Features included in insurance are the person who desires to obtain cover by paying the
premium periodically and the organization which agrees to compensate the insured for
any losses or damages, specified in the agreement.
• Insurance is based on the pooling of funds where policy holders pay a premium into a
pool. The pool of money so created is then used to be pay compensation to those who
make claims.
• In insurance, risk is defined as a monetarily estimated damage.
• The risks may be divided into insurable risks and non- insurable risks.
• Features of insurable risks are given bellow
• Predictability
• Causality
• Unconnectedness
• Verifiability
Reasons for the risks could be examined on the basis of place, time and value.

Examples of non- insurable risks are given below.

• Business risks emerge due to natural reasons as expiry periods, depreciation etc.

• Risks are decided on an individual’s incapabilities, where he or she fails her examination, or loses someone’s love.

• Business risks occur due to incorrect decisions taken by the management.
Necessity of insurance can be explained as followings.

• The investors are encouraged to insure against business risks.

• A financial compensation could be obtained to safeguard those who lose their lives under tragic circumstances or are disabled due to illness.

• A Substantial proportion of the nations savings is channelled through insurance companies to the capital market, where it is invested in a wide range of enterprises.
• Marine insurance helps the progress of international trade.

• The contract between insurer and the insuree is called an insurance agreement. It is a written agreement between the insurer and the insuree which is arrived at after the insurer’s acceptance of the application.
 Parties involved in insurance agreements are, listed bellow
• 1st party(Insurree) : A person who is covered against possible losses incurred; he is entitled to receive compensation.
• 2 nd party (Insurer): The institution or the organization that undertakes to compensate for risks.
• 3rd party : All parties other than those who are involved in the insurance agreement
The essential requirements for an insurance agreement, are given bellow

• There should be an intension of forming a legal relationship.

• Suggestion

• Legalization or legality

• Acceptance

• Capabilities of creating a legal agreement between the two parties.
An insurance policy is a document, which is issued by an insurance company to the insuree, for the insurance agreement obtained on life or on any property.

Must follow certain insurance principles to run the insurance business.

The following are the principles of insurance.

• Insurable interest

• Utmost good faith

• Indemnity

• Contribution

• Subrogation

• Proximate cause
Insurance companies permit you to insure against a risk only if you have an insurable interest in that event , that is to say if the event does occur, you must suffer some kind of loss or some kind of liability.

Example : According to insurable interest a wife can insure her husband and a husband can insure his wife when applying for life assurance. An owner of property has the insurable interest to insure his own property.
The person who insures must disclose all the details of the objects (Property, Life etc.) to the insurer and this is known as utmost good faith.

The principle of indemnity means, to restore the insured to the position to compensate for the loss.

If a property is insured with a number of insurance companies, all companies will jointly pay compensation, each contributing a share in proportion to the value for which it was insured. This is known as the principle of contribution.
Subrogation is a sub principle of indemnity and this implies that when an insuree who accepts the compensation payment made for exact damage by the insurance company, he or she does not have any further right over the things insured. Any money raised through the sale of the asset belongs to the insurance company, not the policy holder.
Sub principle of proximate cause implies that the root cause of the event known as proximate cause, and this must be covered by the policy for a claim to be valid. That is unmentioned risks cannot be covered by the insurance agreement.
Insurable interest utmost good faith, and proximate cause are the basic insurance principles that only apply to life assurance.
Principle of indemnity, subrogation and contribution are the basic principles which are not applicable to life assurance.

The objective of life assurance is providing assurance against unexpected losses, such as death, disability and is a very important means of saving for old age.

• The benefit of life insurance is providing financial benefits to the dependents of the policy holder or providing compensation to the insuree in the event of death or bad injury caused by any events.

• Life assurance is to compensate only during a specified period. Insurance premium, interest and bonuses could be gained by the insuree if he lives and in the event of death of a policy holder, the insured value could be got by the dependents or the person who is mentioned in the agreement.

• Fire insurance policies provide cover against any damage to insuree’s property or losses arising from fire
Under fire insurance policy can cover certain against certain additional risks on payment of an additional premium. They are:

• Riots/ Rivalries / strikes

• Explosions

• Electro damage.

• Earthquakes

• Floods, droughts, cyclones

• Plane crash ( aviation)

• Losses incurred by disorder or quarrels
• Theft and burglary insurance policy (Can be obtained to) provide cover against the loss of goods through burglary, housebreaking

• Natural accidents policy provides cover against the losses from Tsunami, drought, cyclone etc.

• Marine insurance policy covers the loss of both ships (hull) and the cargo or merchandise carried by the vessel.

• Marine insurance is categorized into two sections. They are hull insurance and cargo insurance.
• The marine insurance policy is provided, as policy for all risks, policy for complete damage, port risk policy.
• Hull insurance policy could be subdivided into time policy, valued policy open cover policy. • Motor vehicle insurance policy covers owners, passengers, injuries to third parties on public roads plus damage to the insuree’s vehicle.
Under motor vehicle insurance policies available following

• Full insurance (Comprehensive policy)

• Third party, fire and theft insurance

• Minimum third party insurance
• Full insurance covers damage to the insuree’s vehicle passengers, injuries to third parries and damage to property of the third party
• Third party fire and theft covers damage to other people’s property from theft of vehicle and for fire damage, caused by riots or a rivalries.

• Minimum third party covers only injuries to third parties and property and it is a minimum legal requirement. This is compulsory under the law of the country.
• All employers are required by law to insure their liability to compensate their employees against disease or injury arising from their employment.
• Goods on transit insurance covers the goods in transit from the time of loading and until they are unloaded and while transporting on land and by sea.
• Transit cash insurance policy covers the loss of money while being taken from one place to another.

• Product liability covers damage which may occur in consuming products by the consumers.

Example: Various kinds of food and beverages may harm consumers and businessman                         could be covered against such harm.

The insurance market in Sri Lanka consists of Sri Lanka Insurance Board, Insurance companies, Insurance brokers and Insurance agents.

• The function of the Sri Lanka insurance board is established for the development of the insurance industry, responsibility of supervising and organize them in a systematic way.

The functions of the Sri Lanka Insurance board are given below. • Registration of insurance companies

• Registration of insurance brokers

• Cancellation of insurance companies

• Determine the limitation of funds that could be invested

• Consultation services rendered to the government in relation to organizing and developing the insurance industry.

• Implementation of government policies and programs regarding insurance

• Implementing CESS tax for the development of insurances activities in business.

• Insurance companies mean companies established with the object of establishing insurance service to business activities and registered under the Act. No. 43 of 2003
• The insurance broker’s job is playing a role as middlemen to the insurer and the insuree regarding insurance and reinsurance and to obtain the possible policy for the client. Insurance brokers are registered and they expect brokerage or commission for the job they do.
• A person whose aim is to receive commodation for the function he renders.

• The insurance companies that undertake the liability of the insured have an insurable interest over the subject matter insured or an insurance company will take part of risk insured with another companies called reinsurance.
• The advantages of reinsurance is that it covers the heavy liability by spreading the risk in order to reduce the commitments made by the insurer to an average amount.
• The following are the benefits received by the insurer in re- insurance.
• By reinsurance the liability of the insurance companies can be spread among many companies and by that the premium that is charges by each insurance company can be maintained at a low level.
• There is a stable existence and firmness, to claim coverage if damage occurs to a large property that had been insured.