Definition Of Insurance And Assurance
Insurance can be defined as an agreement whereby one party promises to indemnify or pay another party a sum of money in the event of his suffering a specified loss or damages. It can also be defined as a system for providing financial compensation for the effects of loss, the payments being made from the accumulated contributions of all parties participating in the fund or scheme.
The main principle of insurance is the pooling of risks. The insurer will collect premium from a group of people who suffer similar risk to create a common fund out of which compensation will be paid to those who suffer losses. Compnsation for victims will depend on the premium paid and the extent of losses suffered.
Insurance is one of the aids to trade. Although it cannot cancel out the risk, it offers menetary assistance. A great variety of risks can now be covered by insurance. On the other hand, assurance is the provision of cover against some eventuality which must occur at some time in the future, e.g. death of a person. It deals with events which must happen, hence it is based on possibilities.
Differences Between Insurance And Assurance
(1) In insurance, the risk insured against may not occur while in assuramce the risk is certain to occur.
(2) Insurance is a provision of cover against which may never occur. While assurance is a provision of cover against some enventualities which are certain to occur at some time in the future
(3) Insurance hinges on probabilities while assurance It hinges on possibilities.
(4) Examples of Insurance are fire, marine and burglary while example of assurance is life assurance.