HOW INSURANCE MAKE THEIR PROFIT
The main source of income for insurance companies is as follows;
- Premiums contributed by the insured.
- Insurance company Construct their own building e.g. ‘KITEGA UCHUMI’ receive rent insurance investment
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Provide loans.
Insurance provide loans to their members with the expectation of return of interests.
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Selling the scraps.
When insurance settle the claim; the remaining property scraps is sold by them hence making profits.
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Securing bank.
The money contributed as a premium is kept at bank hence get interests of saving.
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Buying shares.
Insurance companies buy shares from different companies.
INSURANCE AND ASSURANCE
Insurance refers to cover against events which may or may not happen e.g fire Insurance, theft, accident WHILE;Assurance covers against an event that is bound to happen, the uncertainty of which being the time at which it will happen. This is in respect of death. This event will occur in the life of everyone hence life policies are assurance policies.
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PRINCIPLES OF INSURANCE
The system of insurance depends upon certain doctrine (principles) which both the Insurer and the Insured are required to obey. These are;
- Indemnity
- Insurable interest
- Utmost good faith (Uberrimae fidei)
- Proximity cause
- Subrogation
- Contribution
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Indemnity
This principle requires that the compensation given to the Insured should only restore him to the exact financial position he was enjoying first before the loss occurred not better. According to this principle the Insured is not supposed to make any profit or benefit from Insurance.
Insurable Interest
This principle requires that a person or organization can Insure only that property whose destruction will cause a financial loss to him. According to this principle Insurance can only be taken out by people who will suffer financial loss of the event occurs against which they have Insured.
In view of the above, it is for example permissible that;
i) You can Insure your car but not your friend’s car.
ii) You can Insure your children but not your neighbour’s children.
Utmost Goodfaith (Uberrimae fidei)
This principle requires that all parties to the Insurance contract (The Insurer and The Insured) should be faithful to one another by disclosing all the material facts concerning the property Insured or life Insured. Any person taking out the Insurance is required to disclose all the relevant material facts about the property being Insured so as to help the Insurance Company to assess the suitability of the property for Insurance and accordingly calculate Premiums accurately. This is known as acting in Utmost goodfaith.
Proximity Cause
This principle requires that there must be fairly close connection between the Cause of the loss and the risk Insured against in order for the person (Insured) to claim compensation. The Cause of the loss must be one that was stated in the policy for the Insurer to accept liability for example; If someone insures his car against the accident and the car is consequently destroyed as the result of fire, then the Insured can not claim compensation.
Sabrogation
This principle states that, In the event of total loss after the Insured has received full compensation the Insurer ( Insurance Company) acquires the rights that the Insured had in the property destroyed.
The guiding principle is that the Insured is not supposed to benefit from the loss. For example; If a lorry is involved in the accident, and the Insurance Company fully compensates the owner, then the wreck (scrap) of the vehicle becomes the property of the Insurance Company who may do as they wish with it.
Contribution
This principle prevents the insured recovering from more than one insurer. If he has insured his property with more than one insurer and the risk occurs the loss is shared proportionally between the insurers.
TAKING OUT AN INSURANCE POLICY
The steps involved in undertaking the Insurance Policy change according to the particular types of Insurance concerned. Traditionally however, the following steps are common in all Insurance Policies.
1. A proposal form is filled in by intending Insured in which all details the Insurance required and the goods and property involved must be given. It should be remembered that the principle of Utmost Goodfaith applies.
2. The premium is calculated by the insurer after studying the completed proposal form .
3. The premium is paid and the cover note is issued to the insurer.
4. A policy is issued after one month. It is a printed contract of insurance and sets out all the details of insurance.
5. In case of loss occurring the insured informs the insurer and the claim form is filled.
6. Property is surveyed by insurer and the extent of loss is assessed and compensation is given.
INSURANCE AND GAMBLING
Insurance is a system of pulling risk together by contributing small sum of money to a common pool in order to compensate those who will suffer loss.
Gambling is a game or Play whereby people enter and its winner or the lucky people are given prizes.
DIFFERENCES BETWEEN INSURANCE AND GAMBLING
| INSURANCE | GAMBLING |
| 1. Insurance involves some formalities and use of documents. | 1. In gambling such formalities are not there. |
| 2. In Insurance, one must have Insurable Interest in the property he or she is insuring. | 2. In gambling there is no such condition of Insurable Interest. |
| 3. In Insurance money is paid in Installments. | 3. In gambling it is paid once and taken once. |
| 4. In Insurance the one who receives the money is the one who suffered a financial loss. | 4. It is opposite with gambling. |
| 5. In Insurance it is only one Party (the Insured) who contributes the money. | 5. In gambling both parties contribute money. |
| 6.Insurance is legally accepted. | 6. Gambling is not in many cases accepted. |
| 7. In Insurance the event Insured may never happen e.g I may insure my house against fire and the house never catches fire. |
7. In gambling the event must happen to decide the winner. |
| 8. Insurance aims to help the unlucky one. The unfortunate one is restored to the financial positions he was before the loss thus not gaining anything. |
8. The gambling makes the lucky one improve their status. In gambling where the financial position of the winner improves. |
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TYPES OF INSURANCE
Insurance can be divided into two main parts;
1. Assurance/ Life Insurance
2.General Insurance
ASSURANCE/LIFE INSURANCE
Refers to Insurance against human life i.e
-Death
-Old age for specific years
POLICY UNDER LIFE INSURANCE
Endowment policy
The money is paid to his relatives at his death or when the period expected whenever is earlier.
Whole life Policy
This requires payment of premium throughout life of Insured, therefore compensation after death and money will be given to beneficiaries.
TERMS OF LIFE INSURANCE
Surrender Value
This is the money paid back to the Insured part when he decides to cancel the Insurance agreement before the period specified.
General Insurance
This is the Insurance properties when the property of the cause death varies, etc.
TYPES OF GENERAL INSURANCE
1. Marine Insurance
2.Fire Insurance
3. Accident Insurance
MARINE INSURANCE
Refers mainly to the Insurance of ships and the goods in the ships
TYPES OF MARINE INSURANCE
Voyage Policy
The policy will specify the given route i.e
– Four route
-Two route
-Or ten route (journey)
Time Policy
The policy will specify only a given period i.e
-Two weeks
-Two months, etc
Mixed Policy
The policy will specify a given route at a specific period of time e.g
-Two route for two months,etc.
Floating Policy
Covers losses associated with a particular ship or ship with a particular route.
Port Policy/Open Cover Policy
This is cover to a ship during the period of off load (dis embark)
Fire Insurance
Is the type of Insurance which cover against fire and acts of God like
-Flooding
-Lightning
FIRE POLICY
–Fire
–Theft and Burglary
-Floods
-War
-Rioting
-Loss and profit liability
-All risks of household
ACCIDENT INSURANCE (ASSURANCE)
This department mainly Insures vehicles.
MOTOR POLICY
(a) Motor
The motor policy may be third part or comprehensive
-Third party
Is the motor policy where by cover the risk against person and accidents/death or injury
Comprehensive
This is based on property (car) and person
(b) Goods or Cash in Transit
(c) Fidelity guarantee
Insurance against the destination of an employee for keeping money.
(d) Workers’ compensation
Machinery breakdown and consequential loss.
(e) Aviation and Aviation hull
Insurance against aeroplanes.
Aviation hull includes the properties and the passengers.
TYPES OF LOSSES
Total Loss
Occurs when property is destroyed completely.
Partial Loss
Occurs when property is destroyed but there is some particles remaining it can be taken into the Insurance for repair.