Principle of Life Insurance

A fundamental concept of any insurance scheme is pooling of risk. This refers to the spreading of financial risks evenly among a large number of participants of an insurance scheme. Imagine in a community of people, the early death of a key member could often cause severe financial difficulty to his or her surviving family members. 

However, if this community agrees among themselves whereby each member will contribute a small sum to the surviving family members should a member die whenever that may happen then the financial uncertainty could be removed. This concept is called “insurance”. So, insurance help transfer risks from individuals to an insurance scheme.

There are two other life insurance principles: utmost good faith and insurable interest. We will talk about these principles in the next edition.

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