Functions of Insurance

Functions of Insurance

1. Primary Function.

a). Insurances provides certainty of payment at the uncertainty of loss. The element of uncertainty is reduced by better planning and administration. The insurer charges premium for providing certainty. Life is always full of risks. Life without risks and uncertainties is unthinkable. Man has always encountered risks of various types since the inception of civilization. Minor risks can be ignored but the major risks cannot be ignored and their avoidances desirable. One of the ways or techniques of meeting the risks loss prevention and insurance. Insurance removes all uncertainties and the assured is given certainty of payment of loss.

b). Insurance provides protection. The risk will occur or not, when will occur how much loss will be there? There are uncertainties of happenings of time and amount of loss. The main function of the insurance is to provide protection against the probable changes of loss. The insurance cannot check the happening of risk in future but it can surely provide for losses at the happening of thee risk. The insurer gives certainty of payment of loss to the assured by charging premium. Risk sharing. All business concerns face the problem of risk and if the concern is big enough the handling of risk become a specialized function. It spreads the whole loss over a large number of persons who are exposed by a particular risk. The risk sharing in ancient time was done only at the time of damage or death; but today it is done on the basis of probability of risk and the share is obtained from each and every insured in the shape of premium without which is not possible by.

2. Secondary Functions.

(a) Prevention of loss. Prevention is always better than cure. Prevention of loss is by far the best solution to the problem of risk. By having the fire resistant construction, observing safety instructions, installation of automatic sparkler system etc. and fire can be prevented. Similarly better roads, better lights and better traffic regulations automobile accidents can be minimized. The insurance joins hands with those institutions which are actively engaged in preventing the losses of the society. Reduction in loss causes lesser payment to the assured and so more saving is possible which will assist in reducing the premium. Lesser premium invites more business and more business in its turn results in lesser share to the assured. Insurance assist financially to the health organization, fire brigade, education, research institutions and other organizations which are directly and indirectly engaged in preventing the losses of the masses from death, accidents, fire or damage.

(b) It provides capital. It provides capital to the society. The accumulated funds are invested in providing proper infrastructure and in investing in productive channel. Now days, the insurance companies are rendering positive help in the development of trade, commerce and industries of a country through different schemes of investments. A country's natural resources can be exploited with the long term and huge amounts of investments by the insurance companies. In India since nationalization the Life Insurance Corporation has been playing an important and spectacular role in socio-economic development.

(c) It improves efficiency. The insurance eliminates worries and miseries of losses as death and destruction of property. A care free person can devote his energies for better achievement of goals. It improves not only his efficiency.

(d) It ensures welfare of the Society. "Insurance is a saga of services and security" to the society. Security of life and property given by insurance brings place of mind to the insured. The investment of L.I.C. in welfare schemes like electricity, housing, water supply, agriculture, agro-industries and industrial estates are able to solve many pressing problems in India. The expansion of the felid of insurance and industrialization automatically lead to better scope for employment to many. Thus to some extent the insurance companies can solve the problem of the employment.

(e) It helps in economic progress. Insurance provides an initiative to work hard for the betterment of the masses. Life insurance involves the element of saving, investment through small savings. It is not very surprising to note that each working day L.I.C.'s average total income exceeds Rs.3crores and a larger portion of it goes to the best advantage of the policy holders collectively and of the people in general. L.I.C. has been in a position to accumulate a massive life fund of more than 4000 corers and which has been growing in recent years at an annual rate of about Rs.400 corers. L.I.C.is not a mere business organization on, it has nobler welfare responsibilities in the development programmers of the economy.

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