Chapter 1: Introduction to Insurance
Exam Notes — Simple & Easy Revision Guide
1.1 What is Insurance?
Insurance is a written agreement between a person and an insurance company. The company promises to give
money to the person if something bad happens (like fire, accident, or death). The person pays a small amount
of money every month or year (called premium). Many people pay premium, so the company can easily pay for
one person's big loss. In simple words: Insurance = sharing risk with many people so one person does not
suffer alone.
Famous Definitions:
Scholar Simple Meaning
Mishra A way to share one person's loss among many people who face the same risk.
Morgan An agreement where a group of people help each other when something bad happens.
F.G. Grane A system where many people share the cost of losses together.
1.2 Important Words Used in Insurance
Word Simple Meaning
Insurer The insurance company that takes risk and pays money when needed.
Insured The person who buys insurance and pays premium.
Agent A person who sells insurance on behalf of the company.
Broker An independent person who helps customers choose the best insurance. Works for the customer, not the co
Premium The small amount of money paid regularly by the insured to the company.
Claim When the insured asks the company to pay money after a loss.
Underwriter The person who decides how much premium to charge.
Beneficiary The person who gets the insurance money after the insured dies.
Proposal The form you fill in when you apply for insurance.
Third Party Another person who gets hurt or suffers loss because of the insured.
1.3 Features of Insurance
• If something bad happens, the loss is shared among many people — so no one person suffers too much.
• The insured pays a fixed amount (premium) every month or year to the company.
• The company pays money only when the agreed bad event happens.
• Insurance is NOT gambling or charity. It is a planned system to manage loss.
• It is a legal agreement between the company and the insured person.
1.4 What Does Insurance Do? (Functions)
• Gives Certainty — You know you will get money if something bad happens.
• Gives Protection — Protects you from sudden and unexpected losses.
• Reduces Stress — After buying insurance, you can work better without worry.
• Spreads the Loss — The loss of one person is shared by many, so it becomes very small for each.
1.5 Why is Insurance Important?
For Individuals (Personal Use):
• Safety & Security — Protects you and your family from loss due to death, fire, or accidents.
• Peace of Mind — You do not worry about what will happen in the future.
• Protects Mortgaged Property — If the owner dies, the family does not lose the house.
• Reduces Dependence on Others — Family gets money from insurance, not from begging relatives.
For Business:
• Reduces Risk of Loss — Business owners feel safe to invest money.
• Better Focus on Work — Owner does not worry about loss, so works better.
• Key Man Insurance — If an important employee dies, the company gets money to recover.
• Easier to Get Loans — Banks give more loans if you have an insurance policy.
• Business Continues — Even if a partner dies, the business can keep running.
• Employee Benefits — Workers get health, accident, and retirement benefits.
For Society:
• Protects National Wealth — Both human lives and property are protected.
• Helps the Economy Grow — Insurance supports farming, business, and industry.
• Controls Inflation — Premium collection reduces extra money in the market and supports production.
Other Benefits:
• Helps in international trade by reducing trade risk.
• Creates new jobs in the country.
• Insured person gets tax savings on life insurance premium.
1.6 Main Principles of Insurance [Very Important for Exam!]
# Principle Simple Explanation
1 Nature of Contract Both sides must agree freely. The agreement must be clear and legal.
2 Utmost Good Faith Both the company and the insured must be honest and share all true information. Lying = contract
3 Insurable Interest You can only insure something you truly care about or own. No interest = no insurance.
4 Indemnity The company pays only the actual loss — not more. You cannot make a profit from insurance.
5 Subrogation After paying your claim, the company can take legal action against the person who caused the loss
6 Double Insurance You can insure the same thing with two companies, but you still cannot get more than the actual lo
7 Proximate Cause The company checks the main cause of the loss and decides if it is covered or not.
1.7 Problems / Disadvantages of Insurance
• Makes people careless — Some people think 'insurance will cover it' and become less careful.
• Not all risks covered — Only pure risks (like fire, death) can be insured. Business risks cannot.
• Slow payments — Companies sometimes delay paying claims.
• High premium — Poor people cannot afford to buy insurance.
• Can encourage crime — Some people may harm others to get the insurance money.
• Fraud is hard to stop — Some people make fake claims to get money.
• Not like a bank — Insurance does not offer savings or loan facilities like a bank.
1.8 Insurance in Bangladesh
Why Insurance is Not Popular in Bangladesh:
• Most people do not know about insurance or its benefits.
• Companies do not pay claims on time, so people lose trust.
• There are not enough types of insurance policies available.
• Insurance is less profitable than saving in banks.
• Agents are not honest or hardworking enough.
• Service is poor and not personal.
• Some people think insurance goes against their religion.
• Political problems, low income, and low savings make it hard.
• People have a backward mindset about insurance.
How to Improve Insurance in Bangladesh:
• Set up a Bangladesh Insurance Academy for proper training.
• Teach people about insurance in schools and media.
• Make insurance rules clear and easy to understand.
• Improve the economy so people can afford premium.
• Let private companies join the insurance market.
• Modernize insurance using technology.
1.9 Risk, Peril and Hazard
Word Meaning Example
Risk The chance that something bad may happen
Chance of your house catching fire
Peril The actual thing that causes the loss Fire itself
Hazard A condition that makes the loss more likelyKeeping a fireplace in the house
Easy Trick: Smoking is both a Peril (it causes cancer) AND a Hazard (it increases the chance of getting sick).
Big risks like floods, earthquakes, and job loss affect everyone — so the government covers them.
Small personal risks like fire at home or theft — the individual must insure them.
Quick Exam Tips
* Learn all 7 Principles with simple examples — most likely exam question.
* Know the difference between Risk, Peril & Hazard clearly.
* Write uses of insurance for individuals, business, and society in separate points.
* Bangladesh section (1.8) may come as a short note — know reasons and solutions.
* Always remember: Insurance is NOT gambling or charity!