Category: Finance Content

Finance Content is a field that deals with the study of investments. It includes the dynamics of assets and liabilities over time under conditions of different degrees of uncertainty and risk. The economy can also define as the science of money management. Aims to price assets based on their risk level and their expecting rate of return. Finances can break into three sub-categories: public, corporate and personal. Latest Post, News, and Analysis on Government Finances, Public Financing, Government revenue and spending, Bank Credit, Financial Regulation by the government and central bank RBI’s policy on banking.

Definitions of Finance describes the management, creation, and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments. That allows the buyer to pay later and the supplier to secure its money earlier. Instead of relying on the creditworthiness of the supplier, the bank deals with the buyer usually a less risky prospect.

  • How to Public expenditure is classified in 12 Criteria?

    How to Public expenditure is classified in 12 Criteria?

    What is meant by Public Expenditure? Of the two main branches of public finance, namely, public revenue and public expenditure, we shall first study the public expenditure. How to Public expenditure is classified into 12 Criteria? The classical economists did not analyze in-depth the effects of public expenditure, for public expenditure throughout the nineteenth century was very small owing to the very restricted Government activities.

    The best author gives Public expenditure is classified by the best 12 Criteria.

    The Governments followed laissez-faire, economic policies, and their functions were only confined to defend the country from foreign aggression and to maintain law and order within their territories. But now, the expen­diture of Government all the world over has greatly increased. Therefore, modern econo­mists have started analyzing the effects of public expenditure on production, distribution, and levels of income and employment in the economy.

    The following are the impor­tant classified or classification of public expenditure in the criteria made by different writers:

    Revenue Criteria:

    F.S. Nicholson classified public expenditure according to the amount of revenue the state realizes in return for the services which it per­forms through public expenditure.

    He gives the following four classes of public expenditure:

    • Firstly expenditure without any direct return of revenue, for example, poor relief and also the losses sustained in war.
    • Secondly, expenditure without any direct return of revenue, but indirectly beneficial to revenue. For example free education. Better educated persons are better taxpayers and less expensive citi­zen than paupers and criminals.
    • Thirdly, an expenditure with the partial direct return of revenue, for example, education for which fees are charged.
    • Fourthly expenditure with full return of revenue or even profit. For example investment in public undertakings, railways, posts, and telegraphs, etc.

    This classification is also subject to criticism. This classifica­tion is overlapping. The separation between the items is not clearly marked. This classification failed to bring out the essential differ­ences in kind between the several forms of expenditure.

    For ex­ample, defense and poor relief fall under the first category, however, they also confer an indirect benefit to revenue. By ensuring peace and tranquility defense ensures the smooth growth of productive activity and national income. This, in turn, will benefit public revenue consid­erably.

    Functional Criteria:

    Another classification of public expenditure is proposed by H.C. Adams. Functional classification is based on a classification of the various functions actually performed by public authorities.

    Adams classifies expenditure under three main functions of government:

    • Protective Functions: This includes expenditure on defense, police, judiciary, social disease, prisons, etc.
    • Commercial Functions: In this category include expenditure which helps the development of commerce and trade. Services sold to the citizens for a price (e.g., Post office, Railway, Insur­ance), subsidies and bounties granted, etc., are examples of com­mercial functions
    • Developmental Functions: In this category include expendi­ture that help to develop the resources of the country. Expendi­ture under this category includes expenditure on education, pro­vision of public recreation, public works, public health, etc.

    This division is not free from imperfections. There is no clear cut dividing line between institutions maintaining law and order and those that promote progress. Expenditure incurred for protection is also capable of promoting development Prof. Adams states that with the progress of society, the protective expenditure trend to decline. But this proposition is propositioned by historical facts.

    Benefit Criteria:

    Common classification of public expenditure adopted by the 19th-century writers is based on the principle of Benefits Conferred. Such as the division adopted by Cohn and Plehn.

    They divided public ex­penditure under the following four heads:

    • Firstly, expenditure which confers a common benefit on all citi­zens or taxpayers, for example, defense, universal education is given to the residents free of charge, etc.
    • Secondly, expenditure conferring a special benefit on some per­sons or in certain classes, for example; expenditure on poor relief.
    • Thirdly, that class of public expenditure which confers a special benefit on certain people and at the same time a common ben­efit on all the others, e.g., the administration of justice.
    • Fourthly, those items of expenditure which confer a special ben­efit only on some individuals; e.g., certain industries especially favored by the state (granting subsidy).

    An obvious objection to this classification is that all public ex­penditure is for the common and public interest. It is very difficult to distinguish between special benefits and common benefit con­ferred. The satisfaction of special benefit may lead to the generation of the conm­mon benefit. For example, expenditure on poor relief, which is specifically for the benefit of those immediately concerned, results in a common benefit such as prevention of crime, the satisfaction of the general sense of justice, etc.

    As Nicholson rightly observed “Public expen­diture which does not confer some common benefit or answer some public purpose ought not to exist in a modern state”, Hence Nicholson attempted to give a more scientific classification of expenditure.

    Productive and Unproductive Expenditure Criteria:

    Prof. Robinson classified public expenditure into productive and un­productive. Public expenditure is productive if it directly or indirectly helps to develop natural and human resources and help to increase national income.

    Whereas public expenditure is unproductive if it does not add to enhancing the productive capacity of the nation. Unproductive ex­penditure is one that is consumed in the process of rendering the service.

    Economic Criteria:

    In the social accounting sense, most of the countries have adopted economic classification. In this procedure, the expenditure and in­come of public bodies are classified into two heads.

    They are:

    • Revenue Account, and.
    • Capital Account.

    Revenue account includes an ordinary source of income and expenditure. Whereas capital ac­count includes the extraordinary source of income and expenditure. Revenue expenditure includes all current expenditures on administrators including defense and public commercial undertakings.

    Usually, expenditure does not result in the creation of assets treats as revenue expenditure. Whereas capital expenditure includes all capital transactions. These capital payments consist of capital expenditure on the acquisition of assets like land, buildings, machinery, equipment, etc.

    Investments in shares and loans and advances granted by the central government are part of this. This classification also knows as functional classification. This classi­fication provides a more detailed breakdown of revenue and capital expenditures of the government.

    Plan and Non-Plan Expenditure Criteria:

    Plan expenditure means the current development outlays as well as investment outlays. Whereas non-plan expenditure refers to the expenditure which the government is bound to incur and cannot do without it.

    It includes both development and non-development ex­penditure. A broad-based classification of public expenditure as detailed above. Each classification has its own defects and omissions.

    How­ever, the sphere of state activity is dynamically changing in recent years. The nature and form of activities undertaken by the state are varying in length and attitude. Hence a perfect and systematic clas­sification of public expenditure is very difficult to achieve.

    How to Public expenditure is classified in 12 Criteria
    How to Public expenditure is classified into 12 Criteria? #Pixabay.

    According to J.S. Mills:

    J.S. Mill based his division on the wants of the state, which in turn is determined by the functions of the state. He divides expenditure between obligatory or necessary and optional. This classification takes into account the nature of expenditure.

    Expenditure incurred on defense, justice, and maintenance of economic institutions are obligatory. Owing to past contracts and other legal commitments, coupled with the concept of sovereignty, the state is not free to de­cide whether to incur this type of expenditure or not.

    It is mandatory on the part of the government to incur obligatory expenditure. Whereas expenditure on social security measures is optional. The state can postpone or incur this type of expenditure depending upon the availability of resources. It is not compulsory in nature. It can if time warrants can postpone to a future date.

    According to Shirra’s:

    Prof. Findlay Shirras classified public expenditure into;

    • Primary expenditure, and.
    • Secondary expenditure.

    Primary expenditure includes all those expenditures which governments are obliged to undertake, it is mandatory on the part of the government to incur these expenditures. It includes expenditure on defense, maintenance of law and order, civil administration, payment of the debt, etc.

    These types of expenditures are essential for the existence of the state. All other expenditures, other than those under the category of primary expenditure are grouped into secondary expenditure. It includes ex­penditure on education, public health, poor relief, unemployment re­lief, and other expenses on social security measures.

    According to Roscher’s:

    Prof. Roscher classified public expenditure into three groups namely:

    • Necessary.
    • Useful, and.
    • Superfluous.

    Necessary expendi­ture is that which the state has to incur and which cannot post­pone to a future date. The best example is the expenditure on administra­tion.

    Useful expenditure is that which desires but can post­pone.

    Superfluous expenditure is that which the state may or may not occur. It otherwise calls ornamental expenditure.

    According to Dalton’s:

    Instead of following some strictly logical methods, Prof. Dalton gives a practical or empirical classification. According to Dalton, a broad distinction may draw between public expenditure designed on the one hand to preserve the social life of the community against violent attack whether external or internal and on the other, to im­prove the quality of the social life.

    In other words, the object of public expenditure may be either to keep social life secure and ordered or to make that secure and ordered life better worth living whether from an economic or non-economic point of view.

    Hence Prof. Dalton clas­sifies public expenditure into two categories – grants and purchase price. When the state incurs expenditure and does not get any commodity or service in return, the expenditure classifies as a grant.

