours and then meet with an insurance agent about your business needs. 3. The insurance policy provides funds for the marriage of the daughter of the insured irrespective of his survival, similarly insurance provides for the settlement of the children of the insured when they are done with their education. This importance is exacerbated by the fact that banks’ assets (such as customer loans) are mostly long-term in character, whereas their liabilities (such as deposits) are of shorter-term duration. DIFFERENT TYPES OF INSURANCE ORGANIZATIONS, 4. THE VARIOUS TYPES OF INSURANCE ORGANIZATIONS IN INDIA, 7. The money collected from all the clients goes into a pool to pay for the claims made by a few. • Insurance contributes to the economic growth of a country when, for instance, the pooled funds are deposited with commercial banks are accessed by borrowers to invest in the economy. When you buy an insurance policy from an insurance company, you're sharing risks with all the other policyholders. Importance of Insurance to a Business/Company, • Uncertainty of business losses is reduced, • Business efficiency is increased since insurance compensation provides the necessary funds for business continuity. Next point is needs of individual are fulfilled by life insurance policy, the need of individual like family needs, old age needs, readjustment needs, special needs and clean up needs get fulfill through life insurance, let us understand how. The roles and responsibilities of an Insurance Agent is multiple. The claims department’s role is to process and pay legitimate claims. Life insurance has important functions in business and in family and personal life. the insured, by paying a definite amount, in exchange for … 1. Let us discuss these points in detail, the first point is insurance provides safety and security, insurance provides safety and security to the individual against the loss caused due to the happening of a certain event for which he was insured. In this way, business, as well as the dependents of the deceased person, will not suffer financially and the same is the case with the property insurance. In this case, the government owns and runs the insurance business and it does so for the benefit and welfare of the society. This act provides special provisions to these concerns but after nationalization, the societies were seized. Get information from business experts at the Small Business Administration (SBA) or the local office of the Small Business Development Center (SBDC). Life Insurance Corporation was established under the Life Insurance Corporation of India act of 1956; all the Life insurance businesses including the annuities in India are owned by LIC. Where the individual uses the owned assets as collateral in a bank, the insurance company will have to state the interest of the specific bank/lender such that in the event of loss of the property through say accidental fire, then the insurance company will compensate the bank. As discussed above, the insurance sector can be of considerable importance to financial system stability, but insurers do not pose the same systemic risk for the financial system as banks. We need insurance because we are exposed to various kinds of risks and the purpose of insurance is to protect us from the loss caused due to those risks. With the advancement in insurance practices, different forms of insurance organizations emerged and these different forms of insurance organizations are self-insurance, individual insurer, partnership, joint stock companies, mutual companies, cooperative insurance organizations, Lloyd’s associations and state insurance. The function of insurance is to provide indemnity, or reimbursement, in the event of an unforeseen loss or tragedy. Definition - What does Cooperative Insurance mean? Accident may cause loss to the individual, property as well as the third party, reconstruction cost may be higher, in such case if the property is insured then the insured can claim the amount of loss from the insurance company and in this way, he feels secure about the business as well as his dependents. The insurer has the responsibility of creating a financial pool out of which the few who suffer losses are compensated. Insurance companies sell policies for individuals, families and businesses to provide financial protection in case of a claim or loss. • Life assurance encourages savings profitable investment since premiums are usually paid on a monthly basis and that pool of money can then be used to invest in profitable ventures for higher returns. The traditional view that insurers pose less systemic risk than banks did not take into account the growing interaction between insurers, financial markets, banks, and other financial intermediaries. The paper contains three sections. The definition of insurance can be prepared from 2 … • Insurance provides security and safety. The next category is the General Insurance Corporation of India, it was established under the general insurance corporation of India act 1972, it is composed of 4 companies and these 4 companies are National Insurance Companies limited, New India Insurance Companies Limited, Oriental Fire and General Insurance Companies Limited, United India Fire and General Insurance Companies limited. is a freelance writer specializing in careers, education and technology. The next point is insurance enhances credit, business can obtain loan by pledging the insurance policy as the collateral for the loan. Insurance operates on the premise of large numbers where the insurer takes contributions in the form of premiums from individuals, corporate companies, government agencies/departments, non-government organizations, and business entities exposed to similar or homogeneous risks and creates a common pool/fund from which the insurer pays the few who suffer losses. Let us continue this topic with the discussion on different types of insurance organizations. Also govt. Let us discuss the departmental organizations, departmental insurances are prevalent in the different departments of the central and state governments, for example, the state government of different states in India may provide life insurance to their respective employees. 