Characteristics of Insurance


Insurance has the following characteristics:

(1) Co-operative Device
"All for one and one for all" is the basis for a co-operative device. The insurance is a method where in large number of persons posed to a similar risk are covered and risk is spread over among the larger insurable public Insurance is a social or co-operative method wherein losses of one is borne by the society.

(2) Contract
 Insurance is a valid contract between the insured on the one side and the insurer on the other. It has all the essential elements of a valid contract and is enforceable irn the court of law

(3) Consideration
 Like other contracts, there must be lawful consideration in insurance also. This consideration is in the form of premium, which the insured agrees to pay to the insurer

(4) Protection against Risk
The insurer agrees to indemnify the insured upon the happening of a particular event. Thus, insurance is a protection against the risk.

(5) Risk sharing and the risk transfer

 Insurance is a mechanism adopted to share the financial losses that might occur to an individual or his family on the happening of a specified event. The event may be death of an earning member of the family in the case of life insurance, marine perils in marine insurance, fire in fire insurance and other events in miscellaneous insurance e.g., theft in burglary insurance, accident in motor insurance. etc The loss arising from these events are shared by all the insured in the form of premium. Hence, risk is transferred from individual to a group

(6) Value of Risk

Risk is evaluated in money terms and it is spread on all the insured in the form of premium. Risk is evaluated on the basis of probability theory. If the probability of happening of a risk is more than higher premium is fixed and vice versa.

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