    For example, expenditure on poor relief, payments of old-age social insurance, etc. are grants. When the state acquires or gets some commodity or service in return the expenditure is a purchase price.

    Another example:

    The salaries of government employees, the price paid for purchasing a typewriter, etc., are the purchase price.

    To quote Dalton,

    “Payments by a public authority to any of its employees by way of salaries and wages or to contractors whom it employs, are pur­chase prices. On the other hand payments of old age, social insur­ance is granted.”

    Dalton says that some public expenditure may be partly a purchase price and partly a grant. This is so when the state pays a price higher than what a private buyer would pay. The differ­ence between the two is the element of grant at a purchase price.

    Dalton thinks that interest on public debts and pensions grant if looked at from the point of view of the present, as in the present the state secure no commodity or service by incurring this expenditure.

    However, if this expenditure looks at from a longer point of view then the state pays interest in return for the loans that secure in an earlier period. Similarly, pensions are a payment for service ren­dered in the past.

    Dalton also made a distinction between direct and indirect grants. Direct grants are those whose benefits accrue to the persons who secure the grants, for example, poor relief. On the other hand, indirect grants are those where part of the benefit accrues to a person other than the recipient of the grant, for example, subsidies. Part of the sub­sidy may pass on to the purchaser of the commodity in the form of lower prices.

    According to A.C. Pigou’s:

    Pigou has classified public expenditure into the transfer and non-transfer public expenditure. Pigou in the revised edition of his book on public finance emphasizes the distinction between Transfer Expen­diture which merely redistributes the money incomes of the mem­bers of the community and non-transfer expenditure which determines directly the uses to which part of the community’s productive resources shall be put.

    He says that expenditure of money by government authori­ties may conveniently separate under two heads, the expenditure that purchases current service of productive resources for the use of these authorities and expenditure which consist of payments made either gratuitously or in the purchase of existing property rights to pri­vate persons.

    The former group includes expenditure on navy-army, Civil service, educational service, judiciary, etc. The latter includes expenditure on the payment of interests on governmental debt, pen­sion, etc. In the first edition of his book, the former type of expenditure, he called, exhaustive, while in the second edition he called it real expenditure.

    In the third edition of he says,

    “It is perhaps better to call them simply non-transfer expenditures. The latter type must call transfer expenditures.”

    Non-transfer expenditure implies the actual using up of com­modities and services which would otherwise have been available for some other purpose. In the social accounting sense, non-transfer expenditure always gives rise to the creation of output and equivalent money income.

    For instance when the state pays salary to a sol­dier, then the soldier can utilize his service for no alternative pur­pose. In the absence of this expenditure, his service would have been available for some other purpose. Whereas transfer expenditure does not create any income or output.

    According to Pigou,

    “It implies only a transfer from the state to the recipients, of command over commodities and services.”

    For example, social expenditure on the old-age pension, poor relief, etc.

    According to Mehta’s:

    Prof J.K. Mehta made a two-way classification of public expendi­ture. He categorized public expenditure into;

    • Constant expendi­ture, and.
    • Variable expenditure.

    Mehta says,

    “Constant expenditure is that, the amount of which does not depend upon the extent of the use by the people, in whose interest it is incurred and upon the service that is financed by it.”

    The expenditure on defense is a clear example of constant expenditure. Variable expenditure is that which increases with every increase in the uses of public services by the people, whose benefit it incurs. Expenditure on postal service is an example of variable expenditure.

    Variable expenditure varies with the number of people using the service provided by the state. The essential feature of Mehta’s classification is that he uses the element of cost and not benefits as the basis of classification.

    He also recognized the fact that every item of public expenditure cannot place wholly under one or another class and hence a clear-cut distinction cannot draw between them.

  • Public Expenditure: Meaning, Definition, Classification, Types, and Principles

    Public Expenditure: Meaning, Definition, Classification, Types, and Principles

    What does Public Expenditure mean? Expenditure is the action of spending funds. Public expenditure refers to the expenses which the Govern­ment incurs for its maintenance as also for the economy as a whole. The Concept of Public Expenditure: Meaning, Definition, Classification, Types, and Principles.

    Here are explained the Concept of Public Expenditure with their point of Meaning, Definition, Classification, Types, and Principles.

    Public expenditure can define as, “The expenditure incurred by public authorities like central, state and local governments to satisfy the collective social wants of the people is known as public expenditure.” Earlier it was thought that “Every tax is an evil” and public expenditure is “unproductive”.

    Such ideas are no more nowadays. It means that the least amount of tax is to collect to meet “Three duties of the sovereign”. The three duties are the maintenance of internal law and order, defense from foreign attack and issue of currency.

    Nowadays, public authorities have to incur expenditure on the protection of citizens as well as of public welfare and the promotion of socio-economic development. However, after the great depression of 1930 and war and post-war years, increasing attention was paid to the study of public expenditure. So, they refer to the expenses of public authorities like the central, state and local governments.

    Meaning of Public Expenditure:

    To carry on their functions, governments must obtain the services of labor and other factor units and (except in a completely socialist economy) acquire goods produced by private business firms.

    Public expen­diture consists of expenditure by the central government, state governments, and local authorities (such as municipalities and public corporations), with the central government accounting for the major portion of such expenditure.

    Thus, the state is required to maintain good roads, bridges, defense activi­ties, canals, and harbors, to protect trade, to maintain the coinage and to provide social security, education, and religious instruction.

    As well as, Government expenditure:

    They refer to the expenditure incurred by the central government. There are different types of such expenditure. The usual distinction is between consumption expenditure and investment expenditure. Another distinction is between revenue expendi­ture and capital expenditure.

    The main items of government spending are the following:

    Social services such as education, health and welfare and social security; defence, that is the cost of maintaining the armed forces; environmental services, that is, spending on roads, transport services, law and order, housing and the art; national debt interest, that is, interest payments on money borrowed by the government. At present, this is about one-third of India’s national income.

    Since national income is a fixed number, spending in one direction can achieve only at the expense of spending elsewhere. Thus, if the govern­ment spends a larger part of the national income on defense, less will remain with the people for their consumption, thereby leading to a reduction in their standard of living.

    Similarly, too large an expenditure on the social services at the expense of defense expenditure may put a threat to national security – and social security is meaningless if it is at the expenses of national security. As a result, the actual amount spent in each direction represents a compromise between competing desires. So, there is always a need for careful planning of public expenditure.

    Definition of Public Expenditure:

    The theory of public expenditure has been more or less confining to that of generalities in terms of the effects of public expenditure on employment and price level. Even though public expenditure has increased rapidly during the last two centuries, in almost every state the area of them re­mains relatively unexplored.

    Further, the level of public expenditure depends on government programs, which are the outcome of po­litical decisions.

    Gerhard Colm points out,

    “The determination of gov­ernment programmes is a political procedure and as such is carried on in a milieu, usually called ‘Politics’ which includes vote gathering, pressure by lobbies, log rolling and competition among political ri­vals.”

    Classification of Public Expenditure:

    It is conventional in every textbook of public finance to classify public expenditures into various economic categories. Also, The classification of public expenditure refers to the systematic arrangement of differ­ent items of state expenditure, on some specified economic basis.

    Classification is always done on some logical and rational economic basis. Classification of public expenditure is important to understand the nature and effect of public expenditure. Through this classifica­tion, the state executive maintains effective control over them and prevented public funds leakages and wastages, di­versions and misappropriations.

    Classification of public expenditure is good for auditing and public funds can better safeguard against misappropriation. Classification of expenditure helps us to understand the relative importance of each head of expenditure at different times.

    According to Prof. Shirras, the test of public expenditures not the aggregate expenditure but it is the relative amounts which are as­signed to different heads from time to time. Hence classification of expenditure is important for a clear understanding of the nature and effects of them.

    Economists have proposed various methods of classifying pub­lic expenditures. However, the methods differ widely from one an­other. This is because; there is little agreement between authorities of public finance regarding the best way of arranging the various kinds of state outlays.

    Hence a completely satisfactory method is yet to emerge. Hence Mill, Roscher, Plehn, Nicholson, and Bastable have their methods. In this context, Shulz observes “Nineteenth-century fiscal writers devoted considerable space to the subject of the proper classification of government expenditure, but no two even agreed upon the same classification”.

    Extra Classifications:

    There are a variety of ways in which they can classify but broadly it is classifying under the following heads:

    According to the authority which spends the money viz;

    • Federal or Union or Central expenditure.
    • State or Provincial expenditure, and.
    • Local expenditure or expenditure of municipalities and other local bodies.

    According to the object of expenditure viz;

    • Development activities like providing subsidies, electric power, transport service, welfare activities, employment opportunities, and price stability, etc.
    • Non-developmental activities like money spent on administrative machinery, law and order, interest payment on public debt and defense, etc.

    According to the nature of expenditure via;

    • Revenue Expenditure, and.
    • Capital Expenditure.

    Revenue Expenditure is current expenditure e.g. administrative and maintenance expenditure. This expenditure is of a recurring type which Capital Expenditure is of capital nature and is incurred once for all. It is non-recurring expenditure e.g. expenditure for building multipurpose projects or a setting up big factories like steel plants, money spent on land, machinery, and equipment.

