The Human Asset

The Human Asset: A human being is an income generating asset. One's income generating ability depends on one's skills, (manual, professional, problem solving, entrepreneurial, etc). These are the assets. The value of the asset can be measured by considering the income that is generated by the person concerned. The concept of Human Life Values, provides scientific ways to determine the asset value of the human life and therefore, the amount of life insurance required. These techniques, like other techniques related to selling, will have to be learnt on the job.

The Human Asset also can be lost through unexpectedly early death or through sickness and disabilities caused by accidents may or may not happen. Death will happen, but the timing is uncertain. If it happens around the time of one's retirement, when it could be expected that the income will normally cease, the person concerned could have made some other arrangements too meet the continuing needs. But if it happens much earlier when the alternate arrangements are not in place, there can be losses to the person and dependents. Those dependent on the income are helped to overcome their difficulties, by insurance.

The Human Asset:A person, who may have made arrangements for his needs after his retirement, also would need insurance. This is because the arrangements would have been made on the basis of some expectations like,  likely to live for another 15 years, or that children will be able to look after the aged parents. If any of these expectations do not become true, the original arrangement would become inadequate and there could be difficulties. Living too long can be as much as problem as dying too young. Both are risks, which need to be safeguarded against. Insurance take care.

Thus, the risks in the case of a human being are related to

• Early Death
• Living too long
• Disabilities
• Sickness
• Unemployment

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How Insurance Works

How Insurance Works:The mechanism of insurance is very simple. People who are exposed to the same risks come together and agree that, if any one of them suffers a loss, the other will share the loss and make good to the person who lost. All people who send goods by ships are exposed to the same risks, which are related to water damage, sinking of the vessel, piracy, etc. Those owning factories are not exposed to these risks, but they are exposed different kinds of risks like, fire hailstorms, earthquakes, lightning, burglary, etc. Like this, different kinds of risks can be identified and separated groups made, including those exposed to such risks. By this method, the heavy loss that any one of them in the group may suffer (all of them may not suffer such losses at the same time) is divided into bearable small losses by all the others in the group. In other words, the risk is spread among the community and the likely big impact on one is reduced to smaller manageable impacts on all. Insurance helps to spread the costs or risks.Read continue to Know more about How Insurance Works.

If a Jumbo Jet with more than 350 Passengers crashes, the loss would run into several crores of Rupees. No airline would be able to bear such a loss. It is unlikely that many Jumbo Jets will crash at the same time. If 100 airline companies flying Jumbo Jet, come together into an insurance pool, whenever one of the Jumbo Jets in the pool crashes, the loss to be borne by each airline would come down to a few lakhs of Rupees. Thus, insurance is a business of "Sharing". It makes an unbearable loss, Bearable. More details are given below about How Insurance Works.

There are certain principles, which make it possible for insurance to remain a preferred and fair management. The first is that it is difficult for any one individual to bear the consequences of the risks that he is exposed to. It will become bearable when the community shares the burden. The Second is that the peril should occur in an accidental manner. Nobody should be in a position to make the risk happen. In other words, none in the group should set fire to his assets and ask others to share the loss. This would be taking unfair advantage of an arrangement put into place to protect people from the accidental risks they are exposed to. The occurrence has to be random, accidental, and not the deliberate creation of the insured person.

The manner in which the loss is to be shared can be determined before-hand. It can be equal among all. It can also be proportional to the risk that each person is exposed to. The trader who has sent Rs 100 Lakhs worth of goods on a ship will bear double the loss to be borne by another trader who has got Rs. 50 Lakhs worth of goods one the same ship. Current practice is to make the sharing proportional to the exposure to risk. The Share likely shares may be collected in advance, at the time of admission to the group. Insurance companies collect in advance and create a fund from which the losses are paid.

The collection to be made from each person in advance, is determined on the basis of assumptions. While it may not be possible to tell beforehand, which person will suffer, it may be possible to tell, on the basis of past experiences, how many persons, on an average, may suffer losses.

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Classification of Risk

Classification of Risk:Risks are classified in various ways. One Classification is based on the extent of the damage likely to be caused. Critical or Catastrophic risks are those which may lead to the bankruptcy of the owner. It Would happen if the loss is total, like in a tsunami, wiping out everything. It can also happen if the deceased persons was heavily in debt. important risks may not spell doom, but may upset family or business finances badly, requiring a lot of time to recover. The adverse effects of an economic recession is one such. Less damaging are Unimportant risks, like temporary illness or accidents.

Another Classification of Risk is between Financial and Non-Financial risks, referred to in an earlier paragraph. Insurance is concerned with only financial risks.

A third Classification of Risk is between Dynamic and Static risks. Dynamic risks are caused by perils which have national consequence, like inflation, calamities, technology, political upheavals, etc. Static risks are caused by perils which have no consequence on the national economy, like a fire or theft or misappropriation. Dynamic risks are less likely to occur than static risks, but are also less likely to occur than static risks, but are also less predictable. Static risks are more suited to management through insurance.

Fundamental risks are those that affect large populations while Particular risks affect only specific persons. A train crash is a fundamental risk while a theft is a particular risk. Life Insurance business deals with particular risks, but fundamental risks affect the life insurance company's experience, as many persons will be affected at the same time, when there is an. Earthquake, flood or riot.

