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The business of insurance is related to the protection of
the economic value of assets. Every asset has a value. The
asset would have been created through the efforts of the
owner. The asset is valuable to the owner because expects to
get some benefits from it. It is a benefit because it meets
some of his needs. The benefit may be an income or in some
other form. In the case of a factory or a cow, the product
generated by it is sold and income is generated. In the case
of motor car it provides comfort and convenience in
transportation. There is no direct income. Both are assets
can provide benefits.
Every asset is expected to last for a certain period of time
during which it will provide the benefits. After that,
benefit may not be available. There is a life-time for
machine in a factory or cow or a motor car. None of them
will last for ever. The owner is aware of this and he can so
manage his affairs that by the end of that period or
life-time, a substitute is made available. However, the
asset may get lost earlier. An accident or some other
unfortunate event may destroy it or make it incapable of
giving the benefits. An epidemic may kill the cow suddenly.
In that case, the owner and those enjoying the benefits
there form, would be deprived of the benefits. The planned
substitute would not have been ready. There is an adverse or
unpleasant situation. Insurance is mechanism that’s help to
reduce the effects of such adverse situation. It promises to
pay to the owner or beneficiary of the asset, a certain sum
if the loss occurs.
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