    Types of Public Expenditure:

    The main bases of Types of public expenditure are as follows:

    Capital And Revenue Expenditure:

    Capital Expenditure of the government refers to that expenditure that results in the creation of fixed assets. Also, They are in the form of investment. They add to the net productive assets of the economy. Capital Expenditure is also known as development expenditure as it increases the productive capacity of the economy. It is an investment expenditure and a non-recurring type of expenditure.

    For example; Expenditure, on agricultural and industrial development, irrigation dams, public -enterprises, etc, are all capital expenditures. Revenue expenditures are current or consumption expenditures incurred on civil administration, defense forces, public health and, education, maintenance of government machinery, etc.

    Development And Non–Developmental Expenditure/Productive And Non–Productive Expenditure:

    Expenditure on infrastructure development, public enterprises or development of agriculture increase productive capacity in the economy and bring income to the government. Thus they are classified as a productive expenditure. All expenditures that promote economic growth development are termed as development expenditure.

    Unproductive (known–development) expenditure refers to those expenditures which do not yield any income. Expenditure such as interest payments, expenditure on law and order, public administration, do not create any productive asset which brings income to the government such expenses are classified as unproductive expenditures.

    Transfer And Non-Transfer Expenditure:

    Transfer expenditure refers to those kinds of expenditures against there is no corresponding transfer of real resources i.e., goods or services. Such expenditure includes public expenditure on; National Old pension Scheme, Interest payments, subsidies, unemployment allowances, welfare benefits to weaker sections, etc. By incurring such expenditure, the government does not get anything in return, but it adds to the welfare of the people, especially to weaker sections of society. Such expenditure results in redistribution of money incomes within the society.

    The Non-transfer expenditure relates to that expenditure which results in the creation of income or output The Non-transfer expenditure includes development as well as Non-development expenditure that results in the creation of output directly or indirectly. Economic infrastructure (Power, Transport, Irrigation, etc.), Social infrastructure (Education, Health and Family Welfare), Internal law and order and defense, public administration, etc. By incurring such expenditure, the government creates a healthy environment for economic activities.

    Plan And Non-Plan Expenditure:

    The plan expenditure incurs on development activities outlined in the ongoing five-year plan. In 2009-10, the plan expenditure of the Central Government was 5.3% of GDP. Plan expenditure incurs on Transport, rural development, communication, agriculture, energy, social services, etc.

    The non-plan expenditure incurs on those activities, which are not included in the five-year plan. It includes development and Non-development expenditure. It includes; Defence, subsidies, interest payments, maintenance, etc.

    Other types of Public Expenditure:

    Mrs. Hicks classified the types of Public Expenditure based on duties of government. It is as follows:

    Defense Expenditure: It is expenditure on defense types of equipment, wages, and salaries of armed forces, navy, and air-force, etc. It incurs by the government to provide security to citizens of the country from external aggression.

    Civil Expenditure: Government/incurs this expenditure to maintain law and order and administration of justice.

    Development Expenditure: It is expenditure on the development of agriculture, industry, trade and commerce, transport and communication, etc.

    Public Expenditure Meaning Definition Classification Types and Principles
    Public Expenditure: Meaning, Definition, Classification, Types, and Principles, #Pixabay.

    Principles of Public Expenditure:

    As the public is an important part of fiscal policy, certain principles or canons are laid down to which public expenditure should conform.

    These principles of public expenditure or canons are as follows:

    The principle of Maximum Social Advantage:

    The government’s expenditure should so arrange as to secure the greatest possible net advantage, i.e., it should maximize the difference between the addition to welfare obtained by its expenditure and the social cost involved in obtaining the money. This principle has been calling by Dalton the Principle of Maximum Social Advantage.

    The principle of Economy:

    This principle says that the government should economies its expenditure and avoid wasteful and extravagant expenditure. The principle requires that the revenue collecting from the tax-payer should be judiciously spent. As too much they lead to inflation and adversely affects savings, the economy in government expenditure is cardinal.

    The principle of Sanction:

    According to this principle, expenditure should incur only if it has been sanction by a competent authority. It usually sees that unauthorizing spending leads to extravagance and overspending. But when a competent authority looks into the pros and cons and then gives its verdict to incur the expenditure it means that the expenditure incurred will provide genuine utility and serve its definite purpose.

    The principle of Elasticity:

    This principle states that it should be possible for public authorities to vary the expenditure according to need or circumstances. It means that they should be fairly elastic and flexible but not rigid. Rigidity proves to be a handicap in times of trouble alternation in the upward direction is not difficult but elasticity also needs in the downward direction.

  • Public Finance: Meaning, Definition, Scope, and Divisions

    Public Finance: Meaning, Definition, Scope, and Divisions

    What does Public Finance mean? It is a study of income and expenditure or receipt and payment of government. Meaning, Definition, Scope, and Divisions – The concept of Public Finance. Professor Bastable, an English economist defines public finance as a subject that deals with the expenditure and income of the public authorities of the state. Both the aspects (income and expenditure) relate to the state’s financial administration and control. Read and share the given article in Hindi.

    Here explains the concept of Public Finance; its points – Meaning, Definition, Scope, and Divisions.

    Dalton defined the subject as one which concerns itself with the income and expenditure of public authorities and the adjustment of one to the other. Also, It learns that the study of the subject chiefly centers around different aspects of government revenues and government expenditure about the state’s economy and people.

    It deals with the income raised through revenue and expenditure spend on the activities of the community and the term “finance” is a money resource i.e. coins. But the public collects names for an individual within an administrative territory and finance.

    Meaning of Public Finance:

    In public finance, we study the finances of the Government. Thus, it deals with the question of how the Government raises its resources to meet its ever-rising expenditure. As Dalton puts it,” public finance is “concerned with the income and expenditure of public authorities and with the adjustment of one to the other.”

    Accordingly, the effects of taxation, Government expenditure, public borrowing, and deficit financing on the economy constitute the subject matter of public finance. Thus, Prof. Otto Eckstein writes “Public Finance is the study of the effects of budgets on the economy, particularly the effect on the achievement of the major economic objects growth, stability, equity, and efficiency”.

    Further, it was thought that the Government budget must balance. Public borrowing was recommended mainly for production purposes. During a war, of course, public borrowing was considered legitimate but it was thought that the Government should repay or reduce the debt as soon as possible. Public authorities undertake activities for individuals living within an administrative territory. Also, Finance usually means income and expenditure.

    So it means income and expenditure of the public authorities and adjustment of one to the other.

    So we knew that:

    • When we talk of public we mean public authorities.
    • Public authorities include central government, state government, and local governing bodies.
    • When we talk about finance, we mean income and expenditure.
    • It is the fiscal science that implies the science of public treasury.
    • So it is a study of income and expenditure of the public authorities and adjustment of one to the other, and.
    • Objectives of public finance (objectives like higher growth, better distribution of wealth, income, property, economic stability, etc) can secure through taxation, public expenditure, public debt management fiscal federalism, and fiscal administration. Also, Public revenue, public expenditure, public debt management, fiscal administration, and fiscal federalism are the main branches of public finance.

    Definition of Public Finance:

    Different economists have defined public finance differently. Some of the definitions are given below.

    According to R.A. Musgrave says,

    “The complex problems that center on the revenue-expenditure process of government is traditionally known as public finance.”

    According to prof. Dalton,

    “Public finance is one of those subjects that lie on the borderline between economics and politics. It is concerned with the income and expenditure of public authorities and with the mutual adjustment of one another. The principal of public finance are the general principles, which may be laid down with regard to these matters.”

    According to Adam Smith,

    “Public finance is an investigation into the nature and principles of the state revenue and expenditure.”

    According to Findlay Shirras,

    “Public finance is the study of principles underlying the spending and raising of funds by public authorities.”

    According to H.L Lutz,

    “Public finance deals with the provision, custody, and disbursements of resources needed for the conduct of public or government function.”

    According to Hugh Dalton,

    “Public finance is concerned with the income and expenditure of public authorities, and with the adjustment of the one to the other.”

    The scope of Public Finance:

    The scope of public finance is not just to study the composition of public revenue and public expenditure. It covers a full discussion of the influence of government fiscal operations on the level of overall activity, employment, prices, and growth process of the economic system as a whole.

    According to Musgrave, the scope of public finance embraces the following three functions of the government’s budgetary policy confined to the fiscal department:

    • The Allocation Branch.
    • The Distribution Branch, and.
    • The Stabilisation Branch.

    These refer to three objectives of budget policy, i. e., the use of fiscal instruments:

    • To secure adjustments in the allocation of resources.
    • To secure adjustments in the distribution of income and wealth, and.
    • Also, To secure economic stabilization.

    Thus, the function of the allocation branch of the finance department is to determine what adjustments in allocation need, who shall bear the cost, what revenue and expenditure policies to be formulated to fulfill the desire objectives.

    The function of the distribution branch is to determine what steps need to bring about the desired or equitable state of distribution in the economy and the stabilization branch shall confine itself to the decisions as to what should be done to secure price stability and to maintain full employment level.

