On the basis of function we can define insurance in the following ways.
According to Prof. R.S.Sharma, “Insurance can be defined as a cooperative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to ensure themselves against the risk.”
According to Reigel and Miller, “the function of insurance is primarily to decrease the uncertainty of events.”
In the words of John Megi, “Insurance is a plan where in persons collectively share the losses of risks.”
Thomsan defines, “Insurance is a provision which a prudent man makes against fortuitous or inevitable contingencies, loss or misfortunes. It is a form of spreading risk.”
“Insurance is a cooperative form of distributing a certain risk over a group of persons who are exposed to it.” – Ghosh and Agarwal
In simple terms, “insurance is a protection against financial loss arising on the happening of an unexpected event.”
On the basis of the functional definitions the following are the main features of insurance.
- Insurance is a cooperative device by which risks are distributed among large of number of individuals.
- It provides securities against losses or risks.
- A common fund is raised among members to meet the losses.
- It is a plan under which the losses of uncertain events are secured.
Legally insurance can be defined as follows
Insurance is a contract between two parties whereby one party agrees to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance.
The party bearing the risk is known as the “insurer” or “assurer” and the party whose risk is covered is known as the ‘insured’ or ‘assured’. According to Chief Justice Tindal, “Insurance is a contract in which sum of money is paid by the assured in consideration of the insurers incurring the risk of paying a large sum upon a given contingency.
According to these definitions all contracts of insurance except life insurance contracts, are contract of indemnity.