Country risk:

1. A process to assess potential risks of doing business in a foreign country 2.

Evaluates economic, political, legal, and social factors 3. Used by investors,
multinational companies, and financial institutions.
Type of country risk
• Political Risk – instability, corruption, regulatory environment • Economic
Risk – GDP, inflation, unemployment, interest rates • Sovereign Risk –
government debt repayment capability • Legal & Regulatory Risk –
enforcement of laws, investor protection • Social Risk – labor issues, social
unrest, inequality

Risk management:
Risk is the possibility of loss or undesirable outcome. There are two key
elements in risk: Uncertainty– We don’t know exactly what will happen.
Possibility of loss– Something valuable may be lost. Examples: A business
launching a new product (uncertainty of acceptance) An individual driving a
car (risk of accident

Classification of risk
A. Based on Nature: Pure Risk: Only possibility is loss or no loss (e.g., fire,
theft, death) Speculative Risk: Possibility of loss, no loss, or gain (e.g.,
investing in shares) B. Based on Source: Personal Risk: Risk of loss of
income or life (e.g., illness, disability, death) Property Risk: Risk of damage
or theft of physical property Liability Risk: Risk of being held legally
responsible for injury/damage to others Business Risk: Risk arising from
business activities (e.g., operational errors, supply chain issues C. Based on
Control: Systematic Risk: Market-related risk that cannot be avoided (e.g.,
inflation, political instability) Unsystematic Risk: Firm-specific risk that can
be minimized through diversification (e.g., labor strikes, poor management
decisions) D. Based on Insurability: Insurable Risk: Risks that can be
transferred to an insurer after selection and rating (e.g., standard, super-
standard, substandard) Uninsurable Risk: Risks that cannot be insured due
to extremely high premiums or uncertainty (e.g., war risk, highly hazardous
occupations)

Insurance
Insurance is a contract between two parties whereby one party agrees to
undertake the risk of another in exchange for consideration known as
premium. The insurer promises to pay a fixed sum of money to the other
party on the happening of an uncertain event (death) or after the expiry of a
certain period in case of life insurance or to indemnify the other party on the
happening of an uncertain event in case of general insurance.
Natures of Insurance 1. Sharing risk: Insurance is a device to share the
financial losses on the happening of a specific event. 2. Co-operative device:
The most important feature of every insurance plan is cooperation for a large
number of persons who agree to share the financial loss arising due to
particular risk which is insured. 3. Valuation of risk: The risk is evaluated
before ensuring to charge the amount of share of premium. If there is an
expectation of more loss, a higher premium may be charged. 4. Payment of
contingency: The payment is made at a certain contingency insured. If the
contingency occurs payment is made. 5. Amount of payment: The amount of
payment depends upon the value of loss occurred due to particular insured
risk provided insurance is there up to that amount. 6. Large number of
insured persons: To spread the loss immediately, smoothly and cheaply, a
large number of persons should be insured. 7. Insurance is not a gambling: In
case of gambling only one party is benefited while in case of insurance both
parties are benefited. So insurance is not gambling. 8. Insurance is not
charity: Charity is given without consideration but insurance is not possible
without premium. So insurance is not charity.
FUNCTION OF INSURANCE 1. Insurance provides certainty: Insurance
provides certainty of payment at the uncertainty of loss. There are different
types of uncertainty in a risk. The risk will occur or not. Insurance provides
certainty of this loss. 2. Insurance provides protection: The main function of
insurance is to provide protection against the probable chances of loss. 3.
Risk sharing: Risk is uncertainty of financial loss. In case of insurance when
risk takes place the loss is shared by all the persons who are exposed to the
risk. 1. Prevention of loss: Another function of insurance is to prevent the
loss. Insurance assists financially all organisations or institutions which are
engaged in preventing the losses of the masses from death or damage. 2. It
provides capital: Insurance provides capital to the society. The accumulated
funds are invested in productive channels. After the expiry date of insurance
the insurer provides accumulated capital to the insured person. 3. It helps
economic progress: Insurance by protecting the society from huge losses,
destruction and death provides an initiative to work hard which helps in
economic progress for any country.

Life Insurance
Life Insurance is a contract between an individual and an insurance
company. In return for regular premium payments, the insurer provides a
lump-sum payment (called the death benefit) to the beneficiary upon the
death of the insured. Classification Term Life Insurance • - Coverage for a
specific term (e.g., 10, 20 years) • - Lower premiums • - No return if the
insured survives • - Example: $500,000 for 20 years at $200/year. Whole Life
Insurance • - Lifetime coverage • - Builds cash value over time • - Higher but
fixed premiums • - Example: $100,000 policy with cash accumulation.
Endowment & Money-Back Plans • Endowment: • - Pays lump sum on
maturity if insured survives • - Example: $50,000 returned after 20 years •
Money-Back: • - Pays part of sum assured periodically • - Example: 20%
every 5 years on a $100,000 policy. ULIPs (Unit Linked Insurance Plans) • -
Combines life cover with investment • - Premium split into insurance +
investment • - Returns depend on market performance
Non Life Insurance
Non-life insurance refers to policies that cover risks other than life, such as
health, property, automobile, and liability. Also known as: General insurance.
Purpose: Provides financial compensation for losses due to events like
accidents, theft, fire, and natural disasters. Classification Motor Insurance 
Definition:  Covers financial losses related to damage or theft of motor
vehicles.  Types: • Third-party liability: Covers damages to other people or
property. • Comprehensive: Covers both third-party liability and own-vehicle
damages.  Coverage Includes: • Accidents and collisions • Theft • Natural
disasters (floods, earthquakes) • Fire and vandalism • Third-party injury or
property damage.
Health Insurance  Covers the cost of medical care and hospitalization due
to illness or injury.  Coverage Includes: • Hospitalization (in-patient and out-
patient) • Surgery • Prescription drugs • Maternity benefits (in some plans) •
Pre- and post-hospitalization expenses  Key Terms: • Deductible: Amount
you pay before insurance kicks in • Co-payment: Share of cost paid by the
insured (e.g., 20%) Property/Home Insurance  Protects property owners
against damage to buildings or contents due to events like fire, theft, or
natural disasters.  Coverage Includes:  Fire, explosions  Floods, storms,
earthquakes  Theft or burglary  Damage due to riots or vandalism  Loss
of rental income. Travel Insurance  Covers unexpected events while
traveling domestically or internationally.  Coverage Includes:  Trip
cancellation or interruption  Medical emergencies abroad  Lost or delayed
luggage  Flight delays or missed connections  Emergency evacuation.
Liability Insurance  Protects individuals or businesses against legal liabilities
to third parties.  Types:  Public Liability: Covers injury/damage to third
parties  Product Liability: For businesses producing/selling goods 
Professional Liability (Errors & Omissions): For consultants, lawyers, doctors
 Coverage Includes:  Legal fees  Compensation for third-party injury or
damage  Settlement costs.