    Further, modern public finance has two aspects:
    • The positive aspect, and.
    • Normative aspect.

    In its positive aspect: The study of Government finance is concerned with what are sources of public revenue, items of public expenditure, constituents of the budget, and formal as well as effective incidence of the fiscal operations.

    In its normative aspect: Norms or standards of the government’s financial operations are laid down, investigated, and appraised. The basic norm of modern finance is general economic welfare. On normative consideration, it becomes a skillful art, whereas, in its positive aspect, it remains a fiscal science.

    The main scope of public finance may summaries’ as under:

    • Revenue.
    • Expenditure.
    • Debt.
    • Financial Administration, and.
    • Economic Stabilisation.

    Now, explain;

    Public Revenue:

    Public revenue concentrates on the methods of raising public revenue, the principles of taxation, and its problems. In other words, all kinds of income from taxes and receipts from the public deposit include in public revenue. It also includes the methods of raising funds. It further studies the classification of various resources of public revenue into taxes, fees, and assessment, etc.

    Public Expenditure:

    In this part of Government finance, we study the principles and problems relating to the expenditure of public funds. This part studies the fundamental principles that govern the flow of Government funds into various streams.

    Public Debt:

    In this section of public-finance, we study the problem of raising loans. The public authority or any Government can raise income through loans to meet the shortfall in its traditional income. The loan raised by the government in a particular year is the part of receipts of the public authority.

    Financial Administration:

    Now comes the problem of organization and administration of the financial mechanism of the Government. In other words, under financial or fiscal administration, we are concerned with the Government machinery which is responsible for performing various functions of the state.

    Economic Stabilization:

    Now, a day’s economic stabilization and growth are the two aspects of the Government economic policy which got a significant place in the discussion on public finance theory. This part describes the various economic policies and other measures of the government to bring about economic stability in the country.

    Public Finance Meaning Definition Scope and Divisions
    Public Finance: Meaning, Definition, Scope, and Divisions, #Pixabay.

    Divisions of Public Finance:

    Public finance broadly divides into four branches. These are Public Expenditure, Public Revenue, Public Debt, and Financial Administration. Under Public Expenditure, we study the various principles, effects, and problems of expenditure made by the public authorities.

    Under the branch of Public Revenue, we study the various ways of raising revenues by the public bodies. We also study the principles and effects of taxation and how the burden of taxation distribute among the various classes in society. Public Debt is the study of the various principles and methods of raising debts and their economic effects.

    It also deals with the methods of repayment and management of public debt. The branch of Financial Administration deals with the methods of budget preparation, various types of budgets, war finance, development finance, etc.

    Need for Public Finance:

    We all know that the existence of a large and growing public sector is a reason enough to study public-finance. Adam Smith in his monumental work. The Wealth of Nations laid out the basic jobs of the government.

    The government is to play an important role in providing for the defense of the nation, the administration of justice, and in the provision of those goods and services not wholly to be the result of the ordinary private activity. Adam Smith also had an acute awareness of the problems that would associate with raising the funds needed to finance these obligations.

    His four maxims of taxation remain today a guide in designing a nation’s revenue structure. The four maxims focus attention on matters of economic efficiency as well as equity.

    Conclusion:

    So, The word public refers to general people and the word finance means resources. So public finance means resources of the masses, how they collect and utilize. Thus, Public Finance is the branch of economics that studies the taxing and spending activities of government.

    The discipline of public finance describes and analyses government services, subsidies, and welfare payments, and the methods by which the expenditures to these ends cover through taxation, borrowing, foreign aid, and the creation of money. From the above discussion, we can say that the subject matter of public finance is not static, but dynamic which is continuously widening with the change in the concept of state and functions of the state.

    As the economic and social responsibilities of the state are increasing day by day, the methods and techniques of raising public income, public expenditure, and public borrowings are also changing. Because of the changed circumstances, it has given more responsibilities in the social and economic field.  Read and share the given article (सार्वजनिक वित्त: अर्थ, परिभाषा, क्षेत्र और विभाजन) in Hindi.

  • What does Money Laundering mean? Definition and Stages

    What does Money Laundering mean? Definition and Stages

    Meaning of Money Laundering: When money obtains from criminal acts such as drug trafficking or illegal gambling, the money consider “Dirty” in that it may seem suspicious if deposited directly into a bank or other financial institution. What does Money Laundering mean? Definition and Stages. Money laundering a process uses by offenders who attempt to conceal the true origin and ownership of the proceeds; these proceeds are results of criminal activities.

    The concepts of Money Laundering explains.

    It allows them to maintain control over the proceeds and provide a legitimate cover for their source of income. Because the money’s owner needs to create financial records ostensibly showing where the money came from, the money must be “Cleaned,” by running it through several legitimate businesses before depositing it, hence the term “Money laundering”. Because the act specifically uses to hide illegally obtained money, it too is unlawful. Different jurisdictions, both foreign and domestic, have their specific definitions of what acts constitute the crime of money laundering.

    Which enforcement agency has the authority to investigate money laundering, as well as punishments for the crime, outline in the statutes of each jurisdiction? The laundering of the proceeds that result from criminal activity is done through the financial system. Also, the people who involve in such an action exploit the facilities of the financial institutions of the world.

    Such action is done easily under these conditions of free movement of capital. Banks involved in such actions risk losing their market reputation. Also, learn Investment Banks with their Principle and Functions.

    Definition of Money Laundering:

    A simpler definition of money laundering would be a series of financial transactions that intend to transform ill-gotten gains into legitimate money or other assets.

    The conversion or transfer of property, the concealment or disguising of the nature of the proceeds, the acquisition, possession, or use of property, knowing that these derive from criminal activity and participate or assist the movement of funds to make the proceeds appear legitimate is money laundering.

    According to the United States Treasury Department:

    “Money laundering is the process of making illegally-gained proceeds appear legal. Typically, it involves three steps: placement, layering, and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money move around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the “dirty money” appears “clean”.”

    The Stages of Money Laundering:

    Money laundering accomplishes in three stages, involving numerous transactions of the launderers.

    Here they are:

    Placement:

    It means the physical disposal of cash proceeds got from illegal activity. Illegal activities like drug trafficking, extortion, generate very volumes of money. People involved in these activities cannot explain the origin and source of these funds to the authorities. There is a constant fear of getting caught.

    So the immediate requirement is to send this money to a different location using all available means. This stage characterizes by facilitating the process of inducting the criminal money into the legal financial system. Normally, this done by opening up bank accounts in the names of non-existent people or commercial organizations and depositing the money.

    Layering:

    It implies a separation of illicit proceeds from their source; there create complex layers of financial transactions meant to disguise the audit trail and they assure anonymity. This uses to distance the money from the sources.

    This achieves by moving the black money from and to offshore bank accounts in the names of shell companies or front companies by using Electronic Funds Transfer (EFT) or by other electronic means. During this process, they make use of the banks wherever possible as in the legal commercial activity.

    Integration:

    Supposing that the laundering process was successful, the proceeds place back into the economy; they re-enter the financial system and seem to be normal business funds. This achieves by making it appear as legally earned.

    This normally accomplishes by the launderers by establishing anonymous companies in countries where secrecy guarantees. They can then take loans from these companies and bring back the money.

    What does Money Laundering mean Definition and Stages
    What does Money Laundering mean? Definition and Stages, #zuckermanlaw.

    Techniques of Money Laundering:

    There are many forms of money laundering though some are more common and profitable than others. Some of the more popular money laundering techniques include:

    • Bulk cash smuggling involves smuggling cash into another country for deposit into offshore banks or another type of financial institution that honors client secrecy.
    • Structuring also refers to “smurfing,” which is a method in which cash broke down into a smaller amount, which then uses to purchase money orders or other instruments to avoid detection or suspicion.
    • Trade-based laundering is similar to embezzlement in that invoices altered to show a higher or lower amount to disguise the movement of money.
    • Cash-intensive business occurs when a business that legitimately deals with large amounts of cash uses its accounts to deposit money obtained from both everyday business proceeds and money obtained through illegal means. Businesses able to claim all of these proceeds as legitimate income include those that provide services rather than goods, such as strip clubs, car washes, parking buildings or lots, and other businesses with low variable costs.
    • Shell companies and trusts use to disguise the true owner or agent of a large amount of money.
    • Bank capture refers to the use of a bank owned by money launderers or criminals, who then move funds through the bank without fear of investigation.
    • Real estate laundering occurs when someone purchases real estate with money obtained illegally, then sells the property. This makes it seem as if the profits are legitimate.
    • Casino laundering involves an individual going into a casino with illegally obtained money. The individual purchases chips with the cash play for a while then cash out the chips and claims the money as gambling winnings.
  • What are the Principles of the Contract of Insurance? Define

    What are the Principles of the Contract of Insurance? Define

    The cost for the risk made by the insurer and the insurer is paid by the insured, it is called “premium” and the document in which the contract of insurance is called is “Policy”. An insurance contract is a contract by which a person attempts to compensate another person against the loss of occurrence of an event or to pay the amount upon the occurrence of any event. The person who ensures that he is called “insurer”. The person who affects insurance is called “insured” or “assured”. In insurance, the insurance policy is an agreement between the insurer and the insured (usually a standard form of contract), which is known as the policyholder, which determines the claims required to pay the insurers legally. Do you study to learn: If Yes? Then read the lot. Let’s Study: What are the Principles of the Contract of Insurance? Define. Read this in the Hindi language: बीमा अनुबंध के सिद्धांत क्या हैं? परिभाषित…।

    The concept of Insurance Discussing the topic: What are the Principles of the Contract of Insurance? Define.

