The world we live in is full of uncertainties and risks. Individuals, families, businesses, properties, and
assets are exposed to different types and levels of risks. These include the risk of losses of life, health,
assets, property, etc. While it is not always possible to prevent unwanted events from occurring,
the financial world has developed products that protect individuals and businesses against such losses by
compensating them with financial resources. Insurance is a financial product that reduces or eliminates
the cost of loss or effect of loss caused by different types of risks.
Apart from protecting individuals and businesses from many kinds of potential risks, the Insurance
the sector contributes significantly to the general economic growth of the nation by providing stability to
the functioning of businesses and generating long-term financial resources for industrial projects.
Among other things, the Insurance sector also encourages the virtue of savings among individuals and
generates employments for millions, especially in a country like India, where savings and employment
Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and the
individual (insured). In this, the insurance company promises to make good the losses of the insured on
happening of the insured contingency.
The contingency is the event that causes a loss. It can be the death of the policyholder or
damage/destruction of the property. It’s called a contingency because there’s uncertainty regarding
the happening of the event. The insured pays a premium in return for the promise made by the insurer.
Insurance has evolved as a process of safeguarding the interest of people from loss and uncertainty. It
may be described as a social device to reduce or eliminate the risk of loss to life and property.
Insurance contributes a lot to the general economic growth of the society by provides stability to the
functioning of the process. The insurance industries develop financial institutions and reduce uncertainties
by improving financial resources.
The Benefits of Insurance to Individuals, Organizations and Society
Insurance benefits individuals, organizations and society in more ways than the average person realizes.
Some of the benefits of insurance are obvious while others are not.
1. Provide safety and security:
Insurance provides financial support and reduces uncertainties in business and human life. It provides
safety and security against a particular event. There is always a fear of sudden loss. Insurance provides a
cover against any sudden loss. For example, in the case of life insurance financial assistance is provided to
the family of the insured on his death. In the case of other insurance, security is provided against the loss
due to fire, marine, accidents, etc.
2. Generates financial resources:
Insurance generates funds by collecting premiums. These funds are invested in government securities and
stock. These funds are gainfully employed in the industrial development of a country for generating more
funds and utilized for the economic development of the country. Employment opportunities are
increased by big investments leading to capital formation.
3. Life insurance encourages savings:
Insurance does not only protect against risks and uncertainties but also provides an investment channel
too. Life insurance enables systematic savings due to payment of regular premiums. Life insurance
provides a mode of investment. It develops a habit of saving money by paying premium. The insured get
the lump sum amount at the maturity of the contract. Thus life insurance encourages savings.
4. Promotes economic growth:
Insurance generates significant impact on the economy by mobilizing domestic savings. Insurance turn
accumulated capital into productive investments. Insurance enables to mitigate loss, financial stability
and promotes trade and commerce activities those results into economic growth and development.
Thus, insurance plays a crucial role in sustainable growth of an economy.
5. Medical support:
A medical insurance considered essential in managing risk in health. Anyone can be a victim of critical
illness unexpectedly. And rising medical expense is of great concern. Medical Insurance is one of the
insurance policies that cater for a different type of health risks. The insured gets medical support in case
of the medical insurance policy.
6. Spreading of risk:
Insurance facilitates the spreading of risk from the insured to the insurer. The basic principle of insurance is
to spread risk among a large number of people. A large number of persons get insurance policies and
pay premiums to the insurer. Whenever a loss occurs, it is compensated out of funds of the insurer.
7. Source of collecting funds:
Large funds are collected by the way of premiums. These funds are utilized in the industrial development
of a country, which accelerates economic growth. Employment opportunities are increased by such
big investments. Thus, insurance has become an important source of capital formation.
Understanding these benefits is critical when analyzing the need for insurance and helps insureds justify