10,000. Insurance provides a great deal of security to the insured and leaves him tension free about his life, his dependents, and his property because, in case of loss, insurance company promises the insured to cover all the losses. The risks are uncertain and the insurance policy converts the uncertainty into certainty and thus brings peace of mind to the individual. It helps in making the funds available when required, the main cause of inflation is increased money in supply and decreased production, this is controlled by insurance, so students, this was the need and purpose of insurance and we also discussed the various types of insurance organizations in this lecture, in the next lecture we will talk about the insurance contract, thank you students. Functions of an Insurance Company 1] Provides Reliability. But, the insurance relieves the person from such difficult task. The main function of insurance is that eliminates the uncertainty of an unexpected and sudden... 2] Protection. Self-insurance is better for ship owners but it is not ideal where risk can be easily estimated. It is good where risks are greater at one place and lesser at the other place. In case of self-insurance, the person saves some fund periodically to meet the risk. There are different types of insurance policies to cover almost anything you can think of, and countless companies that provide the necessary policies. When clients purchase insurance, they are put in a pool of other clients who share similar risks. The management of the investment function is an important element of an insurance company's profitability. In the words of M.N. Needs vary … The next point is insurance encourages the welfare of the employees; the welfare of employees is the responsibility of the employer because the employees work for the employer. Keywords Life Insurance Premium Payment Insurance Operation Corporate Form Loss Control • Insurance protects mortgaged property. Take an example of a property owner (landlord) asking a tenant to sign a tenancy agreement that holds the tenant responsible for any losses arising from the building catching fire. For example, if one purchases health insurance, the insurance company will pay for (some of) the client's medical bills, if any. Every single insurance plan is subject to its terms & conditions that are contained in an insurance contract and thus any insurance assists a partial purpose as decided between 2 parties the Insured (policyholder) and the Insurer (insurance company). The UK is claimed to have the largest insurance industry in Europe and the third largest in the world which makes it hardly surprising that such a diverse range of job roles are available within it. Mishra, “the mutual companies with cooperative associations formed for the purpose of effecting insurance on the property of its members.”. • Insurance as an industry is important to individuals, organizations and society as a whole. important, however, to recognize that insurance companies, given their role as mitigators of risk and their often long-term investment horizons, often also support financial stability. As in all insurance, the insured transfers a risk to the insurer, receiving a policy and paying a premium in exchange. These concerns are also known as cooperative insurance society. The next point is saving is encourage through life insurance, life insurance provides both protection and investment to the insured but in case of property insurance, only the element of protection is present, in some of the life insurance policies, the element of saving and investment is dominating, such policies encourage systematic saving against the timely and regular payment of premium by the insured. insurance companies. There is a responsibility to both the company and the customer. This refers to how insurance operates to manage the risks. Partnership. For example in the event of a terminal illness, the insured will be compensated up to a limit that would help fend for his family without necessarily burdening the other family members. The next category of insurance organization in India is employee’s state insurance corporation, it was established in the year 1948, it provides social insurance to the laborers of factories who get less than Rs. One of the main reasons for this view is that insurers are not interlinked to the same extent as banks are, for instance, in interbank markets and payment systems. Traditionally, the insurance sector has been seen as a comparatively stable segment of the financial system. 400 per month as wages. For instance, where cover is taken for the assets of the business, the sole proprietor is guaranteed compensation in the event that they caught fire and that indemnification would safeguard the existence and continuity of the business. The next point is insurance protects the mortgaged property, if the owner of the mortgaged property expires, then at the time of his death, his property is taken over by the lender and the dependents of the deceased person are deprived of the uses of the property, but if the mortgagee gets the mortgaged property insured, then in case of loss or damage to the property, he will get the amount from the insurance company to recover from the losses. It also highlights the special role of reinsurers in the insurance sector and discusses some of the key differences between insurers and banks from a financial stability point of view. Insurance is something we buy but hope we never need. While the first three … The interconnections between banks in interbank markets and payment systems can also cause problems faced by one bank to spread to others. But in case of life insurance policy, the policyholders may share some portion of the profit of the company in the form of