Q.Fill in the blank: ……… bears the potential risks of business. (Bank / Insurance)

Insurance is a device by which the loss likely to be caused by an uncertain event is spread over many persons exposed to that same risk. People facing a common risk contribute small premiums to a common fund, from which the loss suffered by any one member is compensated. It is a contract in which the insurer, for a premium, agrees to pay the insured an agreed sum to make good a loss in which the insured has a pecuniary interest. The written contract is the policy. In essence insurance substitutes a small, known payment for the risk of a large, uncertain loss — a form of risk management. Its functions include providing certainty of payment, protection, risk sharing and assisting capital formation.

Seven principles govern a valid insurance contract:

• Utmost good faith — full, honest disclosure of all material facts by both parties. …