    In exchange for initial payment, known as premium, the insurer promises to pay for the loss due to the dangers covered under the policy language. An insurance contract is an insurance company that represents the agreement between the insurance company and the insured. There is a central insurance agreement for any insurance contract, which specifies the risks covered, the limits of the policy, and the duration of the policy. You also need to know about: Types of Insurance.

    Insurance Contract: “Almost all of us have insurance. When your insurer gives you the policy document, generally, all you do is glance over the decorated words in the policy and pile it up with the other bunch of financial papers on your desk, right? If you spend thousands of dollars each year on insurance, don’t you think that you should know all about it? Your insurance advisor is always there for you to help you understand the tricky terms in the insurance forms, but you should also know for yourself what your contract says. In this article, we’ll make reading your insurance contract easy, so you understand their basic principles and how they are put to use in daily life.” The definition reference by Investopedia.

    The Principles of the Contract of Insurance:

    Following are the general principles of the contract of insurance:

    Subrogation:

    According to the rule of subrogation, when the loss is caused to the insured by the conduct of a third party, the insurer shall have to make good such loss and then have a right to step into the shoes of the insured and bring an action against such third party who caused the loss to the insured. This right of subrogation is enforceable only when there is an assignment of cause of action by the insured in favor of the insurer. The doctrine of subrogation does not apply to life insurance.

    Contribution:

    Where there are two or more insurances on one risk, the principle of contribution applies as between different insurers. The aim of contribution is to distribute the actual amount of loss among the different insurers who are liable for the same risk under different policies in respect of the same subject-matter. In case of loss, anyone insurer may pay to the assured the full amount of the loss covered by the policy. Having paid this amount, he is entitled to contribution from his coinsurers in proportion to the amount which each has undertaken to pay in case of loss of the same subject-matter.

    Period of Insurance:

    Except in the case of life insurance, every contract of insurance comes to an end of the expiry of every year, unless the insured continues the same and pays the premium before the expiry of the year.

    Indemnity:

    Every contract of insurance such as life insurance and personal accident and sickness insurance is a contract of indemnity. So, the insurer pays the actual loss suffered by the insured. He does not pay the specified amount unless this amount is the actual loss to the insured.

    Mitigation of Loss:

    The insured must take reasonable precautions to save the property, in the event of some mishap to the insured property. He must act as a prudent uninsured person would act in his own case under similar circumstances to mitigate or minimize losses.

    Insurable Interest:

    The assured must have, what is called “insurable interest” in the subject matter of the contract of insurance. “He must be so situated with regard to the thing ensured that he would have benefit from its existence, loss from its destruction”.

    Risk must Attach:

    The insurer must run the risk of indemnifying the insured. If he does not run the risk, the consideration for which the premium is paid fails and consequently, he must return the premium paid by the insured.

    Causa Proxima:

    The insurer is liable for loss which is proximately caused by the risk insured against. The rule is “Causa Proxima non-remote spectator”, i.e. the proximate but not the remote cause is to be looked to. So, the loss must be proximately caused in order that the insurer is to become liable.

    Uberrimae Fidei:

    A contract of insurance is a contract Uberrimae Fidei, i.e. a contract requiring utmost good faith of the parties. So, all material facts which are likely to influence the insurer in deciding the amount of premium payable by the insured must be disclosed by the insured. Failure to disclose material facts renders the contract voidable at the option of the insurer. Read this in the Hindi language: बीमा अनुबंध के सिद्धांत क्या हैं? परिभाषित…।

    What are the Principles of the Contract of Insurance Define
    Image Credit from #Pixabay.

  • Features, Types, and Importance of Insurance

    Features, Types, and Importance of Insurance

    Insurance today has become an integral part of everyone’s life. It is a written contract of insurance that provides protection against future losses. Life insurance usually helps people to get life insurance. The insured gets a certain compensation from the insurer. Non-life insurance provides financial support to people or companies and helps them deal with losses. The basic human properties have to be contrary to the idea of taking the risk. Do you study to learn: If Yes? Then read the lot. Let’s Study: Features, Types, and Importance of Insurance. Read this in the Hindi language: बीमा की विशेषताएं, प्रकार, और महत्व…।

    The concept of Insurance Discussing the topic: Features, Types, and Significance or Importance of Insurance.

    Always insist on reducing risk and providing protection against potential failure. Risk includes fire, see danger, death, accidents, and theft. Any risk can insure on the premiums corresponding to premiums including in the risk. Thus the collective impact of risk is insurance which provides reasonable security and assurance that the assured will protect in the event of any type of disaster or failure. Before this study, once read this article: Meaning, Definition, Principles, and Functions of Insurance.

    Features of Insurance:

    With the above explanation, we can find these following characteristics, which are generally celebrating in the case of life, sea, fire, and general insurance.

    A large number of insured persons:

    To spread the damage easily and easily, a large number of individuals should be insured. A small number of individuals can also be co-operative insurance, but it is limit to a small area. The cost of insurance for each member can be high. So, it can be impossible. Therefore, to make the insurance cheaper, it is important to ensure a large number of individuals or property because the cost of the insurance company will be the cost and therefore, the lower premiums will be.

    Sharing risks:

    Insurance is an event that is a person to share a financial event that may occur when a specific incident occurs on a person or his family. This event may be the death of a breadwinner for the family in case of life insurance, marine insurance in the fire, fire in fire insurance and other events in general insurance, for example, theft in theft insurance, accident in motor insurance, And so on. The loss arising from these incidents, if the insured person is sharing by all insured persons in the form of premium.

    Price of Risk:

    The amount of the insured’s share, the risk is evaluated before considering the idea, consideration or the premium. There are several ways to evaluate risks. If the higher loss is expected, then a higher premium can be charged. Therefore, the probability of loss is calculated at the time of insurance.

    Cooperative Equipment:

    The most important feature of each insurance plan is the cooperation of a large number of individuals who in reality agree to share the financial loss arising from any particular risk of the insured. This group of individuals can be brought through voluntary or publicity or through the request of agents. An insurer will be unable to fill all the losses due to its loss. Therefore, by ensuring or underwriting a large number of persons, he is able to pay the amount of loss. Like all cooperative pieces of equipment, there is no obligation on anyone to buy an insurance policy.

    Payment on contingency:

    Payment is made on a certain casualty insured. If contingency happens then payment is made. Since the life insurance contract is the contract of certainty, because the termination, death or expiry of the term will definitely be, payment is definitely fixed. In other insurance contracts, contingency is fire or marine hazard etc., may or may not be. Therefore, if contingency happens, payment is made, otherwise, no amount is given to the policyholder. Similarly, in certain types of policies, payment is not guaranteed due to the uncertainty of any particular contingency within a particular period. For example, in term-insurance, payments are made only when the death of the assured is within the specified period, maybe one or two years. Similarly, pure endowment payments are done only in the existence of the insured at the end of the term.

    Payment of forty loss:

    Another feature of insurance is the cordial loss of payments. An amicable loss is that which is unpredictable and unpredictable and as a result of opportunity. In other words, the loss should be casual. The law of a large number is based on the assumption that the losses are casual and occur randomly. For example, a person can slip on the snowy path and break a leg. The loss will be lucky. The insurance policy does not deliberately cover issues.

    Amount of Payment:

    The amount of payment depends on the value of the loss due to special insured exposure, provided the insurance is up to that amount. In life insurance, the objective is not good to face financial loss. The insurer promises to pay a fixed amount upon the occurrence of an event. If event or accident occurs, the payment fails if the policy is valid and applies at the time of the incident, such as property insurance, the dependents will not need to prove the loss of loss and the amount of loss. It is infinite in life insurance What was the amount of loss at the time of contingency. But in the property and general insurance, the amount of loss, as well as the event of loss, is required to prove.

    Types of Insurance:

    The following types are given below:

    Life Insurance:

    Life insurance is different from other insurance, in that sense, the subject matter of insurance is the life of a human. The insurer will pay a certain amount of insurance at the time of death or at the end of a fixed term. At present, life insurance enjoys the maximum scope, because life is the most important asset of a person.

    “Life insurance is a contract under which the insurance company – in consideration of a premium paid in lump sum or periodical installments undertakes to pay a pre-fixed sum of money on the death of the insured or on his attaining a certain age, whichever is earlier.”

    Everyone needs insurance. This insurance provides protection to the family prematurely or provides adequate amounts in old age when reducing the capacity. Under Personal Insurance, the payment is made in the accident. Insurance is not only security but it is a type of investment because a certain amount can return the assured to the end of death or term.

