Mathematics and Statistics · Ch 10 — Insurance and Annuity
Insurance — Meaning and Basic Terms
Insurance — Meaning and Basic Terms
This Maharashtra Std XII (Commerce) Mathematics and Statistics chapter joins two everyday tools of financial planning — insurance, which protects against loss, and annuity, which turns a lump sum into (or builds a lump sum from) a stream of equal payments. Both rest on the same compound-interest arithmetic you already know. The treatment here follows the standard, well-established mathematics of finance used in commerce curricula nationally.
Insurance and the parties to it
Insurance is a contract in which one party (the insurer, an insurance company) agrees, in return for a payment called the premium, to compensate the other party (the insured / policyholder) for a specified loss. The contract itself is the policy.
- Sum insured (policy value) — the maximum amount the insurer will pay under the policy; it is the amount for which the property or life is insured.
- Premium — the price the policyholder pays for the cover, usually a percentage of (or a fixed rate per ₹100 / ₹1000 of) the sum insured.
- Claim — the amount the insurer actually pays when the insured event (fire, damage, death, etc.) occurs.
The principle of indemnity
Indemnity — you cannot profit from a loss
For property, fire and marine insurance the guiding rule is indemnity: the insured is compensated only for the actual loss suffered, never more, and never beyond the sum insured. Life insurance is the exception — a human life has no market value, so the sum assured is paid in full. This principle is exactly why the average clause (§4) exists.
The maximum amount the insurer will pay under a policy — the value for which the property or life is insured. It caps every claim.
The consideration the policyholder pays for cover, usually quoted as a percentage of the sum insured, or as a fixed rate per ₹100 or ₹1000 of it. Premium rate sum insured.
For property/fire/marine cover the insured is reimbursed only the actual loss, capped at the sum insured — never a profit. Life insurance is exempt (the sum assured is paid in full).