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5. Fundamentals of Insurance

The document outlines fundamental principles of insurance, emphasizing the relationship between the insured and beneficiary, the need for accurate information, and the prohibition of profiting from insurance. It categorizes insurance into three main types: life insurance, health insurance, and property and casualty insurance, each serving different financial protection needs. The principles and types of insurance aim to maintain integrity and provide security against unforeseen events.

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Wai Yun Moe
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23 views1 page

5. Fundamentals of Insurance

The document outlines fundamental principles of insurance, emphasizing the relationship between the insured and beneficiary, the need for accurate information, and the prohibition of profiting from insurance. It categorizes insurance into three main types: life insurance, health insurance, and property and casualty insurance, each serving different financial protection needs. The principles and types of insurance aim to maintain integrity and provide security against unforeseen events.

Uploaded by

Wai Yun Moe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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5) Fundamentals of Insurance

Although there are many types of insurance and insurance companies, all insurance is a subject to
several basic principles.
1. There must be a relationship between the insured (the party covered by insurance) and the beneficiary
(the party who receives the payment should a loss occur). In addition, the beneficiary must be someone
who may suffer potential harm.
2. The insured must provide full and accurate information to the insurance company.
3. The insured is not to profit as a result of insurance coverage.
4. If a third party compensates the insured for the loss, the insurance company’s obligation is reduced by
the amount of the compensation.
5. The insurance company must have a large number of insureds so that the risk can be spread out among
many policies.
6. The loss must be quantifiable.
7. The insurance company must be able to compute the profitability of the loss.
The purpose of these principles is to maintain the integrity of the insurance process. Without them,
people might be tempted to use insurance companies to gamble or speculate on future events.

Types of Insurance
Insurance is classified by which type of undesirable event is insured. The most common types are health,
life and property and casualty insurance.
 Life Insurance
Life insurance provides financial security to beneficiaries in the event of the policyholder’s death.
Policies may also include savings or retirement benefits, offering long-term financial stability. Premium costs
depend on factors such as age, health, and lifestyle. Additionally, disability insurance provides income
replacement if a person becomes unable to work due to illness or injury, while annuities offer a steady income
stream during retirement. These products help individuals plan for both unforeseen events and long-term
financial needs.
 2. Health Insurance
Health insurance covers medical expenses, reducing the financial burden of healthcare costs. It is often
provided through employer-sponsored plans or government programs like Medicare and Medicaid. Rising
healthcare expenses have led to cost-control strategies such as Health Maintenance Organizations (HMOs) and
employer wellness programs. These measures aim to balance affordability and quality of care, ensuring that
individuals receive necessary medical services without excessive financial strain.
 Property and Casualty Insurance
Property and casualty insurance protects physical assets like homes, cars, and businesses from risks such
as fire, theft, and natural disasters. Unlike life insurance, these policies do not include a savings component and
typically require periodic renewal. Premiums are calculated based on the likelihood of risk, such as accident
history for auto insurance or crime rates in a specific area for home insurance. These policies provide financial
relief when unexpected damages occur.

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