Family Insurance Case Study

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Consider that someone in your well known circle, a friend or a family relative who is the bread winner of the family. All of a sudden he is detected some acute illness. What will happen to the family? How will they survive if something happens to him? Is there any back up if someone could provide continuous monetary benefits - The answer is a straight ‘NO’ because no one would be in a position to support another family.
When a person is detected with sudden ailments causing death is becomes a huge disaster for their family. The family losses their sole dependency for financial cause. This is a tragedy and only preventive measure could help in such scenarios.
Scenario 2:
Now, coming to the next case – Let us take a much known example: ‘The
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Insurance policy will be the contract for the security provided.
Also, insurance will be the first and foremost requirement to manage any risk involvement.

1.1.2 Meaning,Definition,Importance & nature of insurance

Defining Insurance:
An arrangement enforceable by law by which one party undertakes to provide guarantee or compensation for specified unforeseen loss, damage, illness or death of any person or property in return for specific payment.
Financially, Insurance is a protection cover for all the losses incurred due to either death or possessions.
Legally, Insurance is a contract between two people or entity, one being under the risk of loss and other lending the recovery measure.
Terms used in Insurance
Insurance Policy
Insurance Policy is a contract/agreement between two parties. Here one party will be facing the risk and the other party will be the absorbing the risk transferred to them.
Insured
Insurer is the person who is undertaking the insurance policy to recover the losses incurred. Insurer will transfer the risk from him/her to the other party who has signed the contract to pay the losses incurred.
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• Premiums invested in insurance are invested in sectors which in turn will provide more jobs and eradicates unemployment from the country.

Nature of Insurance:

There are two main elements of Insurance. They can be categorized as :
1. Risk Pooling
2. Risk Transfer

Risk Pooling
The amount collected by the insurer as premium from the insured are pooled together to pay the losses incurred by the insured.
Generally similar risks are pooled together in an insurance bracket.
Depending upon the size of the sample collected by the insurers, they can analyze the data and predict the losses.

So, using modern forecasting methodologies, insurers measure the risk and predict and analyze them. By doing this, there is reduction of risk in the society.

Risk Transfer
Risk management strategy in which an insurable risk is shifted to another party by means of an insurance policy.
The insurer sets the policy guidelines and measures under which the insured will be paid the losses.

So, based on the list of measures specified in the insurance contract, the insurer pays the insured either a sum of amount or any service based on the type of agreement
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