Meaning of Insurance

Insurance is an arrangement or system by which a person or business transfers the risk of loss or damage to an insurance company in exchange for the payment of a fee called a premium.

It is a way of protecting individuals and businesses from unexpected losses such as fire, theft, accident, sickness, or death. The insurance company agrees to pay compensation to the insured person when a loss occurs.

In simple terms, insurance means protection against loss.

1. Insurer: The insurance company that provides insurance services and pays compensation when loss occurs. Example: AXA Mansard, Leadway Assurance, AIICO Insurance.


2. Insured: The person or business that buys insurance or is covered by an insurance policy.


3. Premium: The amount of money paid by the insured to the insurer at regular intervals (monthly, quarterly, or yearly) for the insurance cover.


4. Policy: A written document or contract that contains the terms, conditions, and details of the insurance agreement between the insurer and the insured.


5. Risk: The possibility of loss, damage, or injury.


6. Claim: A formal request made by the insured to the insurance company for compensation after a loss has occurred.


7. Compensation: The money paid by the insurance company to the insured after verifying that the loss or damage actually occurred.


8. Insurable Interest: The insured must have a financial or legal interest in the thing or person insured. Example: You can insure your car or your house, but not your neighbor’s car.


9. Indemnity: The principle that ensures the insured is restored to the same financial position as before the loss occurred — not to make profit.


10. Utmost Good Faith: Both the insurer and the insured must be honest and disclose all relevant facts when entering an insurance agreement.


11. Subrogation: After compensation has been paid, the insurance company has the right to take over any remaining claims or recoveries from the cause of the loss.


12. Contribution: If more than one insurance policy covers the same risk, each insurer shares the loss payment in proportion to the coverage.

Insurance can be classified into two main categories:

1. Life Insurance (Personal Insurance): This type of insurance protects against the risk of death or provides financial security to the insured or their family. Examples include:
   
   
   1. Life Assurance
   
   
   2. Endowment Policy
   
   
   3. Education Policy
   
   
   4. Pension or Retirement Policy
   
   


2. Non-Life Insurance (General Insurance): This covers other types of losses apart from death. Examples include:
   
   
   1. Fire Insurance: Covers losses caused by fire.
   
   
   2. Marine Insurance: Covers goods or ships lost or damaged at sea.
   
   
   3. Motor (Car) Insurance: Covers damage, theft, or accidents involving vehicles.
   
   
   4. Burglary or Theft Insurance: Covers loss caused by theft or burglary.
   
   
   5. Health or Medical Insurance: Covers medical expenses.
   
   
   6. Property Insurance: Covers buildings, furniture, or equipment.
   
   
   7. Goods-in-Transit Insurance: Covers goods being transported from one place to another.
   
   

The major principles guiding insurance are:

1. Insurable Interest: The insured must have a legal and financial interest in the subject of insurance.


2. Utmost Good Faith: All parties must provide complete and truthful information.


3. Indemnity: The insured is compensated for actual loss only, not to make profit.


4. Subrogation: The insurer takes over the right to recover from a third party after paying compensation.


5. Contribution: When more than one policy covers the same risk, each insurer contributes a share of the payment.


6. Proximate Cause: The insurer is liable only for losses that are directly caused by the risk insured against.

1. Provides financial protection against unexpected losses.


2. Encourages savings because regular premium payments develop financial discipline.


3. Promotes business confidence by reducing fear of loss.


4. Helps to spread risk among many people or businesses.


5. Provides compensation to victims of loss or damage.


6. Promotes economic growth by encouraging investment and trade.


7. Creates employment in insurance companies and agencies.


8. Supports government revenue through taxes paid by insurance companies.


9. Encourages safety and loss prevention through regular inspections and advice.


10. Provides peace of mind for individuals and organizations.

1. Leadway Assurance Company Limited


2. AIICO Insurance Plc


3. AXA Mansard Insurance Plc


4. Cornerstone Insurance Plc


5. Custodian and Allied Insurance Plc


6. NEM Insurance Plc


7. Mutual Benefits Assurance Plc


8. Industrial and General Insurance Plc (IGI)

Insurance	Assurance
Covers risks that may or may not happen (e.g., fire, theft).	Covers risks that will definitely happen (e.g., death).
It is a short-term contract, usually one year.	It is a long-term or lifetime contract.
Compensation is paid only if the loss occurs.	Payment is certain either at death or maturity.
Examples: fire, motor, marine insurance.	Examples: life assurance, endowment, education policy.

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Summary

Insurance is a system of protecting individuals and businesses against possible financial losses. It operates on principles like utmost good faith, insurable interest, indemnity, and subrogation.

It is important because it provides financial security, promotes business confidence, encourages savings, and supports economic development. Without insurance, many people and businesses would find it difficult to recover from losses caused by accidents, theft, fire, or death.