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According to Dr W.A Dinsdale, Insurance is a device for transfer of risks of individual entities to an insurer, who agrees, for a consideration, to assume to a specific extent, the loss suffered by the insured"

Insurance plays a critical role in our lives and it is only natural that we look at its importance. In this post, we will discuss the importance of insurance in relation to:

  • Individuals
  • Business
  • Economy

Importance Of Insurance To An Individual

1. Provides security: Insurance provides individuals with security and safety by indemnifying them against loss.

2. Gives peace of mind: The primary purpose of any insurance policy is to provide peace of mind to the insured by assuring him that his losses will be paid by the insurance company and that he will not be responsible for any expenses incurred as a result of the insured event.

When a person purchases a life insurance policy, for example, he can rest assured that his loved ones would be properly cared for in the event of his death.

3. Reduces dependencies: No one is immune to risks. Hence, Insurance provides financial protection against different kinds of losses. 

A family, for example, can be protected from healthcare dependency by purchasing health insurance. 

4. It encourages savings: This is especially true for life insurance, where insurance premiums are paid on a monthly basis. 

At the maturity of the life insurance contract, the insured get a lump sum of the premium.

Importance Of Insurance To Businesses

1. Reduces business certainty: A typical business is faced with different uncertainties, including industrial accidents, coronavirus, natural disasters, volatile market conditions, and constantly changing conditions.

Insurance reduces these by guaranteeing payment in event of a loss.

2. Safeguard employees: Another important of insurance to business is that it protects employees against health and safety risks.

Employees work for their employer, and, as a result, it is the responsibility of the employers to safeguard their employee.

By means of group insurance, managers and employer can provides health and financial protection to their workers. 

Indeed, Providing insurance cover to workers is now becoming a norm in most organization

3. Provides peace of mind to business owners: Insurance grants peace of mind to business owners as it ensures that business owners can easily venture into specific businesses thanks to insurance coverage.

4. Increases productivity: The productivity of a business is greatly increased because managers can devote more attention to their business and worry less about losses that are always inherent in any business organization

5. Credit facility is easily obtained: Insurance facilitates the acquisition of loans and other credit facilities from banks and other financial institutions. 

This is because lenders are more likely to grant loans to businesses that have insurance coverage than those that do not.

Importance Of Insurance To The Economy

1. Protect societal wealth: The wealth of society is safeguarded; for example, property insurance can cover the loss or damage of property due to fire or accident.

2. Promotes economic growth and development: Another importance of insurance to the economy is that it promotes economic growth and development.

In most cases, insurance companies collect payments from a large number of policyholders and then invest them in productive activities

For example, an insurance company may invest the collected premiums in government securities. 

As a result of this, funds are made available to the government and these funds are used to fund infrastructural projects that are necessary for economic development.

Moreover, the insurance sector is an integral part of every economy because of its significant contribution to GDP

And, since GDP is a key indicator of economic growth, it's no surprise that insurance is one of the major contributors to GDP and, economic growth.

3. Provides job opportunities: Insurance involves a series of activities such as marketing, analysis, broking, underwriting, all of which necessitates the employment of people.

Hence, insurance creates employment opportunities

4. Helps in capital formation: Capital formation is defined as an increase in the capital goods of an economy. 

Insurance aids capital formation by pooling policyholder premiums and using these assets to make appropriate investments.

5. Increase the standard of living: Insurance helps provide standard of living to citizens of a country. 

This is because insurance creates jobs and contributes to an economy's gross domestic product.

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