Page 57 - Office Practice and Accounting 10

Insurance
The normal activities of daily life carry the risk of enormous financial loss. Many
persons are willing to pay a small amount or protection against certain risks because
that protection provides valuable peace of mind. The term insurance describes any
measure taken for protection against risks.

In an insurance contract, one party, the insured, pays a specified amount of money
called a premium to another party, the insurer. The insurer in turn agrees to compensate
the insured for specific future losses. The losses covered are listed in the contract, and
the contract is called a policy. Insurance may be defined as a contract whereby one
party agrees to pay to another a sum of money in exchange for the same consideration
on the happening of a certain event. It is a contract in which a sum of money is paid
by the assured in consideration of the insurer’s incurring the risk of paying a larger
sum upon a given contingency. The person or organization that protects another
against risk is known as the insurer; while the person who is protected against the
risk is called the insured. The document containing the agreement is the insurance
policy. The amount for which the insurance policy is taken is the insured amount. The
consideration which the insured has to pay to the insurer is known as the premium.
Insurance is an arrangement by which a company or the state undertakes to provide
a guarantee of compensation for specified loss, damage, illness, or death in return
for payment of a specified premium. Insurance is a contract of reimbursement. For
example, it reimburses for losses from specified perils, such as fire, hurricane, and
earthquake. An insurer is the company or person who promises to reimburse. The
insured (sometimes called the assured) is the one who receives the payment, except
in the case of life insurance, where payment goes to the beneficiary named in the life
insurance contract. The premium is the consideration paid by the insured—usually
annually or semiannually—for the insurer’s promise to reimburse. The contract itself
is called the policy. The events insured against are known as risks or perils. Insurance
is the process through which risk is transferred from the individual to the insurance
who takes into account the total likely loss in a certain period and then fixes the
premium to be charged from each person or property insured.

Legal definition of insurance is “A contract whereby, for specified consideration,
one party undertakes to compensate the other for a loss relating to a particular
subject as a result of the occurrence of designated hazards.”

According to E. W. Patterson, "Insurance is a contract by which one party for
compensation called premium assumes particular risk of the other party and
promises to pay to him or his nominee a certain sum of money on a specified
contingency".

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