Many people usually presume that we never have to worry about anything once we buy a life insurance plan or general insurance policy. Then again, this idea or assumption are incorrectly. Every insurance plans have their terms and conditions, so it is important for you to understand functions of life insurance plans as well as functions of general insurance plans. Here we are going to discuss the functions to insurance policy in detail for you.
What are functions to insurance? Functions of insurance tend to be towards spreading the loss caused by a specific risk through range of people, who are exposed toward similar risk. Insurance companies usually spread losses across each member based on probability of loss toward risk and then offer security against losses towards insured.
Top 10 – Functions of Insurance
Let us look into what is insurance before we deep dive into functions of insurance in details. The information provided below is also applicable for functions of life insurance as well as functions of general insurance.
One of the importance functions of insurance is to provide protect against risk, losses, uncertainty or accidents. Their insurance guarantees to pay for losses and therefore safeguards their assured from any kind of sufferings. In genuine terms, insurance is a defensive protect towards economic loss due to uncertainty by sharing risk with pool of insured people.
One of the primary function of insurance common across functions of life insurance as well as functions of general insurance is providing certainty. Unless and until we are fully insured we are uncertain with our ability to satisfy the future risks. One of the greatest benefits of insurance is that, it guarantees about future risk and due to which our uncertainty is transforms into certainty.
Prevention of Risk / Loss
Preventive steps for uncertainties is another important functions of insurance. Many times insurance companies are partnered with institutions for assisting people / societies / companies towards preventing the losses. In case of appropriate prevention measures are taken, it reduces number of insurance claims made by insurer every year. When insurance claims are reduced it directly or indirectly lower your annual premium cost which is based on the risk sharing principle.
Instead of seeking assistance from insurance company, it is far better to adopt prevention measures to mitigate losses. When preventive steps are taken from insurer upfront, it assists insurer to negotiate and can save lot of cost on premium. Insurance companies also provide additional benefits to such insurer as it lowers their risk.
Risk / Loss Sharing
When risk happens whether it’s a function of life insurance or function of general insurance, the loss is shared with all persons that are subjected to the risk. Billions of people usually buys insurance and pays annual premiums but only few of them do claim for their losses each year. These claims are then paid to insured based on insurance terms and conditions mutually agreed by both the parties in written.
Growth of Large Companies
Larger companies are at more risks, as they have diversified operating model and sometimes no relation with another company of the same sector. Insurance become the important factor for such large companies to cover potential risk and keep moving forward towards the growth of the company.
It became extremely important for any business to understand functions of insurance in their early planning stage. As this will assist them to classify different types of risk either under functions of life insurance or functions of general insurance. Then companies can chose appropriate insurance cover based on the features of insurance and other factors for the same.
Protecting the businesses / communities risks from big losses, destruction and death is one of the greatest function of insurance. Guarantee provided by insurance delivers a required energy to work hard for the betterment of the masses.
For any country, economic development is largely depended on their population. Economic of the country will definitely will be progressive when valuable assets, machineries, lives have adequate protection for any kind of financial losses during any misfortune.
Useful for Investing and Savings
One of the important function of insurance is to help individual to grow their savings and investments. Once an insurance policy is bought, many people assume that they will have to save money for mandatory premium payments on regular basis. However, funds collected by insurer are then invested by insurance company to your benefit.
It is compulsory contribution made by insurer to get insurance benefits. At the same time there are many different types of insurance plan which provides maturity benefits in-case no claims are made by insurer. On the other side, premium paid against insurance are additional exemption under Income tax act. So overall, many individuals think insurance as a useful tool for their saving and investments as well.
Sources for Foreign Exchange
Functions of insurance are not limited to the nation but they have insurance plans for international across national borders as well. This is an excellent international business to earn foreign exchange from other countries. So usually insurance companies have developed wide range of insurance option to attract more international business to opt for it.
For example: If you are travelling abroad, you can choose to cover risk either by international travel insurance or international life insurance which are classified under functions of life insurance. Even you can get buy risk protection by choosing aviation insurance, marine insurance, luggage insurance, medical insurance, trip cancellation insurance, flight cancellation insurance and more which are classified under functions of general insurance according to your requirements.
Risk Free Export and Import
Export insurance is another crucial functions of insurance which makes foreign trade risk free. One should understand principles of insurance before buying any insurance product. There are various types of insurance policies to cover different types of cross broad risk in trading goods and services. Under functions of general insurance, you can choose either credit risk insurance, marine insurance, currency insurance, product liability insurance, political risk insurance or cargo insurance to protect your international trading risk across other countries.
It is most typical functions of insurance which means insurance company attempts to substituted insurance claim from one person or group to another. In simple words, insurance company can either file a law suit or ask different party who are accountable and responsible for sharing claim amount.
For example: During an accidental case, damage to property or vehicle might be caused due to negligence or breaking the traffic rules by another party. In such cases, insurance company go towards legal battle to sue another party for its negligence to recover its claim made to the insured person.
Here we have understood top 10 – functions of insurance and more specific towards important functions of life insurance as well as functions of general insurance. Do let us know your feedback in the comment box to assist millions of other readers.