Discuss how Insurance is important for Individuals, Organizations, Industry and the Economy.

 Introduction -

               In our day-to-day life, we all anticipate various kinds of risks. No one can see an upcoming loss or accurately predict the Loss he may suffer in the future.  Insurance is a contract, between two parties whereby one party called insurance undertakes in exchange for a fixed sum called premium to pay the other party on happening of a certain event. An insurer is a company selling the insurance;  an insured or policyholder is the person or entity buying the insurance.  In Modern days insurance plays important for Individuals, Organizations, Industry and the Economy.
   The basic need of insurance arises as risks are uncertain and unpredictable in nature. Getting insurance for an asset does not mean that the asset is protected against the risks or its exposure to risk is reduced,  but  it actually implies that  is in case the Asset suffers any loss in value due to such a risk, the insurance company bears the loss and compensates the insured by making payment to him. 

Meaning of Insurance - 

                Insurance is an assurance that if a particular kind of event happened, the insured person will be paid the money. One who seeks such protection against such a risk is called the "insured" or "assured"  and who undertakes to protect such person from financial loss or some mishappening is called the 'insurer' or 'assurer'.

   The object of all kinds of insurance is to provide help to those who happen to suffer a loss.  most of the losses can be identified in terms of money.

Definition of Insurance - 

   Some important definitions of Insurance are as follows -

Encyclopaedia Britannica - 

    According to Encyclopaedia Britannica, " Insurance may be defined as a  social device whereby a large group of individuals,  through a system of equitable contributions, may reduce or eliminate the measurable risk of economic loss common to all member of the group"

Ghosh and Agarwal - 

   According to Ghosh and Agarwal," Insurance is a Co-operative form of distributing a certain risk over a group of persons who are exposed to it"

John Megi -

   According to John Megi, "Insurance is a plan wherein persons collectively share the losses of risk"

 Justice Tindall - 

    According to Justice Tindall, "Insurance is a contract in which a sum of money is paid to the assured in consideration of insurer's incurring the risk of paying a large sum upon a given contingency."

MacLean -

     According to MacLean "Insurance is a method of spreading over a large number of persons a possible financial loss too serious to be permanently borne by an individual."

 Thus on the basis of above definitions of insurance one can highlight its feature as follows -

(1)   Insurance is a contract

(2)  Whereby certain sum call premium is charged in consideration from the insured.

(3)  By the insurer, he assumes the risk of insured. ,

(4)  That on the happening of a specific event.

(5)  He shall pay a specified or ascertainable amount.

    In simple words, Insurance may be defined as a contract in which one party (the insurer)  agrees for payment of consideration (the Premium)  to make monetary provision for the other (the insured) upon the occurrence of some event or against some risk.

Functions of Insurance - 

How insurance is important for an individual Because - 

1) It Provides Protection - 

       As we all know that the primary purpose of insurance is to provide protection against future risk, accident, and uncertainty.  Insurance cannot arrest, restrict, prevent risk from taking place but guarantees the payment of loss and thus protects the insured from sufferings.

 Insurance act as an important tool in providing a sense of security to the society on a whole.  In case the bread earner (Karta) of a family dies the family suffers from direct financial loss as families income ceases. Life insurance is one alternate arrangement that offers some respite to the family from financial distress.

2) Ensure Certainty - 

           Insurance is a device which helps change uncertainty into certainty. It ensures the certainty of payment for the uncertain loss.

3) It Evaluates Risk - 

         The gravity of risk or probability of loss is calculated at the time of insurance.  The risk is evaluated only when the person is insured after charging the amount of share called consideration of a premium. The risks can be evaluated by various methods.

4) Collective Risk Sharing - 

      Insurance is a medium to share loss of few Among many.  When anybody is exposed to loss, such loss is made good out of the common fund.

5) Preventing Loss -

    insurance warns individuals and Businessmen to embrace appropriate devices to prevent unfortunate aftermaths of risks by observing safety instructions by asking them to install automatic sparkler or alarm systems etc. Greater the security, lesser the loss and payment needed to be made to the insured. The main purpose behind it is to prevent the losses.

6) Ensure Welfare of society -

 The Insurance serves the social purpose, it also indirectly helps the nation to accelerate its growth. The insurance helps in commercial prosperity, mobilizes the resources, accelerates and stabilizes growth and hence ensures the Welfare of society.

7) Risk-free trade -

       Insurance provides indemnity or reimbursement in the event of unanticipated loss or disaster.  Insurance boost Exports insurance, making foreign trade risk free with the help of different types of policies under marine insurance cover.

8) Investment - 

     Insurances also a good investment.  It not only protects us from uncertain,  upcoming things but also provoke us to invest.  Insurance act as a useful instrument in promoting Savings and investments particularly within the lower income and middle-income families. These savings are used as investments to fuel economic growth.

9) Protecting Assets - 

          . Insurance also works as assets protector,  with the life insurance policy, you can protect the home, business or any other property for which you have an outstanding loan or tax bills or which requires significant upkeep.

10) Leaving Legacy -

         The person who purchases a life insurance policy may also be interested in leaving a Legacy behind by donating the proceeds of their policy to a particular school or an organization.

 Importance of Insurance for Industry and Economy - 

1) Insurance improves efficiency - 

 In Business World Big and small industries or other establishments feels relaxed and carefree by insuring the lives of their workmen,  machinery,  buildings, raw material etc.  It helps hem putting their best efforts and resources in their work.  Insurance also provides safety and security to an individual and Society at large eliminating their Warriors and miseries of losses and improves, accelerates, stabilizes their growth.

[Read Also...  Objectives of Life Insurance Corporation | Insurance Law ]

2) Provides Capital -  

          In order to ensure that insurance is providing maximum benefits at the cheapest rate, a large number of persons are issued at similar risk factor. It indirectly helps the nation to accelerate its growth and resources. The premium so collected from the policyholders are utilized by insurance in the organized sector or funded to take industrial houses which in written mobilizes capital formation for the insurance

3) Protection of Employees - 

      In the industrial business insurance also protect the employees and provides many other facilities to improve their life.

4) The medium of Earning Foreign Exchange - 

        It is also medium of earning foreign exchange,  being an international business, any country can earn foreign exchange by way of issue of marine insurance policies and different other ways.

See Also...

Primary Functions of Insurance | Insurance Law

Insurance Regulatory and Development Authority

Formation of Life Insurance Contract

Types of Marine Insurance Policies | Insurance Law