Insurance is a system of protection against financial loss. It is an agreement between an individual or organization (the insured) and an insurance company (the insurer) where the insured pays a sum of money called premium, and in return, the insurer promises to compensate for specific losses or damages if they occur.

Insurance helps people or businesses to reduce risk by transferring it to an insurance company.

1. Protection against Losses: Provides financial compensation when accidents, theft, fire, or other risks occur.


2. Encourages Savings and Investment: Paying insurance premiums regularly encourages financial discipline and planning.


3. Facilitates Credit: Businesses can get loans more easily if they have insured their assets.


4. Promotes Trade and Business: Businesses are confident to trade and invest knowing that risks are covered.


5. Provides Peace of Mind: Reduces worry and stress about potential losses.


6. Economic Stability: Insurance ensures continuity in business operations and protects the economy from sudden shocks.


7. Employment Opportunities: The insurance sector creates jobs for agents, brokers, and other professionals.


8. Encourages Risk Management: Insurance motivates safer practices and planning.

1. Life Insurance: Provides financial protection for a person’s family or dependents in case of death. Examples: Whole life policy, term life policy, endowment policy.


2. Health Insurance: Covers medical expenses for illnesses, accidents, or hospitalization. Example: National Health Insurance Scheme (NHIS).


3. Fire Insurance: Protects buildings, stock, or equipment against damage caused by fire.


4. Marine Insurance: Covers loss or damage to goods during transportation by sea, air, or land.


5. Motor Insurance: Protects vehicles against accidents, theft, or third-party liability.


6. Theft or Burglary Insurance: Provides compensation if goods, money, or property are stolen.


7. Liability Insurance: Covers legal responsibility for injury or damage caused to other people or their property.


8. Crop and Livestock Insurance: Protects farmers against loss of crops or animals due to natural disasters or diseases.

Premium is the amount paid by the insured to the insurance company regularly, usually monthly or annually.

The premium depends on:

1. Type of insurance.


2. Value of the item insured.


3. Risk involved.


4. Duration of the policy.

A policy is a written contract between the insurer and the insured.

It specifies:

1. What is insured.


2. The amount of coverage.


3. The duration of coverage.


4. The premium and payment terms.


5. Conditions and exclusions.

A claim is a formal request made by the insured to the insurance company for compensation following a loss or damage.

The insurer investigates and pays compensation according to the terms of the policy.

1. Utmost Good Faith (Uberrima Fides): Both parties must provide accurate information.


2. Insurable Interest: The insured must benefit financially from the insured item or suffer a loss if it is damaged or lost.


3. Indemnity: The insured should not gain financially from insurance; compensation only covers the loss.


4. Contribution: If multiple policies exist, compensation is shared proportionally among insurers.


5. Subrogation: After paying a claim, the insurer can take legal action against the person responsible for the loss.

1. Protection Against Loss: Safeguards people and businesses from financial losses caused by accidents, fire, theft, illness, or disasters.


2. Encourages Savings and Investment: Regular premium payment promotes financial discipline and investment planning.


3. Facilitates Credit and Loans: Insured assets make it easier to secure loans from banks.


4. Promotes Trade and Business Confidence: Businesses can invest and trade knowing risks are covered.


5. Peace of Mind: Reduces worry about potential financial losses.


6. Economic Stability: Compensation of losses prevents financial collapse and ensures continuity of operations.


7. Employment Opportunities: The insurance sector creates jobs for agents, brokers, and related professionals.


8. Encourages Risk Management: Motivates safer practices in business and personal activities.

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Summary

Insurance protects individuals and businesses from financial losses. It involves paying premiums to an insurer, who provides compensation in case of loss. Understanding insurance and its benefits promotes financial security, business growth, and economic stability.

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Practice Questions

1. Define insurance.


2. Explain five importance of insurance to individuals and businesses.


3. Differentiate between life insurance and health insurance.


4. What is a premium? Explain factors that determine it.


5. What is a policy document, and what does it contain?


6. Explain what a claim is and how it is processed.


7. List and explain four principles of insurance.


8. Give three examples of insurance that help farmers.


9. How does insurance promote trade and business?


10. List eight benefits of insurance.


11. Why is insurance important for economic development?