Note on Advantages and Disadvantages of Insurance

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Advantages of Insurance

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

  1. Provides economic protections
    Economic Protection
    Economic Protection

    Insurance provides economic and finanicial protection to the insured against the unexpected losses in consideration of nominal amount called premium. It provides financial protection to the nominee in case of the pre-matured death of insured. It 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 which may cause large losses. It is impossible to eliminate risks and uncertainties altogether but it can be reduced or shared. Insurance is a co-operative device, which helps to share the risks among the insured. Thus, the insurance company redeuces the risk of the insured in exchange for small premium.

  3. Maintains standard of living
    Insurance provides financial protection against an unexpected risk of losses due to which people can maintain their living standard. The insurance company provides a safeguard in terms of money to avoid the unfortunate financial crisis.

  4. Encourages saving
    Saving
    Saving

    An insured person pays the amount of premium in time as stated in the agreement which encourages for developing a saving habit of persons. Hence, insurance is a means of encouraging regular saving as it helps to reduce unnecessary expenses.

  5. Eliminates dependency
    Due to death or destruction of properties, the family suffers from unbearable and non-compensational table losses. The insurance protects against those unbearable losses. The life insurance policy gives full financial support to the dependent in case the death of the insured which helps to eliminate the dependency of people.

  6. Grants loan
    Loan
    Loan

    An insured can get the facility of a loan from an insurance company or can take loan from other financial institutions through the security of insurance policy. Thus, this provision of loan helps a person can also meet the need of fund. Bank and financial institutions prefer the insured assets as collateral for providing a loan.

  7. Creates employment opportunities
    As insurance has become business in the modern day business world, hundreds of entrepreneurs and thousands of employees have been engaging in this line. Hence, by establishing and developing insurance companies, it has provided employment opportunities to thousands of people as per their qualification and calibre.

  8. Promotes foreign trade
    The growth of the international trade of the country has been greatly helped by shifting of risk to insurance company. A ship sailing in the sea faces some miss-fortune. A fire breaks out and burns to ashes all the merchandise of a business man. But insurance is one of the devices by which these risks may be reduced or eliminated. So industrialists and exporter may devote their full attention toward the promotion of business which may increase the export activities

  9. Helps to operate business smoothly
    A business gets financial compensation in case of loss or damage to the properties of the business through insurance. An insurance policy taken for the employees increases their motivation at work. Therefore, insurance plays a vital role to let the business run smoothly even in the situation of unfavorable events.

  10. Help to reduce inflation
    Inflation Reduction
    Inflation Reduction
    The inflation means increase in price of goods or service. Inflation gives painful experienced to the citizen so it should be control. To control inflation, the volume of money need to be reduce. An 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. Help to develop economy
    Insurance companies collect premium through life or non life policies which are invested in various development areas like trade and industry. Such investment helps to promote trade and industry in the country. Ultimately, it helps for the economic development of the country.

Disadvantages of Insurance

The following are the main disadvantages of insurance: -

  1. It does not compensate all types of losses which caused baisness to insured by insurance company.
  2. It takes more time to provide financial compensation because lengthy legal formalities.
  3. Although insurance encourages savings, it does not provide the facilities that are provided by bank.
  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. It may lead to the crimes in the society as the beneficiaries of the policy may be tempted to commit crimes to receive the insured amount.
  6. Sometimes, the total amount of premium might be higher than the policy amount receivable on maturity.

  • Inflation is a concept, which every citizen is not only aware of it, but they experienced painfully.
  • Insurance companies collect premium against life and non-life policies. 
  • Insurance company shows bias to the insured as it does not compensate all types of losses.
  • An insured person should compulsorily pay the amount of premium in time as stated in the agreement in order to avoid fine and lapse of an insurance policy. 
  • Insurance provides economic protection to the insured. 
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Very Short Questions

Insurance provides benefits to an individual, family, businessman as well as a society. the main advantages of insurance can be described as follows: -

  1. Provides economic protections
    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. The 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 an unexpected risk of losses. By this means, people can maintain their living standard too. It is because insurance company provide a 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 lapse of an insurance policy. It encourages for developing a saving habit 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-compensationable losses. The insurance protects against the 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.

The following are the main 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 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. It 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.

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  • Insurance companies collect premium against ______.

    non-living policies
    non-life policies
    all the options are correct
    life policies
  • The term inflation indicates the ______ in the price level of goods or services.

    decrease


    decline


    constant


    increase


  • Which one of them is the advantage of insurance?

    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.
    It provides economic protection to the insured.
    It consumes more time to provide financial compensation because lengthy legal formalities.
    It does not provide enough financial facilities like the bank does. So, people prefer to save in the bank rather than in insurance.
  • Which one of them is the disadvantage of insurance?

    It protects against the uncertainties providing adequate financial support.
    Insurance company shows bias to the insured as it does not compensate all types of losses.
    It provides financial compensation in case of loss or damage to the properties of the business.
    It is a means of encouraging saving.
  • Insurance is a means of encouraging ______.

    workers
    employees
    ideas
    saving
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