INSURANCE

Insurance is a legal agreement between an insurer (insurance company) and an insured

(individual), in which an insured receives financial protection from an insurer for the losses he
may suffer under specific circumstances.
OR
Insurance is a legal contract between a person and an insurance business in which the insurer
promises to provide financial protection (Sum guaranteed) against unforeseen events for a
certain price (premium).

Types of Insurance

The many types of insurance available today may be grouped into two groups :
• Life Insurance
• General Insurance

LIFE INSURANCE

Life insurance is a type of insurance policy in which the insurance company undertakes the
task of insuring the life of the policyholder for a premium that is paid
OR
Life insurance is a contract between the insurer and insured in which the insurer agrees to pay
the insured a sum of money in the case of cessation of life of the individual (insured) or after
the end of the policy term

Life insurance is a contract that offers financial compensation in case of death or disability.
Some life insurance policies even offer financial compensation after retirement or a certain
period of time. Life insurance, thus, helps you secure your family’s financial security even in
your absence.

Types of life insurance

Term life Insurance: It covers you for a specific period in which your beneficiaries gets a
lump-sum amount in the case of your death or have a qualifying terminal illness during the
chosen term.However, if you survive the term, no money will be paid to you or your
beneficiaries.

Parmanent Life Insurance: It covers you for a lifetime in which the beneficiaries receives a
certain sum of money after your death. -They will also be entitled to a bonus that often accrues
on such amount.
Permanent life insurance lasts until you die, as long as you pay the premiums. Unlike term
insurance, permanent life insurance policies accumulate cash value over time which can be
used as a source of savings to pay future premiums or borrowed against and repaid.

GENERAL INSURANCE
These are the non- life insurance policies

Types of General insurance

§ Health insurance : Designed to take care of your medical needs, this insurance pays you
against hospitalization and treatment charges.
§ Motor insurance: It is a general insurance cover that offers financial protection to your
vehicles from loss due to accidents, damage, theft, fire or natural calamities.
§ Property insurance: This plan is meant to cover losses or damages to the property and
other items within the property. It covers liabilities due to fire, burglary, theft, flood,
earthquakes, and sabotage.
§ Marine insurance
This is the insurance of water vessels (yacht, boat, and ship). The cover is against loss or
damage to the hull, engines, and accessories caused by perils of the sea, rivers, lakes or
other navigable waters. It also covers loss by fire, theft, jettisons, piracy, explosion,
malicious acts.
§ Travel insurance: A travel insurance compensates you or pays for any financial
liabilities arising out of medical and non-medical emergencies during your travel abroad
or within the country. E Loss of baggage, Emergency medical expenses, Loss of passport,
Hijacking Delayed flights, Accidental death
§ Liability insurance: This is the insurance of an organization against costs resulting from
third party suits which may be instituted against them. Liability cover is designed to
compensate an insured in respect of claims for legal liability from members of the public
 or companies who may suffer due to the negligence of their employees or faulty products
sold to consumers.
§ Aviation Insurance: it is designed to offer protection against the risks associated with
aircraft operations.
§ Crop Insurance: it is designed to cover farm crops against various perils such as losses
due to adverse weather conditions caused by a hail storm, fire, drought, excessive rainfall,
frost damage, flooding, and lightning.
§ Livestock Insurance : it is designed to covers against losses due to accidental death,
diseases of terminal nature, emergency slaughter on the advice of a recognized veterinary
surgeon and theft of livestock in raising units or paddocks. It covers dairy cattle, beef
cattle, poultry, pigs, sheep, and goats.
§ Bond insurance is a type of insurance whereby an insurance company guarantees
scheduled payments of interest and principal on a bond or other security in the event of a
payment default by the issuer of the bond or security.

The importance of Insurance (Need for Insurance)

§ It offers Compensation: Insurance compensate the unfortunate few who actually suffer loss
or damages from the risks insured against.
§ It gives Confidence to Business Owners: It gives confidence to businesspersons to
undertake risky investments since they are safeguarded against insured risks. And in case
of a loss they are compensated.
§ It can act as Collateral: Life assurance and other policies taken out act as collateral security.
Thus, the holder of the policy can acquire a loan from financial institutions that provide
business finance.
§ It acts as Means of Saving: A life assurance policy acts as a means of saving especially for
old age. For example, an endowment policy enables people to save for a period and when
the policy matures, that is, at the end of the period, they can use the money they have saved.
§ It provides Employment: Insurance provides employment to those who work in insurance
companies, such as managers, assessors, actuaries and underwriters. (Underwriter is a
person who accepts risks on behalf of his/her office/insurance Company).
§ It promote Trade: Insurance promotes both home/domestic and international trade because
traders get involved in trading activities, that is, importing and exporting without fear
because of guaranteed compensation by insurance.
§ It generates Revenue for Government: It contributes to the growth of the economy through
taxation, which are then used by the government to develop the infrastructure.
§ It promotes Economic Growth and Development: Through pooling of resources much
money is collected, some of which is used to pay claims and some of which is invested in
different ventures, such as repairing the country’s roads.
§ It serves as an Avenue for Investment to Traders: It provides commercial services and,
therefore, contributes to country’s invisible exports, the repatriation of interest and
dividends from overseas, and helps in stabilising the country’s balance of payment (BOP).

Difference between Insurance and Assurance

Assurance refers to cover against an event that is bound to happen, the uncertainty being about
the time only. All life policies are as such assurance policies.

Insurance refers to cover against events that may or not happen. All general policies are
insurance policies (Cover for Properties).

