Insurance follows important characteristics which are follows:
1. Sharing of risk
Insurance is a co-operative device to share the burden of risk, which may fall on happening of some unforeseen events, such as the death of head of family or on happening of marine perils or loss of by fire.
2. Co-operative device
Insurance is a co-operative form of distributing a certain risk over a group of persons who are exposed to it. A large number of persons share losses arising from a particular risk.
3. Large number of insured persons
The success of insurance business depends on the large number of persons insured against similar risk. This will enable the insurer to spread losses of risk among large number of persons, thus keeping the premium rate at the minimum.
4. Evaluation of risk
For the purpose of ascertaining the insurance premium, the volume of risk is evaluated, which forms the basis of msurance contract.
5. Payment of happening of specitied event
On happening of specified event, the insurance company is bound to make payment 0 the insured. Happening of specified event is certain in life insurance, but in the case of fire, marine of accidental insurance, it is not necessary. In such cases, the insurer is not liable for payment of indemnity.
6. Transfer of risk
Insurance is a plan in which the insured transfers his risk on the insurer. This may be the reason that may person observes, that insurance is a device to transfer some economic loses would have been borne by the insured themselves.
7. Spreading of risk
Insurance is a plan which spread the risk & loses of few people among a large number of people.
8. Protection against risks
Insurance provides protection against risk involved in life materials and property. It is a device to avoid or reduce risks.
9. Insurance is not charity
Charity pays without consideration but in the case of insurance premium is paid by the insured to the insurer in consideration of future payment.
10. Insurance is not a gambling
Insurance is not considered as gambling. Gambling is illegal, which gives gain to one party and loss to other. Insurance is a valid contact to indemnity against loses. Moreover, lnsurable interest is present in insurance contracts it has the element of investment also.
11. A contract
Insurance is a legal contract between the insurer and insured under which the Insurer promises to compensate the insured financially within the scope of insurance Policy. The insured promises to pay a fixed rate of premium to the insurer.
12. Social device
Insurance is a plan of social welfare and protection of interest of the people.
13. Based upon certain principle
Insurance is a contract based upon certain fundamental principles of insurance. It includes utmost god faith, insurable interes, contribution, indemnity etc, which are operating in the various fields of insurance.
14. Regulation under the law
The government of every country enacts the law governing insurance business so as to regulate, and control its activities for the interest of the people. In India General insurance act 1972 and the life Insurance act 1956 are the major enactment in this direction.
15. Insurance is for pure risk only
Pure risks give only loses to the insured, and no profits. Examples of pure risks are accident, misfortune, death, tire, injury, etc., which are all the sided risks and the ultimate results in loss. Insurance companies issue policies against pure risk only, not against speculative risks.