    General Insurance:

    General insurance includes property insurance, liability insurance, and other forms of insurance. Fire and marine insurance are strictly called property insurance. Motor, theft, loyalty and machine insurance involve a certain extent of liability insurance. The strict form of liability insurance is fidelity insurance, from which the insurer compensates the insured for losses when he is subject to payment liability to the third party.

    Property Insurance:

    Under the property, the insured property of the person/person is insured against a certain specified risk. Risk can damage property in fire or marine hazard, property theft or accident. Property of any person and society is insured against the loss of insurance and marine hazards, the unexpected decline in the crop reduction, the unexpected death of the animals engaged in the trade, the destruction of the machines and property theft is insured and goods.

    Marine Insurance:

    The Marine insurance provides protection against the loss of sea threats. In threats are confronting with a rock, or ship, enemies, fire, and captured by the pirate etc. There is no reason for ship, goods and freight traffic and disappearances in these hazards. So, marine insurance ship (plow), goods and freight.

    “A contract of marine insurance is a contract under which the insurance company undertakes to indemnify the insured against losses which are incidental to the marine adventure.”

    Earlier only some minor risks were insured, but now the scope of marine insurance was divided into two parts; Ocean marine insurance and inland marine insurance. The former only ensures the sea threats, while later the insured perils are included which can produce by the insured’s well-known delivery of the cargo (gods) and can increase the cargo by the buyer (importer) Go down

    Fire Insurance:

    Fire insurance involves the risk of fire. In the absence of fire insurance, fire waste will not only increase the person but also the society. With the help of fire insurance, damages caused by fire are compensated and society is not much lost. The person is given prioritization of such loss and his property or business or industry will remain in the same condition in which it was before the loss. Fire insurance does not only protect the loss, but it also provides some resulting loss, under this insurance war risk, upheaval, riots etc. can also insure.

    “Fire insurance is a contract, under which the insurance company, in consideration of a premium payable by the insured, agrees to indemnify the assured for the loss or damage to the property insured against fire, during a specified period of time and up to an agreed amount.”

    Liability insurance:

    General insurance also includes liability insurance, from which the insured is liable to pay the loss of property or to compensate for the loss of personality; Injury or death is seen as insurance fidelity insurance, automobile insurance, and machine insurance etc.

    Social insurance:

    Social insurance is to provide security to the weaker sections of the society who are unable to pay the premium for adequate insurance. Pension schemes, disability benefits, unemployment benefits, sickness insurance, and industrial insurance are different forms of social insurance. Insurance can classify into four categories from the risk point.

    Personal Insurance:

    Personal insurance includes insurance of human life which can cause damage due to death, accident, and illness. Therefore, individual insurance is further classifying by life insurance, personal accident insurance, and health insurance.

    Guaranteed Insurance:

    Guarantee insurance includes losses caused by dishonesty, disappearance, and employee or other party’s loyalty. The party must be a party to the contract. Their failure damages the first party. For example, in export insurance, the insurer will compensate the importer on the failure to pay the amount of loan.

    Miscellaneous insurance:

    Property, goods, machines, furniture, automobiles, valuable articles etc. maybe insure against damage or destruction due to accident or disappearance due to theft. There are different forms of insurance for each type of property, which not only provides property insurance but also liability insurance and personal injury is also insurers.

    Other forms of insurance:

    In addition to property and liability insurance, there is other insurance which is including in general insurance. Examples of such insurance are export-credit insurance, state employee insurance so that the insurer guarantees to pay a certain amount on certain events.

    The Importance and significance of Insurance:

    The process of insurance has developing to protect the interests of people with uncertainty by providing certainty of payment on any contingency. Insurance not only serves the ends of special groups of individuals, or individuals, it also transmits and transforms our modern social order.

    Here the role and importance of insurance have been discussed with the point of view of insurance, insurance, and society.

    Importance of Insurance to Individuals:

    • Insurance provides safety and security.
    • Also provides peace of mind.
    • Protects the mortgaged property.
    • They eliminate dependence.
    • Life-insurance encourages saving, and.
    • Life insurance provides profitable investment.

    Importance of Insurance to Business:

    • Business efficiency is increasing with insurance.
    • Enhancement of Credit.
    • Business continuation, and.
    • The welfare of the Employee.

    Importance of Insurance to Society:

    • The wealth of society is protecting, and.
    • Economic Growth of the country.

    The significance of Insurance:

    We can highlight the significance of insurance, in terms of the following advantages offered by it:

    • Concentration on Business Issues: Insurance help businessmen to concentrate their attention on business issues, as their risks are undertaken by the insurance company. Insurance gives them peace of mind. Thus due to insurance, business efficiency increases.
    • Better Utilization of Capital: Businessmen, in the absence of insurance, will maintain funds for meeting future contingencies. Insurance does away with this need to maintain contingency funds by them. Thus businessmen can better utilize their funds for business purposes.
    • Promotion of Foreign Trade: There are many risks in foreign trade much more than involved in the home trade. Insurance of risks involved in foreign trade gives a boost to its volume, which is a healthy feature of economic development.
    • The feeling of Security to Dependents: Life insurance provides a feeling of economic security to the dependents of the insured, on whose life insurance is affected.
    • Social Welfare: Life insurance also provides for policies in respect of education of children, the marriage of children etc. Such special policies provide a sense of security for the poor who take these policies. Thus life insurance is a device for ensuring social welfare.
    • Speeding Up the Process of Economic Development: Insurance companies mobilize the savings of the community through the collection of premiums and invest these savings in productive channels. This process speeds up economic development. Huge funds at the disposal of LIC (Life Insurance Corporation) available for investment purposes support the above-mentioned point of advantage of insurance.
    • Generation of Employment Opportunities: Insurance companies provide a lot of employment in the economy. This is due to the ever growing business done by insurance companies. Read this in the Hindi language: बीमा की विशेषताएं, प्रकार, और महत्व…।

    Features Types and Importance of Insurance

  • Meaning, Definition, Principles, and Functions of Insurance

    Meaning, Definition, Principles, and Functions of Insurance

    Meaning: Life is a roller coaster ride and is full of twist and turn. The insurance policy is a protection against the uncertainties of life. Insurance is defined as a cooperative tool which is meant to spread the damage caused by a particular risk, which comes in contact with it and who agrees to insure themselves against that risk. As in all insurance, the insured person pays the premium in risk, transfer, and exchange to the insurer. Do you study to learn: If Yes? Then read the lot. Let’s Study: Meaning, Definition, Principles, and Functions of Insurance. Read this in the Hindi language: अर्थ, परिभाषा, सिद्धांत, और बीमा के कार्य।

    The concept of Insurance Discussing the topic: Meaning, Definition, Principles, and Functions of Insurance.

    These risks are such that they can not be known in advance when they win and provision for them against any person is physically impossible. In the case of risk life insurance assumed by the insurer, there is the risk of death of the insured. Insurance policies cover the risk of life as well as other assets and valuables such as home, automobile, ornaments etc.

    Depending on the risk, they cover, insurance policies can be classified into life insurance and general insurance. Life insurance products include the risk against incidents such as death or disability for the insurer. General insurance products include risks against natural disasters, theft, etc. Before this study, once read this article: Features, Types, and Importance of Insurance.

    How do you understand insurance? Meaning.

    Insurance is a system through which some people are harmed, who are aware of many risks. With the help of insurance, a large number of people aware of similar risks contribute to a common fund, in which it is good to face losses by some unfortunate people due to unfortunate incidents.

    Insurance is a protection against financial loss arising out of an unexpected event. The insurance policy not only helps in reducing risk but also provides financial cushions against unfavorable financial burdens. Insurance is defined as a cooperative tool which is meant to spread the damage caused by a particular risk, which comes in contact with it and who agrees to insure themselves against that risk.

    The risk is the uncertainty of financial loss. Insurance is also defined as a social tool to deposit the money in order to meet the risk of uncertain loss through a certain risk for the injured person against the risk. Insurance provides financial protection against the loss arising from an indefinite event.

    One person can take advantage of this protection by paying the premium to the insurance company. Generally, a pool is created through contributions made by those wishing to save from common risk. In the case of indeterminate incidence from this pool, any damage to the insured is paid. 

    Life insurance has come a long way from earlier days when it was originally considered as a risk-cover medium from time to time, which included temporary risk situations like ocean voyages. Since life insurance became more established, it was felt that this was a useful tool for many situations, including temporary needs, hazards, savings, investment, retirement etc.

    Insurance is a contract between two parties, so that a party agrees to take risk in exchange for ideas that go in the form of premium and to any other party in the event of an indefinite event (death) or termination of a certain term in the case of life insurance After compensating for the latter or the other party, any other party is promised to pay a certain amount. In the case of general insurance, there is an uncertain event. The risk side is known as ‘insurer’ or ‘assurance’ and the party whose risk is covered is known as ‘insured’ or ‘assured’.

    Definition of Insurance:

    The definition of insurance can be seen from two viewpoints:

    Functional Definition:

    Insurance is a co-operative device of distributing losses, falling on an individual or his family over a large number of persons each bearing a nominal expenditure and feeling secure against heavy loss. Insurance is a co-operative device to spread the loss caused by a particular risk over a number of persons, who are exposed to it and who agree to insure themselves against the risk.

