INTRODUCTION TO

INSURANCE
Course Teacher:
MD Farhad Hossain
Lecturer
Business Administration
University of Scholars
Email: farhadovi.lighthouse@gmail.com
Contact: 01766-947473
Copyright: Mostafa Asif
 1. Definition of Insurance
2. Nature of insurance
3. Advantages of insurance
4. Function of insurance
5. Characteristics of insurance
6. Classification of insurance
7. Is insurance a gambling?
8. What is an insurance contract?
9. What are the principles/elements of an insurance
AGENDA contract?
10. Role and importance of insurance
11. Difference between fire insurance & life
insurance
12. Problems of insurance business in Bangladesh
13. Prospects of insurance business in Bangladesh
14. Role of private insurance companies in the
economic development of Bangladesh
15. Difference between insurance and assurance
16. Difference between insurance and wager 2
DEFINITION OF INSURANCE
Insurance is a contract between two parties whereby one
party agrees to undertake the risk of another in exchange
for consideration known as premium. The insurer promises
to pay a fixed sum of money to the other party on the
happening of an uncertain event (death) or after the expiry
of a certain period in case of life insurance or to indemnify
the other party on the happening of an uncertain event in
case of general insurance.
According to M.N. Mishra, “Insurance is defined as a co-
operative device to spread the loss caused by a particular
risk over a number of persons who are exposed to it and
who agree to insure themselves against that risk”.
According to Ghosh and Agarwala, “Insurance is a co-
operative form of distributing a certain risk over a group of
people who are exposed to it”.

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 1. Sharing risk: Insurance is a device to share the financial losses on the
happening of a specific event.
2. Co-operative device: The most important feature of every insurance plan
is cooperation for a large number of persons who agree to share the
financial loss arising due to particular risk which is insured.
3. Valuation of risk: The risk is evaluated before ensuring to charge the
amount of share of premium. If there is an expectation of more loss, a
higher premium may be charged.
4. Payment of contingency: The payment is made at a certain contingency
NATURE OF insured. If the contingency occurs payment is made.
INSURANCE 5. Amount of payment: The amount of payment depends upon the value of
loss occurred due to particular insured risk provided insurance is there up
to that amount.
6. Large number of insured persons: To spread the loss immediately,
smoothly and cheaply, a large number of persons should be insured.
7. Insurance is not a gambling: In case of gambling only one party is
benefited while in case of insurance both parties are benefited. So
insurance is not gambling.
8. Insurance is not charity: Charity is given without consideration but
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insurance is not possible without premium. So insurance is not charity.
ADVANTAGES OF
INSURANCE

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1. Reasonable profit: The businessman can earn a reasonable profit
for their businesses. The insurance can help them to earn the same
rate of profit if their business fails to generate income.
2. Sense of security: There are many chances of losses in a business.
But due to insurance, the risk of losses is transferred to the
insurance company and it gives a sense of security to businessmen.
3. Employment increase: The insurance companies provided the jobs
to thousands of people. In this way the problem of unemployment
is reduced.
4. Protection of property: Due to insurance the personal and
business property is protected from natural losses such as accident,
fire etc.
5. Solve the social problem: Insurance is a useful device for solving
the social problems. In such cases death provides finance to his
family compensation is available to overcome the industrial
injuries and road accident.
6. Favourable balance of payment: The insurance of business is an
invisible expert and it provides sufficient contribution toward the
balance of payment.

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7. Equitable premium: The large policy holders provide large funds
and small policyholders pay less money in common funds. In this
way the amount of premium becomes equitable.
8. Research facilities: The insurance companies can conduct
research about the rate of accidents, death and losses faced by
business units.
9. Low price: The risk of loss is covered by the insurance policy. In
this way insurance companies help the business to sell their
products at low prices.
10. Spread of risk: A large number of persons get marine, fire, life
insurance policies and pay premiums to the insurance companies
whenever a loss occurs, it is compensated out of the funds of the
insurers. The loss is spread among a large number of
policyholders.
11. Promotes economic growth: Insurance contributes to the
efficiency of the business and promotes economic growth and
development.
12. Gives sense of security: At every moment there is a chance of loss
in business. Insurance risk is transferred to the insurance company
and gives a sense of security to businessmen.
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13. Promotes business competition: Insurance also protects the small
industrial units and also provides credit facility. So compensation
with the big firms increases which is very useful to the customer.
14. Promotes international trade: Insurance companies are playing a
very effective role in promoting the growth of international trade.
Today one exporter can send his goods to another country without
a fear of damage or loss. Because he shifts his risk to the insurance
company by paying the premium, if the ship is damaged, the
insurance company will compensate for the loss.

