Discuss the concept and meaning of insurance and its functions.
Ans:- Meaning :- Insurance is a process whereby a loss is suffered by an individual, shared by a group of persons from the pool of funds. It covers physical and assets potential loss in the future. Thus it is a service which is provided on a contract basis.
Definition:- According to Miller J.S :- Insurance is a social device whereby uncertain risks of individuals may be combined in a group and small periodic contributions by the individuals providing funds out of which those who suffer losses may be reimbursed.
Concept :- Insurance provides protection of the economic value of assets in human and material form. It is a risk management primarily against the risk of a contingent loss. Insurance transfers risk from one entity to another entity.
Thus it is provided in exchange for a premium. In reality such contingent loss is shared by a group of people who create a pool of funds, out of which risk of loss is covered under the insurance policy.
Writing an insurance deed is called an insurance policy. The period for which insurance policy is taken is called “Term of policy”.
Any company that sells insurance services is called ‘Insurer’.
Any individual who takes an insurance policy from an insurance company is named ‘Insured’.
Functions of insurance
Insurance performs some functions for the individuals as well as society at large. Functions of insurance are as follows.
- Primary Functions
- Secondary Functions
- Other Functions
1.Primary Functions :- These functions are mainly performed on a primary basis.
- Risk- Sharing
- Certainly :- we know that every time has contained some certainty and uncertainty to occur. So uncertainty can be reduced with the help of best applied management by administration but whole uncertainty is not avoided through management. So any loss can be covered through insurance policy. Which certainly gives way to loss. If loss does not occur then some amount will be received against his financial loss. So insurance certainly gives.
- Security :- Any contingent loss may occur. So with the help of insurance policy, security is provided against contingent loss. Due to which some loss may be covered.
- Risk-Sharing :- Any contingent loss is shared by a group of persons through their paid premium against loss born by an individual.
2. Secondary Functions :- There are some secondary functions which are following.
- Providing Capital
- Loss Prevention
- Economic Development
- Industrial Protection
- Encouraging Saving
- Providing Capital :- Insurance companies collect large amounts in the form of premium. Which are used for risk of loss for the society. However they have large funds left after paying the loss. That left amount will be available for industrial development.
- Loss prevention :- Insurance companies create awareness among the society due to which loss will be prevented. They provide many types of assistance in the field of education and health.
- Economic Development :- large sums of money available with the company is used for the benefit of society. Due to which Economic development will be occured. It also generates resources in the country for development.
- Industrial Protection :- Business, industry and trade would be seriously handicapped if insurance protection is not available to cover the business risk. For example – fire insurance in a clothing company.
- Encouraging Saves:- insurance premium reduces the spending in result of which saving habit will be increased. In the initial stage it will be difficult to pay the premium and later stage it will be easy due to the habit.
3. Other Functions :- There are some other functions which are performed beside the above functions.
- Means of saving and investments
- Source of earning foreign exchange
- Risk free trade
- Means of saving and investments :- Saving and insurance through insurance is a disciplined way. Which decreases the unnecessary expense of being insured. Some people also invest in insurance due to taking the benefits of income tax exemption.
- Risk free trade :- Insurance promotes exports by minimising risk associated with foreign trade with the help of different types of policies under marine insurance.
In Conclusion, now we can understand the concept of insurance, what it is, the type of contract and service and functions of insurance that are performed by insurance companies. insurance meaning | insurance meaning | insurance meaning| insurance meaning
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