    Thus, the insurance is;

    • A co-operative device to spread the risk.
    • The system to spread the risk over a number of persons who are insured against the risk.
    • The principle to share the loss of each member of the society on the basis of the probability of loss to their risk, and.
    • The method to provide security against losses to the insured.

    Similarly, another definition can be given. Insurance is a co-operative device of distributing losses, falling on an individual or his family over a large number of persons, each bearing a nominal expenditure and feeling secure against heavy loss.

    Contractual Definition:

    Insurance may be defined as a contract consisting of one party (the insurer) who agrees to pay to other parties (the insured) or his beneficiary, a certain sum upon a given contingency against which insurance is sought. Insurance has been defined to be that in which a sum of money as a premium is paid in consideration of the insurance incurring the risk of paying a large sum upon a given contingency.

    The insurance, thus, is a contract whereby:

    • Certain sum, called premium, is charged in consideration.
    • Against the said consideration, a large sum is guaranteed to be paid by the insurer who received the premium.
    • The payment will be made in a certain definite sum, i.e., the loss or the policy amount whichever may be, and.
    • The payment is made only upon a contingency.

    The more specific definition can be given as follows,

    “Insurance may be defined as a consisting one party (the insurer) agrees to pay to the other party (the insurer) or his beneficiary, a certain sum upon a given contingency (the risk) against which insurance is sought.”

    So it is clear that every risk involves the loss of one or the other kind. The function of insurance is to spread this loss over a large number of persons through the mechanism of co-operation.

    The important Principles of Insurance:

    The main motive of insurance is cooperation. Insurance is defined as the equitable transfer of risk of loss from one entity to another, in exchange for a premium.

    Insurance is based upon two basic principles:

    Cooperation:

    Insurance is a co-operative device. If one person is providing for his own losses, it cannot be strictly insurance because in insurance the loss is shared by a group of persons who are willing to co-operate.

    Probability:

    The loss in the form of premium can be distributed only on the basis of the theory of probability. The chances of loss are estimated in advance to affix the amount of premium. Since the degree of loss depends upon various factors, the affecting factors are analyzed before determining the amount of loss.

    With the help of this principle, the uncertainty of loss is converted into certainty. The insurer will not have to suffer loss as well as the gain windfall. Therefore, the insurer has to charge only so much of amount which is adequate to meet the losses.

    The insurance, on the basis of past experience, present conditions and future prospects, fixes the amount of premium. Without premium, no co-operation is possible and the premium cannot be calculated without the help of the theory of probability, and consequently, no insurance is possible.

    The important principle of insurance are as follows:

    Nature of contract:

    Nature of contract is a fundamental principle of the insurance contract. An insurance contract comes into existence when one party makes an offer or proposal of a contract and the other party accepts the proposal. A contract should be simple to be a valid contract. The person entering into a contract should enter with his free consent.

    Utmost good faith:

    Under this insurance contract, both the parties should have faith over each other. As a client, it is the duty of the insured to disclose all the facts to the insurance company. Any fraud or misrepresentation of facts can result into the cancellation of the contract.

    Insurable interest:

    Under this principle of insurance, the insured must have an interest in the subject matter of the insurance. The absence of insurance makes the contract null and void. If there is no insurable interest, an insurance company will not issue a policy. Insurable interest must exist at the time of the purchase of the insurance. For example, a creditor has an insurable interest in the life of a debtor, A person is considered to have an unlimited interest in the life of their spouse etc.

    Indemnity:

    Indemnity means security or compensation against loss or damage. The principle of indemnity is such a principle of insurance stating that an insured may not be compensated by the insurance company in an amount exceeding the insured’s economic loss. In the type of insurance, the insured would be compensated with the amount equivalent to the actual loss and not the amount exceeding the loss.

    This is a regulatory principle. This principle is observed more strictly in property insurance than in life insurance. The purpose of this principle is to set back the insured to the same financial position that existed before the loss or damage occurred.

    Subrogation:

    The principle of subrogation enables the insured to claim the amount from the third party responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of loss, For example, if you get injured in a road accident, due to reckless driving of a third party, the insurance company will compensate your loss and will also sue the third party to recover the money paid as the claim.

    Double insurance:

    Double insurance denotes insurance of same subject matter with two different companies or with the same company under two different policies. Insurance is possible in case of indemnity contracts like fire, marine and property insurance. The double insurance policy is adopted where the financial position of the insurer is doubtful. The insured cannot recover more than the actual loss and cannot claim the whole amount from both the insurers.

    Proximate cause:

    Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This principle is applicable when the loss is the result of two or more causes. The proximate cause means; the most dominant and most effective cause of loss is considered. This principle is applicable when there are series of causes of damage or loss.

    Functions of Insurance:

    The functions of Insurance can be bifurcated into Primary functions and Secondary functions.

    Primary Functions of Insurance:

    The primary functions of insurance include the following:

    • Provide Protection: The primary function of insurance is to provide protection against future risk, accidents, and uncertainty. Insurance cannot check the happening of the risk, but can certainly provide for losses of risk. Insurance is actually a protection against economic loss, by sharing the risk with others.
    • Assessment of risk: Insurance determines the probable volume of risk by evaluating various factors that give rise to risk. The risk is the basis for determining the premium rate also.
    • The collective bearing of risk: Insurance is a device to share the financial loss of few among many others. Insurance is a mean by which few losses are shared among the larger number of people. All the insured contribute premiums towards a fund, out of which the persons exposed to a particular risk are paid.
    • Savings and investment: Insurance serve as a tool for savings and investment, insurance is a compulsory way of savings and it restricts the unnecessary expenses by the insured. For the purpose of availing income-tax exemptions, people invest in insurance also.

    Secondary Functions of Insurance:

    The secondary functions of insurance include the following:

    • Prevention of Losses: Insurance cautions individuals and businessmen to adopt a suitable device to prevent unfortunate consequences of risk by observing safety instructions; installation of the automatic sparkler or alarm systems, etc. Reduced rate of premiums stimulates more business and better protection to the insured.
    • Small capital to cover large risks: Insurance relieves the businessmen from security investments, by paying the small amount of premium against larger risks and uncertainty.
    • Contributes to the development of large industries: Insurance provides a development opportunity for large industries having more risks. Even the financial institutions may be prepared to give credit to sick industrial units which have ensured their assets including plant and machinery.
    • Source of Earning Foreign Exchange: Insurance is an international business. The country can earn foreign exchange by way of issue of insurance policies.
      Risk Free Trade: Insurance promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies under marine insurance cover.

    In past years, tariff associations or mutual fire insurance associations were found to share the loss at a cheaper rate. In order to function successfully, the insurance should be joined by a large number of persons. Insurance is a form of risk management primarily used to hedge against the risk of potential financial loss. Again insurance is defined as the equitable transfers of the risk of a potential loss, from one entity to another, in exchange for a premium and duty of care. Read this in the Hindi language: अर्थ, परिभाषा, सिद्धांत, और बीमा के कार्य।

    Meaning Definition Principles and Functions of Insurance

  • What is Insurance?

    What is Insurance?

    Insurance a way to save very rare of things, the number of goods, all about the product produced for the human user. Insurance is a saver for owners who create and sell a product to the public if by mistake product in getting some break and destroy by the un-nature thing. Who gives there lose of product value, insurance is a cover of the product price. We are studying, What is Insurance? Meaning and Definition.

    Today, the Very important thing of need first Safety or Insurance, Cover life and Good of produce. Learn and Understand, What is Insurance? Meaning and Definition.

    Insurance Meaning By Wikipedia site.

    Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

    Insurance Meaning, and Definition By eiiff site.

    Insurance means a promise of compensation for any potential future losses. It facilitates financial protection by reimbursing losses during the crisis. There are many insurance companies offering a wide range of insurance options to choose from. Some of the popular insurance policies are life insurance, health insurance, automobile insurance and home insurance.
    Several insurances provide comprehensive coverage with affordable premiums. Premiums are the amount of money that is charged by the insurance companies from the insurer for a particular insurance policy. These are periodical payment and insurers have diverse premium options. The periodical insurance premiums are calculated according to the total insurance amount.

    The insurance gives back and covers product price save company profit and reproduce the product. But what about human life? Human life can’t come back but Insurance can be helping, and cover their family member survive for who taking Insurance.

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  • Explain the Types of Insurance!

    Learn, Explain the Types of Insurance! 

    What Are the Different Types of Insurance? The person’s financial future can be affected by different circumstances that he or she cannot control or predict; thus, it is important to know about different types of insurance available that can help protect someone’s financial security in the event of asset losses, loss of income or even death. Also learned, Explain the Types of Insurance!

    What are the Two main types of insurance?

    1. Life Insurance pays you as the policyholder or your beneficiaries a certain sum of money in case of your death. Since the insurance coverage is more than a year, you have to pay the premium either every month, every three months or annually. Risks involved: are: your premature death, your source of income during retirement or in case of your illness. Its main products include lifetime policy, endowment, investment-linked, life annuity plan, and medical and health purposes.

