Nature of Insurance 

1. Cooperative device – Insurance is a method where large number of persons posed to a similar risk is covered and risk is spread over among the larger insurable public. "All for one and one for all" is the basis for a cooperative device.
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 in the court of law.
3. Consideration – There must be lawful consideration in insurance and this is in the form of premium, which the insured agrees to pay to the insurer.
4. Risk sharing and 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 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.
5. Value of risk – Risk is evaluated in money terms and it is spread on all the insured in the form of premium. If the probability of happening of a risk is more, then higher premium is fixed and vice versa.
6. Payment on contingency – Payment is made on the occurrence of the contingency insured. The life insurance is a contract of certainty because the contingency, death or expiry of term will certainly occur. But in other insurance contracts the contingencies may or may not occur.
7. Amount of payment – On the occurrence of the contingency, the insurer is legally bound to make good the financial loss suffered by the insured. The amount of payment depends upon the value of loss occurred due to the particular insured risk.
8. 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.
9. Insurance is not charity – Charity is given without consideration, but insurance is not possible without premium.
10. Insurance is not a gamble - Gambling creates risk, while insurance transfers an existing risk. Gambling deals with speculative risk, where there might be gains or losses, while insurance deals with pure risk, where there is possibility of loss or no loss.

Risk 

In the words of Boon and Kurtz, “Risk is the chance of loss or injury.” It may or may not happen. In business, the risk may be defined as the danger or loss from unforeseen circumstances. It implies a possibility of loss due to unpredictable happening in the future.

Types of risk: 

a) Pure and Speculative Risks- Pure risk refers to those situations that involve the chances of loss or no loss. Speculative risk refers to those situations where there is possibility of loss, break-even or even a profit. Pure risks are generally insurable while the speculative risks are not.

b) Dynamic and Static Risks - Dynamic risks arise from the changes that take place in society like economically, socially, technologically or politically. These are difficult to anticipate, whereas static risks are more or less predictable. Dynamic risks closely resemble speculative risks and pure risks are examples of static risks.

c) Fundamental and Particular Risks - Fundamental risks are those which affect the whole society like floods, wars, etc. Particular risks are confined to individuals or smaller groups.

d) Quantifiable and Non- quantifiable risks -The risks which can be measured are known to be quantifiable while the situations which may result in consequences like tension or loss of peace are called non- quantifiable. 

e) Financial and Non- financial Risks- If any risk is concerned with financial loss, it is termed as a financial risk. If a risk does not involve financial loss, it is known as non- financial risk.

Mock tests for UGC NET Exam

Try Online Classroom Program and enjoy unlimited access to all live courses and Mock tests

Thanks.
Score better. Go BYJU'S Exam Prep.