The process of insurance has been evolved to safeguard the interests of people from uncertainty by providing certainty of payment at a given contingency. Insurance not only serve the ends of individuals, or of special groups of individuals, it tends to pervade and transform our modern social order, too. The role and importance of insurance, here, has been discussed from an individual, business and society’s view.
Importance of Insurance to Individuals
- Insurance provides security and safety: Insurance provides safety and security against the loss on a particular event. In case of life insurance, payment is made when death occurs or the term of insurance expires. The loss to the family at a premature death and payment in old age are adequately provided by insurance. In other words security against premature death and old age sufferings are provided by life insurance. In other insurance, too, this security is provided against the loss at a given contingency. for eg. property of insured is secured against loss due to fire in fire insurance.
- Insurance affords peace of mind: Insurance provide security which is the prime motivating factor. It tends to stimulate an individual do more work.
- Insurance protects mortgaged property: At the death of the owner of the mortgaged property, the property is taken over by the lender of money and the family is deprived of the use of the property. On the other hand, the mortgagee wishes to get the property insured because at the damage or destruction of the property he may lose his right. Insurance provides adequate amount to the dependents at the early death and the property-owner to pay off the unpaid loans. Similarly, the mortgagee gets adequate amount at the loss of the property.
- Insurance eliminates dependency: At the death of the husband or father or earning mother, the loss to the family needs no elaboration. Similarly, at destruction of property and goods, the family would suffer a lot. The economic independence of the family is reduced or, sometimes, lost totally. Insurance tries to eliminate dependency.
- Life Insurance encourages saving: The elements of protection and investment are present only in case of life insurance. In property insurance, only protection element exists. In most of the life policies elements of saving predominates. Systematic saving is possible because regular premiums are required to be compulsorily paid. In insurance the deposited premium cannot be withdrawn easily before the expiry of the term of the policy. The compulsion to pay premium in insurance is so high that if the policy-holder fails to pay premiums within the days of grace, he subjects his policy to lapsation and may get back only a very nominal portion of the total premiums paid on the policy. For the preservation of the policy, he has to try his level best to pay the premium.
- Life Insurance provides profitable investment: Individuals unwilling or unable to handle their own funds are pleased to find an outlet for their investment in life insurance policies. The elements of investment i.e. regular saving, capital formation, and return of capital along with certain additional return are perfectly observed in life insurance. Life insurance fulfills all these requirements at a low cost.