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 FUNCTION OF INSURANCE

1. Insurance provides certainty: 1. Prevention of loss: Another function of insurance is to

Insurance provides certainty of prevent the loss. Insurance assists financially all
payment at the uncertainty of loss. organisations or institutions which are engaged in
There are different types of preventing the losses of the masses from death or damage.
uncertainty in a risk. The risk will
2. It provides capital: Insurance provides capital to the
occur or not. Insurance provides
society. The accumulated funds are invested in productive
certainty of this loss.
channels. After the expiry date of insurance the insurer
2. Insurance provides protection: provides accumulated capital to the insured person.
The main function of insurance is to
3. It helps economic progress: Insurance by protecting the
provide protection against the
society from huge losses, destruction and death provides
probable chances of loss.
an initiative to work hard which helps in economic
3. Risk sharing: Risk is uncertainty progress for any country.
of financial loss. In case of
insurance when risk takes place the
loss is shared by all the persons
who are exposed to the risk. 10
 1. Pooling or sharing of losses is the heart of insurance.

CHARACTERISTI 2. Insurance is the payment of fortuitous losses.

CS OF 3. Risk transfer is another essential element of insurance.
INSURANCE 4. Premium is charged for insurance contracts.
5. It is a contract of utmost good faith.
6. It is a contract for mutual benefit.

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 i. Life insurance: The subject matter of life insurance is
human beings. The insurer will pay a fixed amount of
CLASSIFICATIO insurance at the time of death or at the expiry of a
N OF certain period in consideration of premium.
INSURANCE
i. Other personal insurance: Other personal insurance
includes:
a. Accidental insurance.
1. Personal insurance :
Personal insurance b. Health insurance.
includes insurance of c. Unemployment insurance.
human life which may
suffer loss due to d. Sickness insurance.
death, accident and
diseases. Personal
insurance is sub-
classified.

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CLASSIFICATION
OF INSURANCE

i. Marine insurance: Marine insurance provides protection

against the loss of marine perils. The subject matters of
2. Property insurance : Under marine insurance are ship, cargo and unpaid freight.
the property insurance, the ii. Fire insurance: Fire insurance covers risk of fire with the
property of an individual and help of fire insurance the losses arising due to fire are
of the society is insured compensated.
against specified risk. Property
insurance is sub-classified into iii. Miscellaneous insurance:
following: a. Automobile insurance.
b. Crops insurance.
c. Cattle insurance.
d. Machinery insurance.
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 WHAT IS AN WHAT ARE THE
INSURANCE PRINCIPLES/ELEMENTS OF AN
CONTRACT? INSURANCE CONTRACT?

• An insurance contract • Offer and acceptance

means a difference between • Legal consideration
two natural parties in which • Competency of the parties
one party promises to pay a • Free consent
certain amount of money to • Legal object
the other party and takes the
risk caused by an uncertain
event of the property of the
other party.

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 CLASSIFICATION OF IS INSURANCE A
INSURANCE GAMBLING?

