Meaning & Advantages of Insurance & Assurance.
Generally, the words insurance and assurance are considered to mean the same thing but their meaning is different. The word assurance is used for like assurance policies. The contract of assurance means that the assured will have to be paid sooner or later. The word insurance is used for fire and marine insurance. Under the contract of insurance the risk is uncertain and the liability may or may not occur.
Under life assurance the payment is made either on maturity or on the death of the insured, whichever is earlier. So the company will have to make the payment of the policy, it is only a question of time. In case of insurance contracts, the sum insured will be payable only if there is a loss. If a factory godown is insured against fire and in case, godown is destroyed by fire, then a liability under insurance contract will arise. If there is no fire, then the liability will not arise. So the liability under insurance contract may or may not arise.
Re-insurance or Double Insurance
An insurance company generally undertakes the risks according to its capacity. Sometimes a company undertakes more risks than its capacity. It tries to share the risk with some company in case of its occurrence.
When the insurance company insures the risk with some other insurance company, it is called Re-insurance. The re-insurance may be for the full amount of the policy or for a part of it. In case of loss the first company will get compensation from the second company. The insured will be concerned only with the company from which it purchased insurance policy. Re-insurance is between insurance companies only.
Double insurance means purchasing more than one policy for the same subject. A person may get two or more policies on his life. He can claim the amount on all these policies. The implications of double insurance are different in fire and marine insurance. When a person purchases two or more policies for his property, he cannot claim the same amount as that of loss from different companies. He will be able to claim only total loss from one or more companies. The loss will be contributed by the insurance companies in proportion to the policies issued by them.
Advantages of Insurance
The Insurance has become an integral part of business and human life. The following are the advantages of insurance:
I. Providing Security:
There are always a fear of sudden loss. There may be a fire in the factory, storm in the sea or loss of a life. In all these cases it becomes difficult to bear the loss. Insurance provides a cover against any sudden loss. In case of marine and fire insurance, the loss suffered by the insured is fully compensated and he is restored to his earlier position. In the same way, if a bread-bringing member of the family dies prematurely, the family is provided with money to continue with its livelihood. So, insurance gives security to both individuals and businessman.
II. Spreading Risk:
The basic principle of insurance is to spread risk among a large number of people. A large number of persons get insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out of funds of the insurer. The loss is spread among a large number of policy-holders.
III. Source for Collecting Funds:
In lieu of an insurance cover, the insured pays premium to the insurer. The premium is received regularly in installments. Large funds are collected by way of premium. The funds can be gainfully employed in industrial development of a country. Life insurance policies are purchased by persons from all walks of life. It helps in collecting savings from a large number of persons.
IV. Encourage Savings:
Insurance does not only protect risks but it provides an investment channel too. Life insurance provides a mode of investment. The insurance develops a habit of saving money by paying premium. The amount of policy is paid to the insured or to his nominees. In case of fixed time policies, the insured gets lump-sum amount after the maturity of the policy.