Assets are insured, because they are likely to be made nonfunctonal before the expected life time, through accidental occurrences. Such possible occurrences are called perills. fire floods, breakdowns,lightning, earthquakes, etc, are perils,
If such perils can causa damage to the asset, we say that the asset is exposed to thet risk.perils are the events. Risks
Risks are the consequential lossaes or damages, the risk to a owner of a building,because of the peril of an earhquake, may be a lakhs or a few crores of rupees depending on the cost of the building the contents in it and the extent of damage
The risk only means thet theere is a possibility of loss or damage.the damage may or may not happen. the earthuake may occur,
but the building may not have been affected at all. insuraance is done against the possibility that the damage may happen.
there has to be an uncertainty about the risk. the word possibility implies uncertainty. insurance is relevant only if there
are uncertainties. if there is no uncertainty about the occurrence of an event, it cannot bye insured against. in the case of a human being, death is certain, but the time of death is uncertain. the person is insured,because of the uncertainty about the time of his death.. in the case of person who is terminally ill, the time of death is not uncertain, though not
exactly known. it would be soon. he cannot be insured.
insurance does not protect the asset. it does not prevent its loss due to the
peril. the peril cannot be avoided through insurace. the risk can
sometimes be avoided, through better safety and damage control measures.
insurace only tries to reduce the impact of the risk on the owner of the
asset and those who depend on that asset. they are the ones who benefit
from the asset and therefore, would lose, when the asset is damaged
insurance only compensates for the losses and thet too, not fully.
only economic consequences can be insured. if the loss is not financiai,
insurance may not be possible. examplesof ono economic losses are
love and affection of parents, leadershop of managers, sentimental
attachments to family heirooms, innovative and creative abilities,etc.