Std.

XI Commerce (Business Studies)

Lesson – 4
Business Services
(NCERT BOOK Page No. 84 to 103)
Notes-

Introduction :
We demand varied kind of services, in order to satisfy our infinite needs and wants. Unlike goods, services
and intangible and in order to avail a service its ownership cannot be transferred like any physical object.
Like, when we buy a product its ownership is passed on to the buyer. On contrary, if we avail a tuition
service, the ownership of the tutor is not passed on to us. The smooth working of business activities
depends upon a number of business services like banking, insurance, transportation, warehousing and so
on.
Business services is general term that describes the work of specialised nature that supports a business but
does not produce a tangible commodity.

Nature of Services :
There are five basic features of services. They are discussed as below :
a) Intangibility : Like, goodwill of a business services are intangible in nature as they are purely
experiential in nature. They cannot be touched. As a result, the quality of services cannot be
determined before consumption.
b) Inconsistency : It may differ from individual to individual as it is based on upon the consumer
demands and expectations. Moreover, the quality of services may vary depending upon the
approach of the service providers also.
c) Inseparability : It is the simultaneous activity of production and consumption, thereby making both
of them inseparable.
d) Inventory (Less) : Services cannot be performed earlier which have to be consumed at a later date.
However, some associated goods required in the process of providing services may be stored.
e) Involvement : The participation of the customer in the service delivery process is must. As a result,
a customer can get the services modified according to specific requrirements.

Differences between Goods and Services :

A good refers to physical product that can be transferred from the seller to the buyer through delivery and
exchange of ownership.
Services refers to the intangible and separately identifiable activities that lead to the satisfaction of wants
and may not be linked to sale of a product or another service.

Types of services :
a) Business Services : The type of services which are used by business enterprises for the conduct of
their activities are known as business services. For example, banking, insurance etc.
b) Social services : The type of services which are generally offered voluntarily in pursuit of social
objectives are known as social services. For example, Charity work, NGOs etc.
c) Personal Services : The services which are experienced differently by different customers to fulfil
their personal needs and wants. For example, Travel and Tourism, education etc.

Banking :
A bank acts as a financial intermediary by mobilising the savings of people and making funds available to
business for investment.

Types of Banks :
Banks can be classified into the following :
a) Commercial banks : These banks are institutions dealing in money. These are governed by Indian
Banking Regulation Act 1949 and according to it banking means accepting deposits of money from
the public for the purpose of lending or investment.
b) Cooperative Banks : These banks are governed by the provisions of State Cooperation Societies
Act and meant essentially for providing cheap credit to their members.
 c) Specialised banks : These banks are foreign exchange banks, industrial banks, development banks,
export-import banks catering to specific needs of these catering to specific needs of these unique
activities.
d) Central bank : The Central bank of any country supervises, controls and regulates the activities of
all the commercial banks of the that country. It also acts as a government banker.

e-Banking :
e-banking or internet banking means and user with a PC and a browser can get connected to the banks
website to perform any of the virtual banking functions and avail of any of the bank’s services.

Benefits of e-banking :
a) To the customer :
i) e-banking provides 24 hours, 365 days a year services to the customers of the bank.
ii) Making transactions from office or house the customers can via mobile telephone.
iii) Recording each and every transaction.
iv) Enhances customer satisfaction.
b) To the banks :
i) e-banking provides competitive advantage to the bank.
ii) e-banking provides unlimited network to the banks.
iii) The load on branches can be considerably reduced.

Insurance
Insurance is a contract or agreement under which one party agrees in return for a consideration to pay an
agreed amount of money to another party to make a loss, damage or injury to something of value in which
the insured has a pecuniary interest as a result of some uncertain event.

Fundamental principle of insurance

Insurance, is a form of risk management primarily used to safe guard against the risk of potential financial
loss wherein an individual or a business concern choose to spend a definitely known sum in place of a
possible huge amount involved in an indefinite future loss.

Functions of Insurance
a) Providing certainty : It provide payment for the risk of loss.
b) Protection : It provide protection from probable chances of loss.
c) Risk sharing : It share risk event amongst the insured members by way of premiums.
d) Assist in capital formation : The accumulated funds of the insurer received by way of premium
payments made by the insured are invested in various income generating schemes.

