Introduction
Insurance plays a crucial role in modern society, providing individuals, businesses, and communities with financial protection and peace of mind. This piece of writing explores the significance of insurance and its various types, highlighting the benefits it offers to policyholders and the broader economy. From mitigating risks to promoting stability and resilience, insurance is an essential tool that enables individuals and businesses to navigate uncertainties and protect their assets.
Human beings have to face different kinds of risks and uncertainties in life or they are exposed to different kinds of risks, such as loss of property by fire, theft, accident, untimely death of persons etc. The risk refers to the state of uncertainty like loss of life or damage and loss of other physical properties causing huge financial loss in future. Such types of loss may blocks or halt the progress of a firm or company. It may happen due to unexpected and uncertain events such as setting of fire, theft, accident, earthquake, robbery etc. All these unexpected events cannot be controlled and eliminated. However, a person can reduce such kind of financial loss resulting from such uncertainties and risks with the help of a kind of cooperative scheme, which is termed as insurance. Insurance is such a cooperative which protects the persons and firms from such a great financial loss.
Insurance is the way of reducing the financial losses arising from a number of unexpected risks and uncertainties. It is the way that provides security to the human and his/ her property against the risks. It only provides the financial compensation against the death of a person or loss and damage of the physical properties. Thus, insurance is a cooperative means of transferring risk to the insurer in consideration of payment of certain periodical amount called premium.
Insurance can be studied from two perspectives i.e. functional view point and legal view point. According to the functional view point, insurance is a cooperative tool to spread the risks over a number of people who are exposed to them and who agree to insure themselves against that risk. However, from a legal perspective, insurance is a contract between two parties where one party promises to pay a certain amount as a premium in exchange for the right to receive financial protection in the event that a person's life is lost or their property is lost or damaged. In conclusion, insurance is a cooperative plan or contract that transfers risks from the insured to the insurer and guarantees the insured's financial security in the event of a covered event, such as a covered person's death or a covered property's loss or damage.
I. The Concept and Purpose of Insurance:
Definition of Insurance
Insurance is a contract between an individual or an entity (the policyholder) and an insurance company, where the insurer agrees to compensate the policyholder for specified risks or losses in exchange for premium payments.
Risk Management
Insurance serves as a fundamental tool for managing risks by transferring the potential financial burdens associated with unforeseen events to the insurance provider.
Peace of Mind
Insurance provides individuals and businesses with a sense of security, knowing that they are financially protected against a wide range of risks and liabilities.
Some of the popular definitions of insurance are given below:
"Insurance is a contract by which a party for a compensation called the premium assumes particular risks of the other party and promises to pay to him or nominee a certain or ascertainable sum of money on a specified contingency." – Edwin W. Peterson
"Insurance is a cooperative device to spend loss caused by a particular risk over a number person who are exposed to it and agree to insure themselves against that risk." – Prof. R. S. Sharma
"Insurance business means life insurance business and non-life insurance business which also refers to the reinsurance." – Insurance Act 2049
Insurance is a contract between two parties in which insurer promises to pay financial compensation to the insured in case of loss of human life or physical properties and insured agrees to pay the premium to the insurer.
II. Types of Insurance
A. Life Insurance
Life insurance policies offer financial protection to the policyholder's beneficiaries in the event of their death, ensuring their loved ones are supported and their outstanding obligations are met.
B. Health Insurance
Health insurance provides coverage for medical expenses, ensuring that individuals can access quality healthcare without significant financial strain.
C. Property Insurance
Property insurance policies protect individuals and businesses against losses or damages to their physical assets, such as homes, buildings, or inventory, due to perils like fire, theft, or natural disasters.
D. Auto Insurance
Auto insurance offers protection against losses and liabilities arising from accidents involving vehicles, providing coverage for damage repairs, medical expenses, and legal costs.
E. Liability Insurance
Liability insurance safeguards individuals and businesses against legal claims and financial obligations resulting from third-party injuries, property damage, or negligence.
F. Business Insurance
Business insurance policies cater to the unique risks faced by businesses, including property damage, liability claims, business interruption, and professional errors or omissions.
