1) Insurance is a Contract
2) Mutual aid/cooperation
3) Number of insured people is large
There are a large number of insured persons, which is the basis of the insurance mechanism. The purpose of insurance is to spread the risk of loss over a large number of people. When there are more people, insurance costs and premiums are lower. Conversely, the lower the number of people, the higher the cost of insurance and premiums.
4) Event uncertainty:
There must be an uncertain and unforeseen event to be insured. Insurance can be taken in case of uncertain events, for example, every property insured for fire risk may not catch fire. It is uncertain when the insured person will die, even though that is a certainty in life insurance. Therefore, life insurance is also a legal contract.
5) Protection of Financial Risk
The purpose of insurance is to compensate the insured property for financial losses caused by a specific risk. During this period, the insurer cannot pay any amount to the insured if the insured suffers no loss. A contract of insurance is not a contract of profit, but one of indemnity. It is only possible to obtain compensation up to the actual loss of the property. In this way, the insured cannot make any profit out of the loss.
A financial risk is measured in terms of monetary values by an insurer, so he is protected from them. There is an exception to the principle of indemnity when it comes to life insurance contracts. As the loss of life cannot be measured in monetary terms, he can also take life insurance policies of any amount.
6) Governed by certain principles and regulated by law
7) Risk sharing and transfer
An insurance policy serves both social and economic purposes. Financial losses caused by unforeseen events are shared between the public exposed to risk. An insurance policy covers the risks and financial losses resulting from unexpected events. Policy holders may suffer a tremendous loss as a result of death, fire, marine perils, burglary, fidelity, etc. In the form of premiums, the insurance shared this risk among all 7 insured. In other words, the risk is transferred from one person to a group of people.
8) Risk valuation:
Prior to finalizing the premium amount, the insurance company should evaluate the risk. A contract is then entered into by the insurance company. Depending on the risk, premiums are charged. The rate of premium increases when the risk is high. Several methods can be used to evaluate the risks involved in the subject matter. When it comes to life insurance, fire insurance, marine insurance, and accident insurance, the procedure of assessing risk differs.
9) Claims paid on contingency:
As far as fire, marine, and accident insurance is concerned, the insurance company is only liable for compensation if certain unforeseen events occur. The policyholder is compensated if the unforeseen event occurs. If the contingency does not occur, there is no compensation required. The contingency, namely death or maturity of the policy, will certainly occur with life insurance. Upon the death of the insured or upon the expiration of the policy term, the insurer is obligated to pay the policy amount.
10) Gambling or wagering is not insurance
An insurance contract is a legally binding contract. A risk is transferred from one person to a group of people. A premium is paid by the policy holder under an insurance contract. As a result, the insurance increases productivity indirectly and converts uncertainty into certainty.
As a result, insurance contracts are not gambling or wagering contracts. Gamblers and wagerers risk losing money by putting their money at risk. Risks and losses cannot be converted into gains. It is possible to make money or lose money in the game of gambling.
11) The insurance industry is not a charity, but a business:
An insurance company provides protection against unforeseen events for life or property. Nevertheless, insurance companies collect premiums from policy holders to cover the cost of the risk. It is a payment without expecting anything in return.