3. LIABILITY INSURANCE: THE LIABILITY NO, INSURANCE IS NOT A GAMBLING. THERE ARE
INSURANCE COVERS THE RISK OF A THIRD MANY FUNDAMENTAL DIFFERENCES BETWEEN
PARTY. COMPENSATION TO THE EMPLOYEE, INSURANCE AND GAMBLING. INSURANCE IS A
LIABILITY OF THE AUTOMOBILE OWNERS
LEGAL CONTRACT WHICH PROVIDES SECURITY
AND RE-INSURANCES.
AND SAFETY AGAINST RISK AND UNCERTAINTY.
4. FIDELITY INSURANCE: THE FIDELITY HERE BOTH PARTIES ARE BENEFITED. BUT
INSURANCE COVERS THE LOSS ARISING DUE GAMBLING HAS NO LEGAL VALIDITY. HERE
TO DISHONESTY, DISAPPEARANCE AND ONLY ONE PARTY IS BENEFITED. FOR THE ABOVE
DISLOYALTY OF THE EMPLOYERS OR REASON INSURANCE IS NOT GAMBLING.
SECOND PARTY.

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 ROLE AND
IMPORTANCE OF
INSURANCE

In the modern world insurance is very much important. The role and importance of insurance can
be discussed in three views:
1.Users to individual/personal life.
2.Users to the business community.
3.Users to society.

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 Subject Fire insurance Life insurance
Type of The fire insurance is a But the life insurance contract is
contract contract of indemnity, where a contract of certainty, wherein
DIFFERENCE BETWEEN payment of loss will be payment is certainly made.
FIRE INSURANCE AND made only when fire
LIFE INSURANCE occurred.
The fire may or not occur in But in life insurance the death
Occurring fire insurance will certainly occur.
of event
There are numerous types of whereas the risks in life insurance
Classificati risk in fire insurance are divided into three classes:
on of risk
i. the standard risk
ii. substandard risk and
iii. Uninsurable risk.
The term of fire insurance But in life insurance it lasts for a
Period of does not generally exceed very long period.
insurance more than one year.
Fire insurance includes only Whereas life insurance includes
Protection the element of protection the element of protection and
and investment because the premium
investment: paid or sum assured is returnable
in the latter case whereas no
premium or amount is returnable
in fire insurance.
 PROBLEMS OF
INSURANCE
BUSINESS IN
BANGLADESH

• Low per Capita Income: Poor economic condition is considered to be the main reason for poor life
insurance penetration in Bangladesh. The country has a very low per capita income and over 50% of
our total population lives below the poverty line. Inability to save or negligible savings by a vast
majority of the population kept them away from the horizon of life insurance.
• Poor Knowledge of Agents: The marketing of insurance is greatly hampered in the remote village of
Bangladesh where the agents are appointed from respected localities. This is because; educated
young people seem to be reluctant to become insurance agents. Such agents cannot play an efficient
role in convincing a prospective policyholder.

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 PROBLEMS OF
INSURANCE
BUSINESS IN
BANGLADESH

• Illiteracy: Mass illiteracy is another factor that adversely affects the marketing of insurance. About
70% of the population is floating in the sea of ignorance. Illiteracy leads one to think that insurance
is deception; it has no value in life. They cannot think rationally because they do not know what
insurance is and what its importance as security for the future.
• Religious Superstition: Religious attitude of the people also stands against efficient insurance. The
religious people believe that the future is uncertain, it is in the hand of Allah and they do not think
it necessary to buy life insurance policy for them.
• Low Awareness: Insurance awareness is poor. Agents are not skilled enough. These agents cannot
perform their job properly to make the people aware of life insurance.

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 PROBLEMS OF
INSURANCE
BUSINESS IN
BANGLADESH

• Low Savings: People of Bangladesh have a very small saving potential and thus have less or no
disposable income. Almost the whole of the income is exhausted in the process of maintaining day-
to-day life. Thus they are left with little amount, which may not be deemed sufficient for the
payment of premiums. This factor discourages many from buying life insurance policies.
• Shortage of Fund: Most of the policyholders cannot continue their policies owing to price spiral
and shortage of funds.

