Risk management and Insurance


Risk management:

We live in society and there is a risk in each and every work of human life. In simple words, the risk may be defined as the possibility that some kind of unfair events will occur. In other words, it is defined as uncertainty which results in the loss of life or damage to the property.

Risk can be classified into 2 types i.e. objective risk and subjective risk. That type of risk which is real or actual is an objective risk. It can be calculated through various tools like standard deviation and coefficient variation on the word, the subjective risk is uncertainties that are related to the stage of mind of a person.

According to George Rejda,” Risk management is a process that identifies loss exposure faced by an organization and selects the most appropriate technique for treating such exposures.”

Risk management is an emerging concept that is associated with managing the risk and attempting to minimize its effect. Risk management therefore first identifies the possibility of risk and then selects the most appropriate technique to manage those risks. Risk management and insurance are interrelated however risk management is a broader concept which in itself includes other techniques in addition to the insurance.


Insurance is a measure that provides security to man and property against risk. The risk may be defined as uncertainty which leads to loss therefore insurance means transferring the risk from one to another. In simple words, it can be understood as a contract indemnify the loss occurred due to any particular risk.

According to professor Magee,”   A plan by which a large number of people associate themselves and transfers to others the risk that is attached to an individual.

Rockefeller has defined insurance as a source of distribution of loss of few people into many people

There may be a risk of life or physical damage to the property caused due to fire, accidents, theft, natural disaster…..etc. These incidents cannot be eliminated but one can try to minimize the financial loss caused due to such risk with the help of insurance. For doing so, a contract of compensating the loss caused by different risk in return of payment of a certain sum of money called premium has to be paid there are various terms associated with insurance that has been described below:

  1. Insured- The party who is willing to transfer the risk to others is the insured.
  2. Insurer- The party who is willing to take the risk of others i.e. the insurance company is the insurer.
  3. Insurance contract- It is an agreement between the insured and the insurer which includes all the terms and conditions of the insurance.
  4. Insured amount- The amount of insurance done by the insured is insured amount.
  5. Premium- The sum of money to be paid by the insured to the Insurer.
  6. Claim- The sum of money asked by the insured from the insurer for the loss suffered by them is the claim.
  7. Compensation- The sum of money asked by the insurer to the insured against the claim is compensation.
Spread the love

About Life Insurance In Nepal

Life Insurance in Nepal is a blog that provides information regarding insurance, investing and finance. Moreover, the blog is concentrated on Life insurance.

View all posts by Life Insurance In Nepal →

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.