Definition : There various definitions of insurance are given by experts.

They can be divided

into two groups i.e. functional definition and contractual definition. They are as follows;

Functional Definitions

1. Ghosh and Agrawal: Insurance is a cooperative form of distributing a certain risk

over a group of persons who are exposed to it.
2. Rock Fell: Insurance is source of distribution of loss of few persons into many
persons.
3. A.Z.Mayerson: Insurance is a device for the transfer to an insurer of certain risks of
economic loss that would otherwise come by the insured.
4. Encyclopedia Britannica: Insurance may be described as a social device whereby a
large group of individuals, through a system of equitable contributions, may reduce
or eliminate certain measurable risks of economic loss common to all members of the
group.
5. W. Beverideges: The collective bearing of risk is Insurance.
6. D.S.Hancsell: Insurance may be defined as a social device providing financial
compensation for the effects of misfortune, the payments being made from the
accumulated contribution of all parties participating in the scheme.
7. Wherry and Newman: Insurance by lessening uncertainty, frees the individual from
same element of ris .

Contractual Definition
 1. E. W. Patterson: Insurance is a contract by which one party , for a consideration
called premium assumes particular risk of the other party and promises to pay him
or his nominee a certain or ascertainable sum of money on specified contingency.
2. Justice Tindall: Insurance is a contract in which a sum of money is paid to the
assured as consideration of insurers incurring the risk of paying a large sum upon a
given contingency.

According to functional definition insurance is a system of transferring the risk from one
person to a group of persons and distributing the loss arising out of the risk among all the
members of the group.

However, the contractual definition explains the nature of contract between the insurer
and insured. According to this definition insurance is a contract to pay certain some of
money to the insured or his heirs on happening of certain contingent even in the future.

Explanation of Definitions

Ghosh and Agarwal

Insurance is a co-operative form of distributing a certain risk over a group of persons who
are exposed to it.

Explanation

The legal definition focuses on a contractual arrangement whereby one party agrees to
compensate another party for losses.

Risk is uncertain of a financial loss. It should not be confused with the chance of loss which
is the probable number of losses out of a given number of exposures. It should not be
confused with peril which is defined as the cause of loss or with hazard which is a condition
that may increase the chance of loss. Under the plan of insurance, a large number of people
associate themselves by sharing risks attached to individuals. The insured receives a contract
called the insurance policy which details the conditions and circumstances under which the
insured will be compensated.

So it is clear that every risk involves the loss alone or the other king. The function of
insurance is to spread this loss over a large number of persons through the mechanism of co-
operation. The persons who are exposed to a particular risk cooperate to, share the loss
caused by that risk whenever it takes place. Thus the risk is not averted but the loss of its
occurrence is shared by the members. As in private life, in business also there are dangers and
risks of different kinds. The aim of all types of insurance is to make provision against such
dangers.

Mowbray and Blan Chard

Insurance is a social device for eliminating or reducing the cost to society of certain types of
risk.

Explanation

Insurance has evolved as a process of safeguarding the interest of people from loss and
uncertainty. It may be described as a social device to reduce or eliminate risk of loss to life
and property.

Insurance contributes a lot to the general economic growth of the society by provides stability
to the functioning of process. The insurance industries develop financial institutions and
reduce uncertainties by improving financial resources.

1. Provide safety and security: Insurance provide financial support and reduce
uncertainties in business and human life. It provides safety and security against
particular event. There is always a fear of sudden loss. Insurance provides a cover
against any sudden loss. For example, in case of life insurance financial assistance is
provided to the family of the insured on his death. In case of other insurance security
is provided against the loss due to fire, marine, accidents etc.

2. Generates financial resources: Insurance generate funds by collecting premium.

These funds are invested in government securities and stock. These funds are
gainfully employed in industrial development of a country for generating more funds
and utilised for the economic development of the country. Employment opportunities
are increased by big investments leading to capital formation.

3. Life insurance encourages savings: Insurance does not only protect against risks
and uncertainties, but also provides an investment channel too. Life insurance enables
systematic savings due to payment of regular premium. Life insurance provides a
mode of investment. It develops a habit of saving money by paying premium. The
insured get the lump sum amount at the maturity of the contract. Thus life insurance
encourages savings.

