Human life and properties are always exposed to risk and uncertainties. Such risks and uncertainties may cause great loss to human beings. Risk cannot be completely eliminated but there is a device to cover the loss of the financial risk, which is known as insurance. In this modern generation, insurance had become an essential tool to manage the risks of an individuals the corporation.
Insurance can be defined as the act of providing indemnity or coverage against harm, as per the contract. Insurance is a legal contract that protects people from the financial losses. It protects from the risk of person and business. Insurance is an economic institution that allows the transfer of financial risk from an individual to a group by the means of a two-party contract. It is a contract between the insurer and insured in which the insurer promises to pay the financial loss to the insured. Such contract is known as an insurance policy.
According to M.N. Mishra, "Insurance is a cooperative device to spread the loss caused by a particular risk over a number of persons, who are exposed to it who agree to insure themselves against the risk."
According to John H. Magee, "Insurance has been defined as a plan by which a large number of people associate themselves and to the shoulders of all, the risk that attached to individuals."
Likewise, Insurance is a legal contract in which an individual receives financial protection against losses from an insurance company. In the modern age, insurance has become an essential tool to manage the risks of an individual and the corporations.
Any six importance of insurance are as follows:
1. Insurance provides security
The Businessman should not have worry about the losses or damages at the time of loss in their property if they are duly insured. Insurance provides financial protection to business assets and properties against the risk of theft, fire accidents or any other natural calamities. Insurance keeps the person free from tension, fear and worries of various risks.
2. Insurance reduces business risk or losses
In Business, commerce and industry, huge properties are employed. The property may be turned into ashes due to the slight negligence. A person may not be sure of his life and health. It is impossible to eliminate risk and uncertainty completely. Insurance is a cooperative effort of sharing risk. Thus, the impact of risk can be reduced through the distribution of risk.
3. Insurance provides mental peace
Insurance provides mental peace to the insured. It removes tension, fear, and anxiety associated with risks and uncertainties. An individual can devote himself to achieve efficiency in economic activities due to the paceful state of mind.
4. Insurance maintains your family’s standard of living
Insurance provides financial protection against unexpected risk. Due to the financial protection of life and property, insurance avoids the unfortunate financial crisis of an individual and his family. The insured helps the individual to maintain his standard of living even in old age.
5. Generates financial resources
Insurance generates funds by collecting the premium. The funds are invested in government securities and stock. These funds are gainfully employed in the industrial development of a country for generating more funds. It can be utilized for the economic development of the country. Employment opportunities are increased by big investments that lead to capital formation.
6. Life insurance encourages savings
Insured should pay the amount of premium regularly. It develops the habit of saving. The deposited premium cannot be withdrawn like a bank deposit. Life insurance is the best medium of saving and investment. It is a good means to make provision for retirement age.