Answer to Question #166082 in Management for Prince

Question #166082

Subject: insurance management

1.a)what do you mean by General Insurance?( please answer in 100 to 150 words) b)differentiate between general insurance and life insurance?( please give at least 10 points of difference ) insurance provides risk protection to investor ?support your answer with examples ? (please give at least 8 to 9 points in detail for this with examples?

Expert's answer

What do you mean by General Insurance?

General insurance is a type of insurance contract where an insurance company (insurer) agrees to compensate an insurance policy holder (insured) against damage or loss to property or against a liability. General insurance, also referred as non-life insurance, covers all insurance apart from life. A general insurance contract can either be short term or long term. Either way, and after the damage or a loss has occurred, the insured person is compensated. With respect to the assessment report on the damage or loss, the settlement may involve repair or replacement of the damaged property. In some cases, the insurance company may make cash settlement to the insured.

Differentiate between General insurance and Life assurance

a)     Life assurance is seen as a form of investment whereby the assured gets benefits after a specific tenure. General assurance doesn’t give any benefit apart from compensation following a damage or a loss.

b)     A life assurance is generally long term whereas general insurance is short term.

c)     For a life assurance policy, the sum assured is payed in case of death or maturity of the policy. For general insurance policies, a damage or a loss is compensated incase of unforeseen event as per the policy conditions.

d)     In life assurance policies, the premiums are paid annually for a long period of time. For general insurance, the entire premium is paid in lumpsum when getting the policy.

e)     Life assurance has a surrender value while general insurance has no surrender value.

f)      Life assurance policy can be assigned to beneficiaries such as children whereas general insurance cannot be assigned to beneficiaries.

g)     In life assurance policy, the principle of indemnity will not apply. For general insurance, the principle of indemnity will apply.

h)     In life assurance policies, the principle of subrogation does not apply. For general insurance, the principle of subrogation applies.

i)      In life assurance policies, the risk is certain. For general insurance, the risk may or may not happen.

j)      The life assurance policy is generally concerned with life whereas general insurance is concerned with property.


How insurance provides risk protection to the investor

a)     Insurance policies provides both security and safety protection which helps mitigate uncertainties that may affect the business. For example, general insurance may cover properties such as vehicles and premises against unforeseen loss or damage.

b)     Through insurance, an investor can get a cover against losses with securities that have the capacity to rise in value as the price goes down. For example, put option is a type of contract allowing an investor to sell shares at a particular price for a period of time even when there is a price drop.

c)     With an insurance policy, an investor can enjoy annuities which can pay an investor a set income in exchange for lumpsum.

d)     Life assurance encourages the investors grow their saving discipline especially due to the payment of regular premiums. For example, an investor may be required to pay a certain amount annually towards a life assurance policy.

e)     Insurance is an essential tool necessary to manage the investor’s health as anyone can fall ill anytime. With life assurance, for example, an investor is covered from different types of health risks.

f)      Insurance policies allows the investor to maintain his/her standards of living. For example, if the investor is incapacitated, the insurance will take care of major expenses and daily costs allowing him/her to worry about investments and/or recovery.

g)     Insurance allows the investor to run business smoothly by transferring risk ownership to the insurer. Insurance will, for example, cover the employees by providing retirement plans.

h)     With an insurance, an investor can take vacations and business trips without worrying about emergency and flight cancellations especially when abroad.

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