Insurance is a form of contract or agreement under which one party agrees in return of a consideration to pay an agreed amount of money to another party to make good for a loss, damage, injury to something of value in which the insured has a pecuniary interest as a result of some uncertain event. This agreement or contract when put in writing is known as a policy. The person whose risk is covered is called insured or assured and the company or corporation which insures is known as insurer, assurer or underwriter. The consideration in return for which the insurer agrees lo make good the loss is known us premium.
2 Types of Insurance
From accounting point of view, insurance may be divided into two types, i.e..
Life Insurance. Life insurance business is carried on by Life Insurance Corporation of India since 1956 Under this type of insurance the corporation guarantees lo pay a certain sum of money to the policyholder on reaching a certain age or on his death whichever is earlier. Life insurance has an clement both of protection and investment.
General insurance. It includes all other types of insurance except life insurance as fire insurance, marine insurance, accident insurance, burglary, fidelity, third party, workmen compensation, consequential loss etc. Under this type of insurance the insurer undertakes 10 indemnify the loss suffered by the insured on happening of a certain event in consideration for a fixed premium.