Page 3 - MODULE1_Insurance Introduction_CHA
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(depending on the quantum of risk covered and the amount of
expected loss) in the form of premium to any of the insurance
companies and takes an insurance policy.
Hence, a person who seeks an insurance cover transfers the risk
from his own self to the insurance company. In other words,
insurance is a risk management tool for unfortunate events like
death, accident, disability, sickness and retirement. It also is
used to plan for major future events/ expenses like education/
marriage etc.
How taking insurance works?
Insurance is contract between two parties (one the insurer and
second the insured) whereby the insurer agrees to undertake the
risk of the insured in consideration of some amount known as
premium and in return promises to compensate a fixed sum of
money to the insured party on happening of any uncertain
events, which is specified in the contract, like sickness, death,
accident, disability, retirement etc.
Insurance is purchased to protect one from a catastrophic loss
when one knows one wouldn’t be able to afford the loss.
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