4. Promotes economic growth: Insurance generates significant impact on the economy

by mobilizing domestic savings. Insurance turn accumulated capital into productive
investments. Insurance enables to mitigate loss, financial stability and promotes trade
and commerce activities those results into economic growth and development. Thus,
insurance plays a crucial role in sustainable growth of an economy.
 5. Medical support: A medical insurance considered essential in managing risk in
health. Anyone can be a victim of critical illness unexpectedly. And rising medical
expense is of great concern. Medical Insurance is one of the insurance policies that
cater for different type of health risks. The insured gets a medical support in case of
medical insurance policy.

6. Spreading of risk: Insurance facilitates spreading of risk from the insured to the
insurer. The basic principle of insurance is to spread risk among a large number of
people. A large number of persons get insurance policies and pay premium to the
insurer. Whenever a loss occurs, it is compensated out of funds of the insurer.

7. Source of collecting funds: Large funds are collected by the way of premium. These
funds are utilised in the industrial development of a country, which accelerates the
economic growth. Employment opportunities are increased by such big investments.
Thus, insurance has become an important source of capital formation.

Dictionary of Business and Finance

Insurance is a form of  contract or agreement under which one party agrees in return for a
consideration to pay an agreed amount of money to another party to make good for a loss,
damage, or injury to something of value in which the insured has a pecuniary interest as a
result of some uncertain events.

Explanation

Insurance Contract is an agreement between Insured and Insurer enforceable by law. Here
Insurer promises to pay sum assured on occurrence of an event like death. In exchange
insured promises to pay regular premium.

1. Offer and Acceptance

Here to be insured proposes with definite terms and conditions and Insurer can revert
with three options:

 Accept the proposal under standard T & C

 Reject the proposal by giving specific answer

  Revise by giving a counter offer.

2. Consideration

To enforce the contract. Proposer must pay a premium which is called consideration.
This premium is given in exchange of promise by Insurer to pay claim. So a contract
is valid only if the Insurer accepts the application form along with premium and
insurer accepts the proposal and confirms the same in writing.

3. Legal Purpose

A contract is valid only if the purpose of contract is legal. Insurance purpose is

considered legal as insurer is managing the risk and insurer is creating a pool for risk
management

4. Competent Parties

A legal contract must be made with competent person which means contract cannot
be made with minors, mentally infirm and people under use of drug. Insurer in India
must have a license from IRDA.

W. Beverideges

The collective bearing of risk is Insurance.

Explanation

Many definitions of insurance have been given. Some treat it as a remedy for risk while
others take it as a social method of distribution of risk. Some treated it as a protection against
misfortune.

According to famous sociologist Sir William Beveridge, “The collective bearing of risk is
insurance.” It means that protection against risk and the method of safeguarding collectively
is insurance

John Magie has expressed this definition in the way, “Insurance is such a plan in which the
people in large numbers take the responsibility of some individuals upon their own shoulders.

Bill expresses it in this way; Insurance is a social remedy of collection to indemnify the
uncertain losses on capital whereby the losses of some individuals are transferred to another
person or group of persons.
On the whole, it can be said that insurance is such a cooperative system of distribution of risk
under which the insured person transfers his burden of risk to other people or bears the risk
collectively. This system is based on the principle of cooperation in insurance.

Principle of Cooperation under “The collective bearing of risks is insurance”-

According to the principle of cooperation, insurance is a business based on cooperation.

Cooperation is the foundation stone of insurance. It is also said as the voluntary system of
distribution of risk on a cooperative basis. It embodies the spirit of mutual benefit and
welfare. The maxim on which this is based is one for all and all for me.

It is said that this system was evolved before 3000 years at Rods Island. At that time the
system of the proportionate bearing of loss of one individual merchant by fellow merchants
was prevalent.

On this principle, a fund is created out of the contribution of all individuals. On incurring loss
by any member, the loss is reimbursed out of this fund.

Thus according to the principle of cooperation, the contribution of one for all and the
contribution of all for one is used. Thus on this basis, Sir William Beveridge has defined
insurance that to bear risks collectively is insurance”

Thus Rome people treat the system of insurance as the organization of fortunate and
unfortunate people who are, under the same type of risks, but they unite to limit and to
distribute the risks, this is the reason that insurance is treated as a collective and cooperative
effort to provide protection against misfortune and risks.