S.4 Commerce Notes Caltec S.4

1 INSURANCE Insurance is an aid to trade where by people contribute money towards a common pool against various risks for compensation should the risk occur. Basic Terms used in Insurance 1. Pooling of risks. This is where persons exposed to a common risk contribute small amounts of money called premiums towards a common pool from which those few who actually suffer loss as a result of the risk are compensated. 2. Premium. This is the amount paid perio dically by the insured to the insurer as consideration for the insurance cover provided by the insurer. This money constitutes the pool from which compensation is made to those who suffer losses. 3. Insured. This is a person, firm or any business organization that takes out an insurance cover and is promised by the insurance company compensation in the event of a loss. 4. The Insurer. This is the insurance company granting insurance policy/cover e.g. NIC, Excel insurance, Gold star Insurance, United Assurance, Swico etc. 5. Risk. This is an event against which an insurance cover/policy is taken out e.g. fire, accident, robbery etc. risks are divided into two; - a) Insurable risks. These are risks whose probability of occurrence can statistically be determined from past experience e.g. accident, theft, fire etc. b) Non -Insurable risks . These are risks whose probability of occurrence cannot be accurately determined by statistical information i.e. records on which to carry out calculations are missing e.g. floods, earthquakes, war etc. 6. An actuary. This is a professional person who calculates the premium rates basing on the information given and sta tistics. 7. Loss. This is the occurrence of the event against which insurance cover/policy is taken out. If the entire property insured is destroyed the loss is said to be total loss, if part of …