    2. General insurance is your protection from damages or losses excluded from the life insurance. Coverage period is yearly so your payment is made on a single-basis only. Risks involved are the loss of your property in cases of the thief, fire, etc., payment for injury or damage you have inflicted on a third party and your death or injury due to the accident. Its main products are motor insurance, fire insurance, personal accident insurance, medical/health insurance and travel insurance.

    Types of Insurance Business are;

    • Life Insurance or Personal Insurance.
    • Property Insurance.
    • Marine Insurance.
    • Fire Insurance.
    • Liability Insurance.
    • Guarantee Insurance.
    • Social Insurance.

    These are explained below. The following main types of insurance are available today:

    Life Insurance:

    Life insurance is designed to provide a financial security to the family of a policyholder in the event of his or her death. Different types of life insurance are available to obtain nowadays. The most common ones are term life insurance and whole life insurance. A term life insurance is easily affordable but only covers an insured person for a specific length of time. On the other hand, whole life insurance is more expensive but provides coverage for the entire life of an insured person. Often, life insurance policies have exclusions to their coverage, such as pre-existing conditions. Make sure to go through all details of your policy with your insurance agent.

    Health Insurance:

    Health insurance generally covers medical expenses for health-related issues that an insured person experienced.  Health-related insurance comes in many plans:

    Major Medical Insurance plans cover a hospital, drugs and doctor’s visits bills. Major medical insurance plans usually come in the group or individual health plans. Group health plans are usually provided by a person’s employer. Group health plans are usually cheaper and cover more expenses. An individual health plan is a private insurance and should be purchased entirely by a covered individual. Individual health plans are more expensive and provide less coverage than group health plans.

    Limited benefit plans are designed to cover an insured person for a particular health care setting or disease, such as:

    1. Basic Hospital Expense Coverage provides coverage for a period usually not less than a month of continuous in-hospital care and specified hospital outpatient services.
    2. Basic Medical-Surgical Expense Coverage provides coverage for a required surgery and also includes a certain number of days in-hospital care.
    3. Hospital Confinement Indemnity Coverage provides a fixed amount coverage for each day that a person spends in a hospital.
    4. Accident Only Coverage provides medical coverage in the event of disability, death, an accident or dismemberment.
    5. Specified Disease Coverage provides coverage to diagnose and treat a specific illness, such as leukemia, for instance.

    Other Limited Coverage plans include dental or vision plans. Additional coverage plans provide extra protection for a person who becomes disabled and requires long-term care or Medicare enrollment. These additional coverage plans include disability income, long-term care insurance, and medical supplemental coverage.

    Property Insurance:

    Property Insurance includes homeowners or rental insurance. This type of insurance covers a person in the even his or her house or a rental apartment has been damaged by fire, flood, earthquake, theft and etc. Apartment complexes often require their renters to buy rental insurance before they can move-in day.

    Auto Insurance:

    Auto Insurance is one of the most popular types of insurance. A car may easily be one of the most expensive items a person owns. If your car is stolen or damaged in the accident, it may be very costly to repair. Auto insurance will pay to repair or replace a car if an insured person gets into an accident. Comprehensive motor vehicle insurance is considered to be the most common insurance policy that covers an insured person for loss, theft or damage to his/her vehicle. The cost of auto insurance will vary depending on a driver’s age, claims history, the make and type of car.

    Other less common types of insurance plans include travel insurance, bond insurance, accidental death insurance, crime insurance, loan protection insurance, casualty insurance, deposit insurance (FDIC) and many others.

    Marine Insurance:

    Marine insurance provides protection against loss of marine perils. The marine perils are a collision with a rock, or ship, attacks by enemies, fire, and captured by pirates, etc. these perils cause damage, destruction or disappearance o’ the ship and cargo and non-payment of freight. So, marine insurance insures ship (Hull), cargo and freight.

    Previously only certain nominal risks were insured but now the scope of marine insurance had been divided into two parts; Ocean Marine Insurance and Inland Marine Insurance. The former ensures only the marine perils while the latter covers inland perils which may arise with the delivery of cargo (gods) from the go-down of the insured and may extend up to the receipt of the cargo by the buyer (importer) at his go-down.

    Fire Insurance:

    Fire Insurance covers the risk of fire. In the absence of fire insurance, the fire waste will increase not only to the individual but to the society as well. With the help of fire insurance, the losses arising due to fire are compensated and the society is not losing much. The individual is preferred from such losses and his property or business or industry will remain approximately in the same position in which it was before the loss. The fire insurance does not protect only losses but it provides certain consequential losses also war risk, turmoil, riots, etc. can be insured under this insurance, too.

    Liability Insurance:

    The general Insurance also includes liability insurance whereby the insured is liable to pay the damage to property or to compensate the loss of persona; injury or death. This insurance is seen in the form of fidelity insurance, automobile insurance, and machine insurance, etc.

    Social Insurance:

    The social Insurance is to provide protection to the weaker sections of the society who are unable to pay the premium for adequate insurance. Pension plans, disability benefits, unemployment benefits, sickness insurance and industrial insurance are the various forms of social insurance. Insurance can be classified into four categories from the risk point of view.

    Guarantee Insurance:

    The guarantee insurance covers the loss arising due to dishonesty, disappearance, and disloyalty of the employees or second party. The party must be a party to the contract. His failure causes loss to the first party. For example, in export insurance, the insurer will compensate the loss at the failure of the importers to pay the amount of debt.

    Other Forms of Insurance:

    Beside the property and liability insurances, there are other insurances which are included in general insurance. The examples of such insurances are export-credit insurances, State employees insurance, etc. whereby the insurer guarantees to pay a certain amount at the certain events. This insurance is extending rapidly these days.

    Miscellaneous Insurance: The property, goods, machine, Furniture, automobiles, valuable articles, etc. can be insured against the damage or destruction due to accident or disappearance due to theft. There are different forms insurances for each type of the said property whereby not only property insurance exists but liability insurance and personal injuries are also insurer.

  • What is an Insurance? Meaning and Definition!

    What is an Insurance? Meaning and Definition!

    Learn, Explain What is an Insurance? Meaning and Definition! 

    Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. Study of Insurance, Explain, Meaning of Insurance, and Definition of Insurance. Insurance helps you protect yourself against risks like a house fire, car accident or burglary. You can also get insurance that pays you money if you get too ill to work or to provide for your family if you die. Also learned, Central Banks, What is an Insurance? Meaning and Definition!

    Insurance is a special type of contract between an insurance company and its client in which the insurance company agrees that on the happening of certain events the insurance company will either make payment to its client or meet certain costs.

    For example, in a car insurance policy, the insurance company agrees that if the car is damaged, the insurance company will pay the cost of repairing it. Under an income protection policy, the insurance company agrees that if its client is unable to work, the insurance company will pay its client an agreed amount.

    #Meaning:

    Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.

    An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter. A person or entity who buys insurance is known as an insured or policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and usually involves something in which the insured has an insurable interest established by ownership, possession, or preexisting relationship.

    The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insurer will compensate the insured. The amount of money charged by the insurer to the insured for the coverage set forth in the insurance policy is called the premium. If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster. The insurer may hedge its own risk by taking out reinsurance, whereby another insurance company agrees to carry some of the risks, especially if the risk is too large for the primary insurer to carry.

    #Definition:

    A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract between the insured and the insurer.

    In exchange for payments from the insured (called premiums), the insurer agrees to pay the policyholder a sum of money upon the occurrence of a specific event. In most cases, the policyholder pays part of the loss (called the deductible), and the insurer pays the rest. Examples include car insurance, health insurance, disability insurance, life insurance, and business insurance.

    The risk-transfer mechanism that ensures full or partial financial compensation for the loss or damage caused by the event(s) beyond the control of the insured party. Under an insurance contract, a party (the insurer) indemnifies the other party (the insured) against a specified amount of loss, occurring from specified eventualities within a specified period, provided a fee called premium is paid. In general insurance, compensation is normally proportionate to the loss incurred, whereas in life insurance usually a fixed sum is paid.

    Some types of insurance (such as product liability insurance) are an essential component of risk management and are mandatory in several countries. Insurance, however, provides protection only against tangible losses. It cannot ensure continuity of business, market share, or customer confidence, and cannot provide knowledge, skills, or resources to resume the operations after a disaster.

    Why can you need insurance?

    Basically, you think these types first protect yourself.

    • Protected your Life.
    • Safety for your family after you.
    • Protecting your losses, etc.

    There are lots of different types of insurance: you can cover almost anything, from your wedding to your pets.

    Some insurance is compulsory: you can’t drive a car without at least basic car insurance, and you can’t get a mortgage on your house without buildings insurance.

    After compulsory insurances, the most important thing is to protect yourself and your family. The types of insurance that you need will depend on what you need to protect.

    Ask yourself what’s important to you:

    • If you’re traveling abroad, get travel insurance to help pay your hospital fees and other expenses if you get injured or sick.
    • If you have kids, what would happen to them if you died unexpectedly? Life insurance would help make sure they’re looked after financially.
    • If you have a big mortgage, what would happen if you became too ill to work? Income protection insurance could help cover your payments.

    Think it over and look at prices, then you can start to decide what you want and what you can afford.

    What is an Insurance Meaning and Definition - ilearnlot