What is Insurance and learn its mechanism and guiding principles :- Insurance is a financial arrangement that provides protection against financial loss or risk. In exchange for regular payments (premiums), an insurance company agrees to compensate the policyholder or beneficiaries for covered losses or events.

   – Individuals or entities identify potential risks or hazards they want to protect against, such as property damage, liability, health issues, or loss of life.

   – The policyholder submits an application to the insurance company, providing information about the risk. The insurer assesses the risk’s severity and likelihood through underwriting.

– If accepted, the insurer issues an insurance policy, a legal contract outlining coverage details, exclusions, premiums, and other terms.

   – Policyholders pay regular premiums to maintain coverage. Premiums are calculated based on risk factors, coverage limits, and other considerations.

   – The insurer pools premiums from multiple policyholders, creating a fund. This pool is used to pay for the losses of those who experience covered events.

   – When a covered event occurs, the policyholder files a claim, providing documentation of the loss.

   – The insurance company evaluates the claim to ensure it meets the policy’s criteria. If approved, compensation is provided.

   – The insurer compensates the policyholder, helping them recover financially from the covered loss.

   – Insurers engage in risk management practices to mitigate losses. This can involve safety recommendations, loss prevention, and risk assessment.

    – Policies are typically renewable, but premiums may be adjusted based on claims history. Policies can be terminated for non-payment or changes in risk.

   – Both parties (insurer and insured) must act in utmost good faith, disclosing all relevant information during the application process.

   – The purpose of insurance is to provide compensation, not to create a profit. The insured should be restored to the financial position they were in before the loss.

   – If multiple insurance policies cover the same risk, each insurer contributes proportionally to the loss.

   – After compensating the insured, the insurer may pursue legal action against third parties responsible for the loss.

   – Insurers consider the proximate (nearest) cause of a loss when determining coverage.

   – The insured is obligated to take reasonable steps to minimize the extent of a loss.

   – The policyholder must have a genuine interest in the insured property or person to obtain insurance.

   – The principle of “cause proximate” determines the dominant or most immediate cause of a loss.

– After compensating the insured, the insurer may pursue legal action against third parties responsible for the loss.

    – If multiple insurance policies cover the same risk, each insurer contributes proportionally to the loss.

Understanding What is Insurance and learn its mechanism and guiding principles :- these principles and the insurance mechanism is crucial for both insurers and insured parties to ensure a fair and effective insurance system. Insurance not only provides financial protection but also contributes to risk management and societal stability.