III. Functions of Insurance
Insurance performs functions of insurance related to the act of evaluating the risk, minimizing financial risk and using remedial measures to protect from possible losses. Some of the primary functions of insurance are described as follows:
a) Providing certainty
There are a large number of risks and uncertainties. The date of occurring risk and its exact amount of loss be predicted. Insurance provides certainty against such uncertainties that may cause huge loss of the property and even life. It promises to compensate the loss of insured property against the amount paid in the form of premium. Thus, to provide certainty against risk and uncertainty is one of the primary functions of insurance.
b) Distributing risk
Insurance is a cooperative device of distributing risk among a large number of persons who are exposed to it. It works under the cooperative concept and collects the small amount of premium for distribution of such risk.
c) Providing protection
Individuals and their properties are surrounded by greater risk and uncertainties. They may be suffered from losses due to such risks and uncertainties. Insurance cannot eliminate the risk but can reduce by way of cooperative device. It only provides protection against such risk and uncertainties. It promises to pay a certain amount in case of happening of event i.e. death of a person or loss of property. Thus, it takes the responsibility of providing protection against the death of insured or loss of properties.
Secondary Functions
Insurance performs the following secondary functions:
a) Formation of capital
Insurance company collects the huge amount as premium from the large number of insured persons and forms huge capital. The whole amount collected as premium may not be compensated at a time. The remaining amount in fund can be mobilized in the productive and profitable sectors. Thus, the insurance company invests the unused capital as short-term, mid-term and long-term investment in various industrial and commercial sectors. As a result, it supports for the economic development of the country.
b) Promoting trade
Insurance plays an important role in promotion of internal and external trade. While carrying goods from one place to another, there are a large number of risks like accident, theft, robbery etc. If the trader has to bear huge loss due to such unexpected events, he/she will be discouraged to carry out the trading activities. The insurance helps to minimize all risks of financial losses assuring the trader to provide financial compensation in consideration of insurance premium. Thus, the insurance facilitates the trader to perform the trading activities conveniently.
c) Maintaining financial stability
Insurance helps to create favorable environment in financial and business world ensuring to compensate the financial losses that may arise due to unexpected events. It avails capital, provides assurance and financial protection to the entrepreneurs. It also provides financial compensation to the insured person or enterprise in case of financial loss due to any unexpected event. All these things help to maintain financial stability in the country.
d) Increasing business efficiency
Insurance provides security against the financial losses due to risks and uncertainties. The people who have insured their life and properties feel secured, active and become free from mental tension. The feeling of security and activeness makes the people more devoted towards their job, profession and business. As a result, they can freely work and get an achievement from the job. Thus, the insurance increases the business efficiency and makes them more enthusiastic.
e) Creating awareness to prevent losses
The insurance cannot avoid whole losses. But, it helps to minimize such losses. It makes the people involved in various research and investigation program. It helps to forecast the future and find out the scientific method for maintaining the risk. Thus, due to insurance, people learn to be secured and protect their physical properties.
f) Providing employment opportunities
Insurance is a kind of business. It requires the different types of human resources to conduct business activities. It provides various employment opportunities to the educated people. Furthermore, it provides a certain amount as financial compensation in case of the event. It helps to perform some productive works in the society. Thus, the insurance helps to create employment opportunities directly and indirectly.
IV. Benefits of Insurance
- Financial Protection: Insurance safeguards individuals and businesses from catastrophic financial losses, ensuring that they can recover and rebuild in the face of adversity.
- Risk Mitigation: Insurance enables individuals and businesses to transfer risks to insurance providers, reducing the impact of unforeseen events on their financial stability.
- Economic Stability: Insurance fosters economic stability by enabling businesses to take calculated risks, secure loans, and attract investments, knowing they have protection against potential losses.
- Promoting Resilience: Insurance plays a crucial role in helping individuals and communities bounce back from disasters, such as natural calamities or accidents, by providing the necessary financial resources for recovery and reconstruction.
- Peace of Mind and Well-being: Insurance alleviates anxiety and stress by offering individuals and businesses the confidence to pursue their goals and aspirations without the fear of devastating financial setbacks.
Conclusion:
Insurance serves as a critical component of a well-functioning society, offering financial protection, stability, and resilience to individuals, businesses, and communities. Whether it is safeguarding lives, assets, or livelihoods, insurance plays a vital role in mitigating risks, promoting peace of mind, and ensuring economic well-being. Recognizing the significance of insurance and making informed decisions about coverage can empower individuals and businesses to navigate uncertainties and build a secure future.
No comments:
Post a Comment