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According to Prof. R.S. Sharma, “Insurance is a cooperating device to spread loss caused by
a particular risk over a number of persons who are exposed to it, who agree to insure themselves
against that risk.”
According to Insurance Act 2049 B.S., “Insurance business means life insurance and non-life
insurance business which also refers to the re-insurance too.”
In conclusion, it is the system to protect against the loss of life and property. The insurance
does not reduce the change of accident or damage of property. However, it protects
against the loss that arises due to unanticipated events. In Nepal, insurance company are
established and operated according to Insurance Act 2049 B.S.

Key Point Insurance is defined as a contract by which the insurer undertakes to
compensate the insured, a fixed sum of money on the expiry of the
specified period or the reasonable recovery of the pre-decided financial
loss in consideration of a certain premium, paid periodically.

Some Important Terminologies of Insurance
In order to understand the concept of insurance, one should be familiar with the important
technical terms, which are introduced below:
i. Insured
The person or party who seeks protection against a particular risk is known as
insured. He/she should pay a certain premium on periodical basis for the assurance of
the recovery to the financial loss.

ii. Insurer
The party who undertakes to protect the insured from the specified risk and the loss
so caused is known as the insurer. An insurance company is the insurer which is subject
to get the periodical premium paid by the insured.
iii. Premium
It is the fees paid by the insured to the insurer as the consideration of the insurance
contract for the assurance of the recovery of financial loss.

iv. Insured Amount
It is the agreed financial value of the future loss caused by certain accident or other
risky factors. Insurance is done for the recovery of this value.

v. Insurance Policy
It is the contract or written agreement between the insured and the insurer containing
the details of the terms and conditions of certain insurance.

21. Functions of Insurance

The functions of insurance vary with its nature and types. It means the functions of
life insurance may differ from that of fire or marine insurance. But the following may be
studied as the common functions of insurance. There are mainly two functions of insurance:
A. Primary function B. Secondary function

84 Aakar’s Office Practice and Accountancy - 10 Financial Institutions 85