Introducing the concept of insurance, its purpose, importance, and how it functions to mitigate financial risks for individuals and businesses.
Overview of Insurance – Key Concepts & Structure
| Principle | Explanation | Practical Example |
|---|---|---|
| Utmost Good Faith (Uberrimae Fidei) | Both parties must disclose all material facts honestly. | A driver must reveal any prior accidents when applying for auto coverage. |
| Insurable Interest | The insured must stand to suffer a genuine financial loss if the event occurs. | A homeowner insures their own house, not a neighbor’s. |
| Indemnity | Compensation restores the insured to the pre‑loss financial position, not to profit. | A repaired car’s value is covered, not the full market price of a new car. |
| Contribution | When multiple policies cover the same risk, each insurer pays a proportionate share. | Two policies covering a building each pay 50 % of the loss. |
| Subrogation | After paying a claim, the insurer may pursue a third party responsible for the loss. | An insurer recovers damages from a negligent driver who caused an accident. |
| Proximate Cause | The loss must be directly caused by an insured risk, not by an excluded event. | Flood damage is covered only if flood is an insured peril. |
| Category | Sub‑types | Typical Coverage |
|---|---|---|
| Life Insurance | Term, Whole Life, Universal Life, Variable Life | Pays a death benefit to beneficiaries; may accumulate cash value. |
| Health Insurance | Individual, Group, Medicare/Medicaid, Supplemental | Covers medical expenses, hospital stays, prescriptions. |
| Property & Casualty (P&C) | Homeowners, Renters, Commercial Property, Auto, Boat, Aviation | Protects physical assets and liability for damage or injury. |
| Liability Insurance | General Liability, Professional (E&O), Directors & Officers (D&O), Cyber | Covers legal costs and damages when the insured is held responsible. |
| Specialty / Niche | Travel, Pet, Title, Crop, Business Interruption, Weather | Tailored to specific risks not covered by standard policies. |
Risk Assessment & Underwriting
Policy Issuance
Premium Collection
Claims Reporting
Claims Investigation & Adjustment
Settlement
| Component | Description