In this article we will discuss about:- 1. Introduction to Insurance 2. Meaning of Insurance 3. Legal Framework for Insurance Business.
Introduction to Insurance:
There is always an element of uncertainty about the future. This compels man to take necessary steps to protect himself against unforeseen calamities. Man is always fighting for safety since the early age of life. Man’s life has to face calamities in different forms. Whether certain or uncertain, all future events are collectively known as “risk”.
We can say that life and property re exposed to various types of risks. The business of insurance comes to the rescue of man and protects him against risks. Under an insurance contract, one party, called an insurer, undertakes to indemnify the loss caused to another party, called an insured, on the happening of a specified event, say destruction of property by fire, in consideration of a fixed periodic amount, termed premium. The document containing the terms of such a contract is known as policy and the sum with which the person or property is insured is called the amount of policy.
Meaning of Insurance:
Insurance is a co-operative device for spreading over the loss suffered by one or more persons, caused by a particular risk, over a large number of persons who agree to share the loss collectively. Dictionary meaning of the word “insurance” is an undertaking by a company, society or the state, to provide or safeguard against loss, provisions against sickness, death etc. in return for a regular payments called premium.
According to Patterson, “Insurance is a contract by which one party, for a compensation called the premium, assumes particular risks of the other party and promises to pay to him or his nominee a certain or ascertainable sum of money on a specified contingency”.
Legal Framework for Insurance Business:
The insurance is federal subject in India.
The primary legislations which deal with various aspects relating to accounts and audits of an insurance business areas under:
(1) The Insurance Act, 1938 (Including Insurance Rules, 1939);
(2) The Insurance Regulatory and Development Authority Act, 1999;
(3) The Insurance Regulatory and Development Authority Regulations;
(4) The Companies Act, 1956; and
(5) The General Insurance Business (Nationalisation) Act, 1972 (including Rules framed there-under)
On account of amendment in the Section 3(11) of the Income Tax Act, 1961 providing for uniform accounting year, all Insurance Companies also close their annual accounts on 31st March each year w.e.f. accounting year ending 31st March, 1989. It has also been made mandatory according to the provisions of IRDA Act, 2000.