Assets are insured, as they are likely to be damaged through accidental occurrences.
Such occurrences are called Perils. Earthquakes, Floods, Fire, Tsunami, Lightning, Tornados, Breakdowns etc, are Perils. If such perils can cause damage to asset, it is said that the asset is exposed to that risk.
“Perils are events. The Risks are the consequential losses or damages.”
E.g. Due to torrential rains and flooding on 26th July 2005, damage was caused to numerous cars resulting loss to owner.
Now comes the interesting part,
The risk only means possibility of loss or damage. The damage may or may not happen. “There has to be an uncertainty about the Risk. Insurance is pertinent only if there are uncertainties.” If there is no uncertainty about the occurrence of an event, it cannot be insured against.
In the case of human being, death is certain, but the time of death is uncertain.
A person who is terminally ill (as per medical professional’s person may not live beyond stipulated period), the time of death is not uncertain, though not exactly known cannot be insured.
Insurance does not protect the asset nor does it prevent its loss due to peril. Peril cannot be avoided through insurance. Insurance tries to lessen the impact of the risk to owner or dependents. Insurance only compensates the losses – and that too, not fully.
Such occurrences are called Perils. Earthquakes, Floods, Fire, Tsunami, Lightning, Tornados, Breakdowns etc, are Perils. If such perils can cause damage to asset, it is said that the asset is exposed to that risk.
“Perils are events. The Risks are the consequential losses or damages.”
E.g. Due to torrential rains and flooding on 26th July 2005, damage was caused to numerous cars resulting loss to owner.
Now comes the interesting part,
The risk only means possibility of loss or damage. The damage may or may not happen. “There has to be an uncertainty about the Risk. Insurance is pertinent only if there are uncertainties.” If there is no uncertainty about the occurrence of an event, it cannot be insured against.
In the case of human being, death is certain, but the time of death is uncertain.
A person who is terminally ill (as per medical professional’s person may not live beyond stipulated period), the time of death is not uncertain, though not exactly known cannot be insured.
Insurance does not protect the asset nor does it prevent its loss due to peril. Peril cannot be avoided through insurance. Insurance tries to lessen the impact of the risk to owner or dependents. Insurance only compensates the losses – and that too, not fully.
No comments:
Post a Comment