Insurance offers consumers protection from the costs of unplanned events. Insurance is a way of defense from financial losses and is a type of risk management, mainly used to protect possibilities of contingent or uncertain losses.
EXPLANATION:
There are many reasons why insurance functioned as a sector is key to the development of any economy:
1. Provides Safety and Security to Individuals and Businesses
Provides Safety and Security for Businesses and Individuals: Insurance delivers financial support and decreases the insecurities faced by individuals and businesses at every step of their life cycle. This delivers an ideal risk alleviation mechanism for events that can potentially result in financial difficulties for businesses and individuals.
2. Produces Long-term Financial Resources
The insurance sector produces funds at premiums from millions of policyholders. Because of the long-term nature of these resources, these funds are endowed in establishing long-term infrastructure properties (such as roads, power plants, ports, dams, etc.) that are important for national development. Job opportunities are enhanced by large investments that lead to capital formation in the economy.
3. Promotes Economic Growth
The insurance sector creates an important impact on the economy as a whole by mobilizing domestic savings. Insurance converts capital accumulation into productive investments. Insurance also allows loss mitigation, financial stability and endorses trading activities and commerce of these outcomes into sustainable economic growth and development. Thus, insurance plays an important role in sustainable economic growth.
4. Provides Support to Families in Medical Emergencies
Family welfare is essential for all and the health of family members is the greatest concern for most people. Increasing medical care costs and soaring drug prices are enough to drain the savings if not prepared properly. Anyone can be a victim of critical illnesses unexpectedly.
5. Spreads Risk
Insurance facilitates the transfer of risk of loss from the insured to the insurance company. The fundamental principle of insurance is to spread risk among a huge number of people. Large population obtains insurance policies and purchase premium to an insurance company. Every time a loss happens, it is rewarded from the collection of funds obtained from millions of policyholders.
LEARN MORE:
If you’re interested in learning more about this topic, we recommend you to also take a look at the following questions:
•Which of the following are types of insurance?
•The least expensive type of life insurance is?
KEYWORDS: Insurance, protection
Subject : History
Class : 10-12
Sub-Chapter: Insurance
