People always concern of the risks before them. Indeed, it is the human nature and always they seek the security for these risks. Economic risk is the main issue of every person and people usually scare of losing the economic security.
Modern society may experience of many risk which would lose their economic security. For example, owner of a car face a potential economic loss if his car is damaged.
Therefore people in modern world are keenly interested in obtaining a security for the potential loss.
Insurance is identified as a tool of transferring the risk from one person to another. That is to say that, a person could transfer the risk of loss which would cause on the occurrence of uncertain future event to another party.
Thus, insurance plays an important role in the life of every person and it provides a safeguard for the loss caused on occurrence of uncertain event. Hence, the field of insurance has developed rapidly and had seen revolutionized insurance policies for different aspects of risks in recent times.
Therefore, in the modern world, people have more chance to transfer the risk in to the insurance company and ultimately could claim from them for the loss arisen through the risk insured.
Hence, insurance business can be divided in two main categories as
1) Life insurance business
2) General insurance business
The General Insurance business means fire, marine and miscellaneous insurance business which can be of unlimited diversity.
In fire insurance policy, insurer undertakes to indemnify the insured against financial losses arisen from the damages caused by the fire. Therefore, in fire insurance policy, the risk so insured is the fire.
Suppose, if a person takes a fire insurance policy for his jewelries and those are subsequently stolen by a thief. The insured is not entitled to claim for the loss from his insurer as the risk so insured is fire and not the burglary.
In fire insurance policy, the actual details of the risk could be so complex. Hence, it would be very difficult to receive all the information about the risk through the proposal form. Therefore insurer often uses their own risk surveyors to visit premises and discuss risk with the insured.
However, the insurer must be told about the risk by the insured as he knows more about the risk from his side than the insurer. Thus the insurer uses the proposal form to receive the information about the risk to be insured.
In household proposals, there are certain specified questions focusing the level of physical protection of the house. These questions will provide the insurer with relevant information of many risk covered by the house hold policy.
In life insurance proposals, there are number of question considering the health of the proposer and all these questions are very important for the insurer to assess the risk.
However, in every proposal form for any insurance policy, there are certain kind of questions which assist the insurer in deciding whether he will accept the risk and on what terms and premium would that be done.