Page 8 - IC23 life insurance application

balance for such nation building activities like electricity boards, housing, water

supply, transport etc. The investment in the corporate sector is a mind boggling

28000 crores. If this one life insurance company could do, think of the expectation

from the scores of the life and general insurance companies which are going to dot

the economic horizon of the country.

Pooling risks and resources :

Such huge funds could not be made available but for the pooled resources of the

entire society. As we have said in the above example of the newspaper-hawker, one

rupee contribution made it possible to have a fund of rupees one hundred. The risks

of the loss of the cycle for each hawker boy was too great to bear. But when the

hundred hawkers pooled their resources, they distributed their risks in bearable

proportion. The Aero- planes cost hundreds of crores of rupees. Say there are one

lakh Aeroplanes, and each one cost one hundred crore. If the probability of loss is

ten Aeroplanes out of one lakh Aeroplanes every year, then all that you need is the

annual contribution of one lakh premium from each Aeroplane-owner. The probable

loss would be 10 x 100 crore, divided by one lakh to each one contributing towards

premium.

The same theory of probability applies to life insurance also. Let us say we insure

1000 people, all are say of 20 years of age. The insurer's previous experience tells

him that at this age, only 4 out of 1000 are likely to die within one year. Now

supposing we want to insure each one of them, say for one thousand rupees, all we

need is only Rs.4000/- to pay as claim. Thus we need to collect only 4 rupees from

each member of the insurance co-operative. The above is only an illustration to

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