bonus. Insurance policies are a safeguard against the uncertainties of life. The other type of insurance organization is the cooperative insurance organization, these are the concerns which are incorporated or registered under the Indian cooperative society’s act 1938. The insurance business in India is under the control of the central government through different types of insurance organizations. Insured get more amount of loan due to certainty of payment at the time of his death. The next category of insurance organizations in India is Deposit Insurance Corporation; it was established in the year 1962 and it provides protection to the depositors of the banks, in case if the bank fails, then the depositors can get their deposits back up to Rs. The next point of need and purpose of insurance from the viewpoint of business and industry is insurance provides key man indemnification, key man is the particular man who has the expertise, experience as well as the management skills that makes him the asset for the business, in case if the life of such a person is lost, then the business will lose an asset and at the same time, training and employing a new person in his place will be expensive for the business. This is better demonstrated for health funeral, and life insurance covers. Entrepreneur: 7 Types of Insurance You Need to Protect Your Business, Insurance Companies: How Insurance Companies Measure Risk, Risks associated with your business or profession, Policy limits (the highest amount the insurance company pays for a claim). First of all, insurance performs a distribution function and pays material compensation … There are three main reasons why insurers are important for the stability of the financial system. There are three main functions of insurance and these are: It is a mechanism by which the financial consequences of an event are shifted from one party to another. Insurance, as a rule, does not create anything new. Banks have a special role in the financial system on account of their central role in the transmission of monetary policy and their participation in payments systems. For example, a construction company pays more for liability insurance than does a flower shop. This site uses Akismet to reduce spam. The management of the company is the responsibility of the board of directors elected by the shareholders amongst themselves; there is a memorandum of association and article of association framed by the members. Let us begin with the need and purpose of insurance from the individual’s point of view, the various points included in this category are insurance provides safety and security to the individuals, insurance provide peace of mind, insurance protects the mortgaged property, insurance eliminates dependency, saving is encouraged through life insurance, profitable investment is encouraged by life insurance and the needs of the individual are fulfilled by life insurance. The employer must provide the provision for the death, disability or old age of the employees, life insurance, accidental insurance, sickness benefits, and pension are provided by general insurance, premium for group insurance is paid by the employer, this plan is cheap, reliable and secured, such policies help in maintaining good relationship between the employer and the employees. The next type of insurance organization is mutual companies. • The insurance industry creates jobs for insurance professionals. If the insured is unable to repay the amount, then the lender can surrender the insurance policy and get the loan repaid along with the interest. Machine, cattle and crop insurance protects against the different types of losses, employee insurance and other types of insurance related to business provide confidence to the parties related to the business and the business itself. So students, let us continue our discussion on the different types of insurance organizations, the next type of insurance organization is joint stock companies The function of insurance is to spread this loss over a large number of persons through the mechanism of co-operation. Insurance is a way or mechanism of transferring the insurable risk to an insurance company for a price called premium such that in the event of a loss, the insurance company will compensate the policyholder (individual or company) as per the terms set out in the insurance contract. Insurance is a very complicated and highly regulated industry with many different roles and opportunities for those working within it. It determines whether it would be profitable for an insurance company to take a chance on providing insurance coverage to an individual or business. In addition, insurers are not generally seen to be a significant potential source of systemic risk. Role of Insurance Companies By Webmaster on September 10, 2013 • ( 0). The next point is profitable investment is encouraged through life insurance, individuals through life insurance policies unwillingly or unable to handle their funds get a good option to invest. If each partner in the insurance firm is insured, then the insurance company will pay the amount at the time of his death. • Insurance affords peace of mind. Insurance is a means of protection from financial loss. Insurance company definition: a company that sells insurance | Meaning, pronunciation, translations and examples The major objective of any insurance cover is to provide peace of mind in the assurance that your losses have been taken care of by the insurance company and you will not need to deep into your pocket to cater for any expenses resulting thereof from the insured event. Insurance companies are playing an important role to manage the risk of individuals. 2. Different types of insurance organizations have been formed to protect us from different kinds of risks. Insurance services act as a tool to mobilize saving, function as financial intermediary and at times also indulge in direct investment. 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