Uses and Importance of Insurance
In the modern age, insurance plays an important role in respect to one’s life and property due to increased risk. Thus, the importance of insurance can be submitted under the following headings:
A) Provide financial security
Insurance provides financial security to the insured. It guarantees protection against uncertain losses in return for a small amount of premium. It covers different types of risks and losses caused due to unfortunate events under only one condition i.e. The premium has to be paid in time without default.
B) Reduction of risk
The future is uncertain and where there is uncertainty there is a risk that invites losses. Their risk cannot be eliminated completely but insurance helps to minimize such risk as far as possible it distributes the risk i.e. is attached with an individual to a large group of people and thereby the risk is minimized proportionally.
C) Encourages saving habits
For making the policy active and to take benefit from it. It is necessary for the insured to pay regular premiums. Since the insured has to pay premium regularly this cultivates a habit among the person to save money so that they can pay a premium in time. Likewise, the life insurance policy in itself is a kind of saving which the insured can utilize later after the maturity of the policy.
D) Creates employment opportunities
Insurance companies require more number of manpower as employees and agents in order to run their operation. This helps to create new employment opportunities for unemployed people. Thus, through insurance new employment opportunities are created and thereby the problem of unemployment to some extent can be solved.
E) Basis of credit
When a person dues insurance and when the insured is true of money the insurance contract for policy acts as a basis of credit. The insured can apply for a loan either from the same insurance company or from other financial institutions. The insurance contract here becomes the subject matter of mortgage for obtaining a loan within the specified insured amount.
F) Profitable investment
Insurance has a dual feature i.e. it is security as well as an investment the life insurance policy is a profitable investment for the insured. This is because it provides security to the insured against uncertain death and also provides a high rate of return if the insured is able to survive until maturity.
G) Promotes foreign trade
Foreign trade has a high risk in comparison to domestic trade. This is because foreign trade is done between countries and thus it has to cover a long distance. Generally, water transport and air transport are used for covering long distances which are considered to be more risky means of transportation. The insurance covers risk and provides security which promotes foreign trade and helps in the economic development of the country.
H) Mental peace
Insurance provides mental peace to the insured after taking up insurance the insured is free from fear and anxiety this is because the insurer promises to compensate the loss to the insured in case it occurs against the insured risk.