Principles of Insurances
a) Utmost good faith : An insurance contract is a contract of uberrimaefideias it is based on utmost
good faith which should be displayed by both the parties involved therein.
b) Insurable Interest : According to this principle the insured must have pecuniary interest in the
subject matter of the insurance contract.
c) Indemnity : According to this principle, the insurance undertakes to provide compensation to the
insured for the loss suffered by him / her on happening of an event leading to danger or
destruction of property insured.
d) Proximate cause : The proximate cause seeks to describe the most dominant and most effective
cause due to which the loss has been suffered by the insured.
e) Subrogation : According to this principle, the insurer stands is the place of the insured after the
claims of the insured have been settled by the insurer.
f) Contribution : According to this principle, on the happening of an event or suffering of loss the
insured has the right to call upon the other liable insurers for their contribution towards
compensation as per the terms of the contract.
g) Mitigation : According to this principle, the insurer must display prudence in taking steps to
minimise the damage or loss to the insured property.
Types of insurance
Various types of insurance exist by virtue of practice of insurance companies and the influence of legal
enactments controlling the insurance business. Broadly speaking, insurance may be classified as follows :

Life Insurance
Life insurance may be defined as a contract in which the insurer in consideration of a certain premium,
either in a lump sum or by other periodical payments, agrees to pay to the assured, or to the person for
whose benefit is taken, the assured sum of money, on the happening of a specified event contingent on the
human life or at the expiry of certain periods.

The various elements of a life insurance contract are stated below :

• The life insurance contract must have all the essentials of a valid contract.
• The contract of life insurance is a contract of utmost good faith.
• In case of life insurance, insurable interest must be present at the time when the insurance is
affected else insurance is void.
• Life insurance contract is not a contract of indemnity and the sum of money payable is fixed, at the
time of entering into the contract.

Types of life insurance policies :

The insurance companies offer a different types of life insurance policy keeping in mind the varied needs of
people. Some of the popular life insurance policies are described below :
i) Whole Life policy : Under this policy, the amount of insurance is paid only on the death of the
assured to his/her nominee.
ii) Endowment life assurance policy : Under this type of policy, the amount of insurance is paid on the
completion of the fixed time or the death of the assured, whichever is earlier.
iii)Joint Life policy : Under this policy the life of two or more persons is insured jointly.
iv) Annuity Policy : Under this policy, the policy, the policy amount is payable after the assured
attains a certain age in monthly, quarterly, half yearly or annual instalments. The premium has to
be paid in instalments over a certain period.
v) Children’s Endowment policy : Through this policy is taken a person may seek to meet the
education or marriage expenses of his children. According to the contract a certain amount will be
paid by the insurer when the children attain a particular age.

Fire Insurance
Fire insurance is a contract whereby the insurer, in consideration of the premium paid undertakes to make
good any loss or damage caused by fire during a specified period up to the amount specified in the policy.

The main elements of a fire insurance contract as stated below :

a) In fire insurance, the insured must have insurable interest in the subject matter of the insurance
which must be present both at the time of insurance and at the time of loss.
b) The contract of fire insurance is a contract of utmost good faith.
c) The contract of fire insurance is a contract of strict indemnity.
d) The insurer is liable to compensate only when fire is the proximate cause of damage or loss.

Marie Insurance
A marine insurance contract is an agreement whereby the insurer undertakes to indemnify the insured in
the manner and to the extend thereby agreed against marine losses i.e. loss by marine perils or perils of the
sea.

The different types of marine insurance policies are described below :

a) Ship or hull insurance : As the ship is subject to different types of dangers at sea, this type of
insurance policy seeks to indemnify the insured for losses suffered due to any damage caused to
the ship.
b) Cargo insurance : The cargo in ship is subject to many risks during transit either at port like risk of
theft, lost goods or on voyage etc.
c) Freight insurance : The shipping company is not paid freight charges in case the cargo does not
reach the destination due to damage or loss in transit.
The main elements of a marine insurance contract are stated below :
a) The contract of marine insurance is a contract of indemnity.
b) The contract of marine insurance is a contract of utmost good faith.
c) Insurable interest must exist at the time of loss but not necessary at the time when the policy was
taken.
d) The principle of causa proxima will apply to it as insurance company will be liable to pay only if that
particular or nearest cause is covered by the policy.