Importance and advantages of insurance

Insurance   provides   benefits   to   an   individual, family, businessman as well as society. The main importance and advantages of insurance can be described as follows:

1)      Provides   economic   protection   : -   Insurance provides economic protection to the insured. It provides financial   protection   to the insured against the unexpected losses in consideration of nominal amount called premium. It provides financial protection to the dependent in case of pre-matured death of insured. Insurance company also covers the loss of properties due to theft, fire, accident and other natural calamities.

2)      Shares   risks   : - People are exposed to various kinds of risks and uncertainties. It is impossible to eliminate risks and uncertainties altogether. Insurance is a co-operative device,   which   helps   to   share   the   risks among the insured. Thus, the impact of risk can be reduced to the minimum through the distribution of risks among many insured members.

3)      Maintains standard of living:- Insurance has become sure instrument to provide financial protection against unexpected risk of losses. By this means, people can maintain their living standard too. It is because insurance company provides safeguard In terms of money to avoid the unfortunate financial crisis.

4)       Encourages saving :- An insured person should compulsorily pay the amount of premium in time as stated in the agreement in order to avoid fine and the lapse of insurance policy. It encourages for developing saving habits of persons. It helps to reduce unnecessary expenses. Hence, insurance is a means of encouraging saving.

5)      Eliminates dependency   : - In the event of the death of breadwinner or destruction of properties, the family suffers from unbearable and non- compensation   losses. The insurance protects against such uncertainties providing adequate financial support.  The   life   insurance   policy   gives   full financial support to the insured in his old age. It also provides financial support to the dependent in case the death of the insured. This provision definitely helps to eliminate the dependency of people.

6)      Grants loan:- An insured can get the facility of loan from insurance company. Similarly, an insured can take the loan from other financial institutions against the security of insurance policy. Thus, a person can also meet the need of fund through such provision of loan. Bank and financial institutions prefer the insured assets as collateral for providing loan.

7)      Creates employment opportunities:- Insurance companies need different types of personnel having distinct skills, experiences and academic qualifications for operating its business. So, people get an ample employment      opportunity   in insurance companies. They also increase employment opportunities indirectly by promoting trade and industry in the country.

8)      Promotes foreign trade:- Foreign trade is relatively more risky than domestic trade. Goods and properties are transported from distant places by means of air or water or land transport or combination of these modes. There are different types of risks in transit associated with foreign trade like marine perils, chance of explosion, terrorism, storm, tempest etc. Insurance provides protection against such unpredictable risks of losses, which definitely promotes the foreign trade.

9)      Helps to operate business smoothly:- Insurance provides financial compensation in case of loss or damage to the properties of the business. Insurance policy taken for the employees increases their morale and motivation at work. Therefore, insurance plays a vital role to let the business run smoothly   even in the situation     of    unfavourable events.

10)     Helps   to   reduce inflation: - The term inflation indicates the increase in price level of goods or services. Inflation is a concept, which every citizen is not only aware of it but they experienced painfully. In order to control the inflation, volume of money in the market should be reduced. Insurance company takes the money from the people in the form of premium, which reduces the volume of money in the market. Hence, it helps to control the inflation in the country.

11)   Helps to develop economy:- Insurance companies collect premium against life and non-life policies. The amount of premium so collected is invested in productive sectors like trade and industry. Such investment helps to promote trade and industry in the country. Ultimately, it helps for economic development of the country.

Disadvantages of insurance:

1)      Insurance company shows bias to the insured as it does not compensate all types of losses.

2)      It consumes more time to provide financial compensation because of lengthy legal formalities.

3)      It does not provide enough financial facilities like the bank does. So, people prefer to save in the bank rather than in insurance.

4)      It intentionally tries to compensate as less as possible to the sufferer with the aim of maximizing profit rather than maximizing well-being of the insured.

5)      Insurance increases crime in the society like fire, accident, murder etc. with the intention of getting financial compensation.

6)      Sometimes, the total amount of premium might be higher than the policy amount receivable on maturity.   

In concluding, people should know that, there is no risk no gain.