The National Health Insurance Fund (NHIF)

The National Health Insurance Fund (NHIF) is a Social Health Insurance Institution established
under the National Health Insurance Act, Cap 395 with the main objective of ensuring
accessibility of health care services to people. It is a Government entity that operates under the
Ministry of Health Community Development, Gender, Elderly and Children (MHCDGEC)

Core Functions of NHIF

• Register members and issue identity cards;
• Collect contributions;
• Certify health service providers for provision of health care services to members;
• Reimbursement of health service providers’ claims;
• Invest the excess funds collected in order to earn income;
• Carry out Actuarial Assessment and Valuation; and
• Provide health insurance education to the public.
The following are reasons for establishing the NHIF in Tanzania
• To have a National Scheme that covers groups in phases
• To have a Scheme that will provide local solutions to the problems existing in the health
delivery system
• Strengthen the cost-sharing in public health facilities by providing an opportunity for the
formal sector employees to contribute through their contribution to a Fund
• Provide free choice of providers to public servants who were formerly restricted to
government health facilities
• Enhance health equity among formal sector employees in the provision of health care
services
• To institute a permanent and reliable system for the provision of health services to formal
sector employees
• To improve the accessibility and quality of health services by introducing competition
among health care providers from the Public, Faith-Based, Non-Government Organisations
and Private health Providers
• To reduce the financing gap in the health sector by complementing the government
budgetary allocation to the health sector.
INTRODUCTION TO ECONOMICS

Definitions of Economics
There are many definitions of Economics but the most common are like the following
“Economics is the study of how societies use scarce resources to produce valuable
commodities and distribute them among different groups”.
“Economics is the study of how society allocates limited resources to the production of goods
and services to satisfy unlimited human wants.”

Economic Terms

Although resources are limited, human wants are unlimited, and this gives rise to scarcity. The

term “Scarcity” implies “Limited in Supply”. When we say that resources of a country are

scarce, it simply means that they are limited in supply.

Scarcity is the situation where limited resources are insufficient to produce goods and services

to satisfy unlimited human wants.

In other words, due to scarcity and hence the inability to produce all goods and services, society

must choose what goods and services to produce When a choice is made, an opportunity cost

is incurred.

Opportunity cost is the cost of giving up one alternative to pursue another

OR

Opportunity cost it is the cost in terms of the benefits that must be given up in order to pursue

it. For example, if an individual decides to go to college, the opportunity cost is the wages they

could have earned if they had worked instead of going to school.

Needs is something you must have for survival

Wants refers to something which is good to have, but not essential for survival
Branches of Economics

Microeconomics and macroeconomics are the two main branches of economics

• Macroeconomics

Is the branch of economics that deals with the analysis of the whole economy. It deals

with the large, or aggregated, economic choices faced by society. Thus, macroeconomics

studies issues dealing with an aggregated, national or regional economy such as matters of

unemployment, inflation, levels of government spending and taxation, and so forth.

• Microeconomics

Is the branch of economics that deals with analysis of individual economic choices faced

within any society. Thus, microeconomics studies issues dealing with smaller choices

including individual choice by consumers, the behavior of profit maximizing firms in

different types of market scenarios, and other types of non-market organizations, such as

the family.

Fundamental economic questions in the society

1. What to produce?

• A country cannot produce all goods because it has limited resources.

• It has to make a choice between different goods and services.

• Every economy has to decide what goods and services should be produced.

Example: If a farmer has a single piece of agricultural land, then he has to make a choice

between two goods, i.e whether to grow rice or wheat.

 Similarly, our government has to decide where to allocate funds, for the production of

defence goods or consumer goods, and if both, then in what proportion.

2. How to produce?

• This problem refers to the choice of technique of production. It arises when there is an

availability of more than one way to produce goods and services.

• There are mainly two techniques of production. These are:

Ø Labour intensive technique(greater use of labour)

Ø Capital intensive technique(greater use of machines)

Labour intensive technique promotes employment whereas capital intensive technique

promotes efficiency and growth.

3. For whom to produce?

• The society cannot satisfy all the wants of all the people. Therefore, it has to decide

who should get how much of the total output of goods and services.

• Society has to make choice of whether luxury goods or normal goods have to be

produced. This distribution or proportion directly relates to the purchasing power of the

economy.

THE ECONOMIC SYSTEMS

Refers to ways in which the society chooses to make decisions on What, How and for

whom to produce (that is the basic economic problems/Questions).

There are three Economic systems

Ø The market system

Is an economic system in which the three fundamental economic are made by private

individuals with no government intervention. Decision and choice of solving

 economic problems are made by private individuals depending on market resources

(prices).

Ø The command system

Is an economic system in which the three fundamental economic decisions are made

by the government with no involvement of private individuals. Decisions on solving

economic problems are made by the state/public sector itself.

Ø The mixed system

Is an economic system in which the three fundamental economic decisions of what

and how much to produce, how to produce and for whom to produce are partly made

by private individuals and partly made by the government. Therefore, a mixed

economy is comprised of the private sector and the public sector. A choice and

decisions are being divided to state and private individuals.

Factors of production

The satisfaction of wants can only be accomplished by using up Resources, the inputs, the

so-called factors of production or means of production.

These factors of production can be classified

Land: Land is a broad term that includes all the natural resources that can be found on land,

such as oil, gold, wood, water, and vegetation. All those free gifts of nature

Labour: Labor as a factor of production refers to the effort that individuals exert when they

produce a good or service. All human resources, mental and physical, both inherited and

acquired.
Capital: all those man-made aids to further production, such as tools, machinery, and

factories, which are used up in the process of making other goods and services rather than

being consumed for their own sake.

Entrepreneurship: That is ability, knowledge, and talent to put land, labour and capital in

the process of production, and ability and willingness to assume risk in business.

Entrepreneurs are important because they are the ones taking the risk of the business and

identifying potential opportunities.