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 PROSPECTS OF
INSURANCE BUSINESS
IN BANGLADESH

1. Higher Gross Domestic Product (GDP): The GDP of our

country is increasing than the previous year’s which
results in an increase of per capita income. So this
growing GDP and income holds bright prospects for
insurance companies. The major problem is the
incapability of our people to pay the premium charged by
the insurance companies any danger.
2. Increased Population: There is a big opportunity lies
ahead for the insurance companies as the population
of our country is increasing day by day. Although most
people of our country live under extreme poverty and
want to avoid insurance policy, the number of
potential policyholders in Bangladesh is growing with
growth of the population.
 PROSPECTS OF
INSURANCE BUSINESS
IN BANGLADESH

1. New Business’s Individual Insurance: There are so many

new businesses starting every day and the manufacturing
sector is booming with global demand. Every business is
insured under an insurance company to protect its
company from any kind of accident.
2. Developing Mass Awareness about Insurance: People are
now much more conscious about their safety. So they are
encouraged to take an insurance policy for making their
life free from any unexpected occurrence .Increase in
literacy rate is helping predominantly to create awareness
among the problem regarding taking insurance policy.
 ROLE OF PRIVATE
INSURANCE COMPANIES IN
THE ECONOMIC
DEVELOPMENT OF
BANGLADESH

1. Formation of capital & increase of investment: Insurance companies receive premiums from insured
persons. These premiums increase national capitals. By investing in these capitals, national
productions increase.
2. Reduce the hindrance of risk: Every sort of business consists of risks. These risks are more hazardous
in Bangladesh. Insurance companies minimize these risks by giving privileges on loss.
3. Maintenance of national wealth: Insurance companies not only secure financial facts, but also
influence people to take necessary steps to avoid risks.
4. Distribution of risks: Insurance companies deal with lots of insured people. So risks are being
distributed among them.
5. Extension of business: By taking all uncertain business risk insurance companies extended the field of
business in our country. Insurance gives the assurance of indemnity and helps to collect the capital to
launch a new business and expand the existing business.
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 ROLE OF PRIVATE
INSURANCE COMPANIES IN
THE ECONOMIC
DEVELOPMENT OF
BANGLADESH

6. Increase of awareness: As the majority of people in our country are illiterate, they do not have much
knowledge about the future life and what will do to enhance the living standard.
7. Different types of advertisement, publicity and awareness activities of insurance companies which
helps to increase the awareness of general people.

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 DIFFERENCE BETWEEN
INSURANCE AND
ASSURANCE

Insurance = no loss, no claim

Assurance = always claim
Both these two terms are used synonymously in the context while the term insurance is used in
other types of insurance like fire or marine. Assurance refers to a contract in which the sum
assured is bound to be payable sooner or later. But a contract of insurance is a contract for
compensation of damage or loss and the question of claim does not arise in the cases where
there is no loss. Thus the term insurance is used when the risk is undertaken and in such cases
the policy does not become a claim. But in case of assurance, the policy is bound to become a
claim in the stipulated manner e. g. The insured may die in the course of the term of the policy
or else he is bound to attain a particular age. In common usage, the terms are very widely used
to mean one and the same thing.
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 Subject Insurance Wager

Insurable The existence of insurable interest On the other hand in a wagering contract
interest is necessary in a contract of neither party has any pecuniary interest.
DIFFERENCE BETWEEN insurance.
INSURANCE AND WAGER Utmost good In an insurance contract the But good faith need not be observed in a
faith observance of good faith is wagering contract.
essential.
Consideration In case of insurance, the presence of Whereas there is no consideration in a
consideration is a must. wagering contract.
Public interest Insurance contract are in a public But wagering contracts is against public
interest and are a encouraged by the interest.
government
Enforceable insurance contract are valid and But wagering agreements are void and are
legally enforceable not legally enforceable.
Happening of An event (except death) against the The wagering event is bound to happen.
event risk of which the insurance is taken
may or may not take place at all.

Indemnity The principles of indemnity applied No such principle applies to a wagering

to all insurance contracts except contract.
those of personal insurance.

Immediate There is a loss owing to the The wagering amount is paid immediately
payment occurrence of the event the money on the occurrence of the event.
will be paid subject to a maximum
limit specified in insurance
contract.
THANK YOU

Mostafa Asif​ ​
Lecturer​
asif@ius.edu.bd​