Another Classification of Risk is between Pure risks and  Speculative risks. The latter are in the nature of betting or gambling where the risk is, to some extent, under the control of the person concerned, while a pure risk is not. It is more in the nature of an Act of God. Insurance deals with only pure risks and not speculative risks.

Need of Insurance

Need of Insurance:Assets are insured, because they are likely to be destroyed or made non-functional before the expected life time, through accidental occurrences. Such Possible occurrences are called Perils. Fire, floods, breakdowns, lightning, earthquakes, etc, are perils. If such perils can cause damage to the asset, we say that the asset is exposed to that risk. Perils are the events. Risks are the consequential losses or damages. The risk to a owner of building, because of the peril of an earthquake, may be a few lakhs or a few crores of rupees, depending on the cost of the building, the contents in it and the extent of damage.

Need of Insurance:The risk only means that there is a possibility of loss or damage. The damage may or may not happen. The earthquake may occur, but the building may not have been affected at all. Insurance is done against the possibility that the damage may happen. There has to be an uncertainty about the risk. The word 'possibility' implies uncertainty. Insurance is relevant only if there are uncertainties.This is the another Need of Insurance.

If there is no uncertainty about the occurrence of an event, it cannot be insured against. In the case of a human being, death is certain, but the time of death is uncertain. The person is insured, because of the uncertainty about the time of his death. In the case of a person who is terminally ill, the time of death is not uncertain though not exactly known. It would be 'soon'. He can not be insured.I think everyone Needs Insurance.

Only economic consequences can be insured. If the loss is not financial, insurance may not be possible. Examples of non-economic losses are love and affection of parents, leadership of managers, sentimental attachments to family heirlooms, innovative and creative abilities, etc.

Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on the asset. They are the ones who benefit from the asset and therefore, would lose, when the asset is damaged. Insurance only compensates for the losses - and that too, not fully.These are the Needs of Insurance.

History of Insurance

History of Insurance: Insurance has been known to exist in some form or other since 3000BC. The Chinese traders, traveling treacherous river rapids would distribute their goods among several vessels, so that the loss from any one vessel being lost, would be partial and shared, and not total. The Babylonian traders would agree to pay additional sums to lender, as the price for writing off the loads, in case of the shipment being stolen. This is starting of History of Insurance.

The inhabitants of Rhodes adopted the principle of the 'general average', whereby, if goods are shipped together, the owner would bear the losses in proportion, if loss occurs, due to jettisoning during distress.(Captains of ships caught in storms, would throw away some of the cargo to reduce the weight and restore balance. Such throwing away is called jettisoning).

The Greeks had started benevolent societies in the late 7th century AD, to take care of the funeral and families of members who died. The Friendly societies of England were similarly constituted. The Great Fire of London in 1666, in which more than 13000 houses were lost, gave a boost to insurance and the first fire insurance company, called the Fire office, was started in 1680.

The origins of insurance business as in vogue at present, is traced to the Llyod's Coffee House in London. Traders, who used to gather in the Llyod's coffee house in London, agreed to share the losses to their goods while being carried by ships. The losses used to occur because of pirates who robbed on the high seas or because of bad weather spoiling the goods or sinking the ship. 

In India, insurance began in 1818 with Life insurance being transacted by an English company, the Oriental Life Insurance Co. Ltd.. The First Indian insurance company was the Bombay Mutual Assurance Society Ltd, formed in 1870 in Mumbai. This was followed by Bharat Insurance Co. in 1896 in Delhi, the Empire of India in 1897 in Mumbai, the United India in Chennai, the National, the National Indian and Hindusthan Cooperative in Kolkata.This is normal overview of History of Insurance.

Later, were established the Cooperative Assurance in Lahore, the Bombay Life(originally called the Swadeshi Life), the Indian Mercantile, the New India and the Jupiter in Mumbai and the Lakshmi in New Delhi. These were all Indian Companies started as a result of the Swadeshi movement in the early 1900s. By the year 1956, when the Life Insurance business was nationalized and the Life Insurance Corporation of INDIA(LIC) was formed on 1st September 1956, there were 170 companies and 75 provident fund societies transacting life insurance business in India.

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What is Insurance

What is Insurance:The business of insurance is related to the protection of the economic values 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 he 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 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 and provide benefits.

Every Asset is expected to last for a certain period of time during which it will provide the benefits. After that, the benefit may not be available. There is a life time for a 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. Thus, he makes sure that the benefit is not lost. However, the asset may get lost earlier.This is little description about what is insurance.

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 therefrom, would be deprived of the benefits. The Planned substitute would not have been ready. There is an adverse or unpleasant situation. Insurance is a mechanism that helps to reduce the effects of such adverse situations. It promises to pay to the owner or beneficiary of the asset, a certain sum if the loss occurs.If you are not satisfy with this description about what is insurance please gives valuable not comment in the bottom of page.I will like to consider them.

Insurance does not protect the asset. It does not prevent its loss due to the peril. The peril cannot be avoided through insurance. The risk can sometime be avoided through better safety and damage control measures. Insurance only tries to reduce the impact of the risk on the owner of the asset and those who depend on that asset. They are the ones who benefit from the asset and therefore, would lose, when the asset is damaged. Insurance only compensates for the losses - and that too, not fully.