Uncertainty, risk and insecurity are incidental to any form of business. This makes insurance indispensable for a business organisation. Insurance may be defined as a contract in writing under which one party agrees to indemnify the other party against a loss or damage suffered by it on account of an uncertain future, in return for a consideration called 'premium'. The person/business who gets its life/property insured is called 'Insured/Assured'. The agency which helps in entering into an insurance arrangement is called 'Insurer' or 'Insurance company'. The agreement or contract which is put in writing, is called a 'policy'. An insurance policy provides the following benefits to a business concern :-
- Protection :- it provides protection against risk of loss and a sense of security to the businessmen.
- Diffusion of risks :- as the burden of loss is spread over a large number of people.
- Credit standing :- of the firm is enhanced as the businessman can easily transfer some of his risks to an insurance company.
- Continuity and certainty of business :-if all the risks were to be borne by the businessmen themselves, the business operations would have been uncertain and halting in character.
- Better utilisation of the capital of the firms :- as the Insurance companies take over the risk, it enables the business firm to invest and optimally utilise its capital.
Thus, the aim of insurance is to compensate the owner against the losses arising from a variety of risks which he anticipates to his life, property and business. It is a means of pooling of risks, under which a group of people who are subject to an insurable risk contribute regularly to a fund. The fund so created is utilised to compensate those members of the group who actually suffer a loss due to some unexpected calamity. Thus the loss of a few is shared by all the members on an equitable basis.
In India, insurance is mainly of two types i.e. life insurance and general insurance. All issues relating to both the types of insurance policies fall within the domain of Insurance Division in the Ministry of Finance . In order to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry, the Government of India has set up the Insurance Regulatory and Development Authority (IRDA). The authority has been issuing regulations covering almost the entire segment of insurance industry including insurance agents, solvency margins, re-insurance, registration of insurers, obligations of insurers to rural and social sector, accounting procedures,etc.