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ADVANTAGES OF INSURANCE

                      What is Insurance?

Insurance is a contract to compensate the insured if certain specific events take place against specific payment of consideration. It is a coverage of risk on payment to the insurer. It can also be called a form of cooperation whereby one group compensates the other group or individual against consideration on the happening of a specific event.

1. Provides Security

Provides Security: 

Insurance gives security to both individuals and businessmen. There are many risk which are covered by parchasing insurance. For example, the building of a factory which is insured suddenly catches fire. The insurance company will idemnify for the actual loss or damage to property caused by fire. The financial loss of the policy-holder is thus offset in full or in part by the insurance company. The insurance company will pay the full amount of the loss of goods to the trader. Insurance thus provides safety against economic difficulties to the families and businessmen.

2. Optimum Allocation of Resources

Optimum Allocation of Resources: 

There are some enterprises which involve risks of fire, loss of goods in trainsit and are open to burglary, robbery, theft etc. If the businessmen are not able to buy the fire insurance or marine insurance or theft insurance, the resources of the country will not be invested to these enterprises which are exposed to risk. The insurance companies by giving coverage to the risky enterprises divert the resources to the risky business and creat competition among the producers. Thus diverting the resources to risky business, brings about the optimum, use of the scarce resources to the country.

3. Loss Prevention Activities

Loss Prevention Activities:

The insurance companies spend large sums of money every year to make the policy safety minded. They spend the money on medical research, health services, finding out causes of fire, theft, road accidents etc, and make the public aware through advertising as to how changes of losses can be minimized or eliminated. The insurance companies thus render a great service to the community by decreasing the chances of losses through loss prevention activities.

4. Provides Basis for Credit

Provides Basis for Credit: 

The businessmen pledge the inventories or th building for getting loan from commercial banks. If the building or the stock is insured, they can easily get loan from the banks, The insurance coverage, thus provides a good basis for credit to the business community.

5. Source of Capital Formation

Source of Capital Formation:

The insurance companies pool larg sums of money through premiums. They invest the capital in purchasing shares and debentures of financially sound companies. The capital of the insurance companies is thus utilized for the development of productive enterprises in the country.