Insurance is important because both human life and business environment are characterized by risk and uncertainty. Insurance plays a key role in mitigation of risks. The benefits of insurance are discussed below:
- Security and Safety: It gives a sense of security and safety to the businessman. It enables him to receive compensation against actual loss. He can concentrate on his business with a secure feeling that in case of losses arising from insurable risk, his losses will be compensated.
- Distribution of risk: Risk in insurance is spread over a number of people rather being concentrated on a single individual.
- Normal expected profit: An insured trader can enjoy normal margin of profit all the time. He is protected from unexpected losses because of insurance.
- Easy to get loans: A trader can get bank loans easily if his stock or property is insured, as insurance provides a sense of security to the lenders.
- Advantages of Specialization: Businessmen can concentrate on their business activities without spending more time on safeguarding their property. The insurance companies, on the other hand, can provide specialized insurance services.
- Development of Social Sectors: Insurance funds are available for economic development particularly for the development of social sectors. Especially for a developing country like India, insurance funds are an important source for investing in infrastructure projects (roads, power, water supply, telecom etc).
- Social cooperation: The burden of loss is shouldered by so many persons. Thus, insurance provides a form of social cooperation.
Benefits of Insurance to society
- Insurance is an important risk mitigation device.
- Insurance companies provide the required funds for infrastructure development.
- It provides a sense of security.
- Insurance provides security to the insured during his life and to his dependents.
- It provides employment opportunities. With the entry of private insurers employment opportunities have increased greatly.
- Insurance provides a sense of livelihood to those who might otherwise not have an income source — housewives, retired people, students etc can work as agents and earn commission.
- Insurance works on the principle of pooling of risks and distributes risks over many people.
- Insurance is an invaluable aid to trade.
Benefits of Insurance to insured
- Insurance provides security against risk and uncertainty.
- It enables the insured to concentrate on his work without fear of loss due to risk and uncertainty.
- It inculcates regular savings habit, as in the case of life insurance.
- The insurance policy can be mortgaged and funds raised in case of financial requirements.
- Insurance policies, especially pension plans provide for income security during old age.
- The insured gets tax benefits for the amount of premium paid.
- Insurance of goods may be a mandatory requirement in certain contracts.