Advantages of Insurance

Subject: Accountancy

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Overview

Insurance provides benefits to an individual, family, businessman as well as a society. This note has information about advantages of insurance.
Advantages of Insurance

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Insurance provides a number of benefits to the insured party which can be summarized as follow:

  1. Provides economic protection
    The insured party is given the economic security by the insurer. In case of any unexpected loss or damage, the insurer has to pay to the insured party. The financial security is given on the basis of the insurance premium paid by the insured. It also covers the loss occurred due to the theft, natural calamities such as fire, flood, landslide, earthquake etc.

  2. Minimize risks
    As the people are exposed to an uncountable number of risks and uncertainties, it becomes difficult for them to overcome such risks and uncertainties on their own. So, the insurance has become a medium to minimize the financial risk and uncertainties. Insurance has helped to distribute such risks.

  3. Improves standard of living
    As insurance has become the medium to overcome the financial risks, it helps to eradicate the financial loss of the people that helps in maintaining the living standard of the people. The unexpected financial losses of the people are reduced to some extent.

  4. Encourages saving
    The insurance premium is the compulsory payment done by the insured during the period of the insurance policy. So, it helps in developing the habit of saving among the people. The saved money can be utilized in some other works as well.

  5. Eliminates dependency
    Insurance helps in eliminating the dependency level of the people as the insurance company provides the financial support to them. In case of the death of any earning family member of the family, the next family member (nominee) can get the insurance policy amount and can easily overcome the financial risk and make their life easy. It eliminates the dependency of the people and makes them self- dependent.

  6. Grants loan
    The insurance company also gives the facility of granting the loan to its customers against the amount of premium they have paid, at the minimum rate of interest. Also, the insured can easily get the loan from any other financial institution against the insurance policy they have made as a collateral.

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    Creates employment opportunities
    As an insurance company needs a number of employees to facilitate the company, it creates employment opportunities for them. They need the employees from various educational background, experiences and skills. Hence, they increase the employment opportunities in the country.

  8. Promotes foreign trade
    As the foreign trade is full of risk and uncertainties, the insurance company helps to reduce such risks. The insurance company and the insured party both are liable to the loss or damage of the property in case of the transit. Hence, people are interested towards the foreign trade as well.

Things to remember
  • Insurance provides benefits to an individual, family, businessman as well as a society. 
  • Insurance has become sure instrument to provide financial protection against an unexpected risk 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 companies need different types of personnel having distinct skills, experiences and academic qualifications for operating its business. 
  • It includes every relationship which established among the people.
  • There can be more than one community in a society. Community smaller than society.
  • It is a network of social relationships which cannot see or touched.
  • common interests and common objectives are not necessary for society.
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Questions and Answers

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.
  6. 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.
  7. Promotes foreign trade
    Foreign trade is relatively riskier 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 a foreign trade like marine perils, chances of an explosion, terrorism, storm, tempest etc. Insurance provides protection against such unpredictable risks of losses, which definitely promotes foreign trade.
  8. Helps to operate business smoothly
    Insurance provides financial compensation in case of loss or damage to the properties of the business. An 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 unfavorable events.
  9. Help to reduce inflation
    The term inflation indicates the increase in the 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, a volume of money in the market should be reduced. 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.
  10. Help 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 the economic development of the country.

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.

Any two advantages of insurance are:

  1. The insurance protects against the uncertainties providing adequate financial support.
  2. It provides financial protection to the insured against the unexpected losses in consideration of nominal amount.
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