1. Removal of uncertainties
Insurance company takes the risks of large but uncertain
losses in exchange for small premium. So it gives a sense of security, which is
real gift to the business man. If all uncertainty could be removed from
business, income would be sure. Insurance removed many uncertainties and to
that extent is profitable.
2. Stimulant of business enterprise
Insurance facilitates to maintain the large size commercial
and industrial organizations. No large scale industrial undertaking could
function in the modern world without the transfer of many of its risks to
insurer. It safeguards capital and at the same time it avoids the necessity on
the part of industrialists. They are therefore free to use their capital as may
seem best.
3. Promotion of saving
Saving is a device of preparing for the bad consequences of
the future. Insurance policy is often very suitable way of providing for the
future. This type of policy is found particularly in life assurance. It
promotes savings by making it compulsory which have a beneficial effect both
for the individual and nation.
4. Correct distribution of cost
Insurance helps to maintain correct distribution of cost.
Every business man tries to pass on to the consumer all types of costs
including accidental and losses also. In the various fields of Insurance such
losses are correctly estimated keeping in view a vast number of factor bearing
on them. In the absence of insurance these losses and costs would be assessed
and distributed only by guess work.
5. Source of credit
Modem business depends largely on credit; insurance has
contributed 'a lot in this regard. A life insurance policy increases the credit
worthiness of the assured person because it can provide funds for repayment if
he dies. Credit extension is also obtained by means of various kinds of
property insurance. A businessman who stock of goods has been properly insured
can get credit easily. Similarly marine insurance is an essential requirement
for every transaction of import and export.
6. Reduction of the chances of loss
Insurance companies spend large sums of money with a view to
finding out the reasons of fire accidents, theft and robbery and suggest some
measures to prevent them. They also support several medical programme in order
to make the public safety minded. Without such losses preventive activities of
insurance companies, the chances of loss would have been greater than they are
at present days.
7. Solution of social problems
Insurance serves as a useful device for solving complex
social problems e.g. compensation is available to victims of Industrial
injuries and road accident while the financial difficulties arising from old
age, disability or death are minimized. It thus enables many families and
business units to continue intact even after a loss.
8. Productive utilization of fund
Insurer accumulates large resources from the various
insurance funds. Such resources are generally invested in the country, either
in the public or private sector. This facilitates considerably in over all
development of the economy.
9. Insurance as an investment
A life policy is a combination of protection and investment
which serves a useful purpose. The premium that the insured pays go on
accumulating in a fund every year. The sum so accumulated by the insurance
company earns interest. Under life assurance a person may also invest his
capital in a annuity which will pay him an income every year till death.
Therefore, insurance may be regarded as an investment.
10. Promotion of international trade
The growth of the international trade of the country has
been greatly helped by shifting of risk to insurance company. A ship sailing in
the sea faces some miss-fortune. A fire breaks out and burns to ashes all the
merchandise of a business man. But insurance is one of the devices by which
these risks may be reduced or eliminated. So industrialists and exporter may
devote their full attention toward the promotion of business which may increase
the export activities.
11. Removing fear
Insurance helps to remove various types of fear from the
mind of the people. The insured is secured in the knowledge that the protection
of the insurance fund is behind him if some sad event happens. It thus creates
confidence and eliminates worries which is difficult to evaluate, but the
benefit is very real.
12. Favourable allocation of factors of production
Insurance also helps in achieving favourable allocation of
the factors of production. Capital is usually shy in the risky business. People
hesitate to invest their capital where financial losses are great. If
protection is provided against these risks by means of insurance, several
investors will become ready to invest their funds in those fields.
13. Growth of Business competition
Insurance enables the small business units to compete upon
more equal terms with the bigger organization. Without insurance it would have
been impossible to undertake the risks themselves. On the other side bigger
organization could absorb, their losses due to great financial strength. Moreover
insurance removes uncertainty of financial losses arising out of the certain
causes. It thus increases knowledge which is one of the most important
preconditions of perfect competition.
14. Employment opportunity
Insurance provides employment opportunity to jobless persons
which is helpful for the improvement and progress of social condition
15. Miscellaneous benefits
(i) It establishes the relation between the employed and
employer by providing various facilities i.e. group life insurance, social security
scheme, retirement income plan, workman's compensation insurance.
(ii) Insurance creates the confidence and sense of security
among the policy holder.
(iii) Insurance company provides valuable services of
skilled and expert persons to industries and business in order to eliminate
various risks.
(iv) It promotes economic growth and development. This would
be impossible in the absence of insurance.
(e) It contributes to the efficiency of business and also
industrial and commercial executives.
(f) Security of dependents is made possible through life
assurance. It gives relief to helpless families after the death of the earning
member of the family.
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