Q.State the features of Insurance.

Insurance is a risk-sharing contract in which the insurer indemnifies the insured against a specified loss for a premium. This TS Intermediate 2nd-year Commerce 5-mark answer states its main features.

Meaning

Insurance is a contract (policy) under which the insurer undertakes to pay the insured a sum of money on the happening of a certain event (such as death, fire, accident or loss) in return for a consideration called the premium. It spreads the loss of a few over many.

Features of Insurance

1. Contract (agreement) — insurance is a legal contract between the insurer and the insured, enforceable by law.
2. Cooperative device — a large number of persons who face a common risk come together to share losses; it is based on mutual cooperation.
3. Sharing of risk — the loss suffered by a few is shared by all the insured through the premiums collected.
4. Payment of premium — the insured pays a fixed amount (premium) periodically for the cover.
5. Protection against risk — it provides financial protection against a future uncertain event, not certainty of occurrence (except life insurance).
6. Based on principles — insurance rests on principles such as utmost good faith, insurable interest, indemnity, contribution and subrogation.
7. Large number of insured persons — the law of large numbers makes risk-sharing workable and premiums affordable. …