What is Insurance & Why Do You Need It?

Insurance is a contract represented by a policy in which an individual (you) or an entity (business) receives financial compensation or reimbursement against a loss. You pay the insurance an amount of money known as premium (amount of money the insurance company is going to charge you for taking up your risk) and the insurance issues you with a policy so that you get compensated in the event of a loss.

Simply put is transferring your risk at a price

Benefits of Insurance to an individual

• • Insurance provides security against risk and uncertainty to the insured because he/she receives compensation against actual loss.
  • It enables the insured to concentrate on his work/life without fear of loss due to risk and uncertainty.
  • It inculcates regular savings habit e.g. life insurance, pension. Insurance does not only protect against risks and uncertainties, but also provides an investment channel too. It enables systematic savings due to payment of regular premium and the insured gets the lump sum amount at the maturity of the contract.
  • The insurance policy can be mortgaged and funds raised in case of financial requirements.
  • Insurance policies, like pension plans provide for income security during old age.
  • Some insurance policies may be a mandatory requirement in certain contracts.

Benefits of Insurance to Businesses

• • Security and Safety: Insurance provides financial support arising from insurable risk and reduces uncertainties businesses face at every step of their lifecycles. It provides an ideal risk mitigation mechanism against events that can potentially cause financial distress to businesses.
  • A business is also able to enjoy normal margin of profit. This is because the business is protected from unexpected losses because of insurance.
  • It also makes is easy for businesses to acquire loans and credit facilities because the business and it’s assets are insured, as this provides a sense of security to the lenders. The business can obtain a loan by pledging the policy as collateral for a loan.

Benefits of Insurance to Businesses

• • Business Efficiency is also increased, as insurance enables businesses to concentrate on their activities without worrying about safeguarding their property. When a business is free from the risk of losses, it will certainly devote much time to the business.
  • Takes care of the welfare of the employees: Insurance covers such as medical, pension and WIBA can be taken by employers to cover their employees as they are a significant part their business success.

Benefits of Insurance to the Society

• • Insurance companies provide the funds for infrastructure and development.
  • Insurance provides security to the insured during their life and to his/her dependents.
  • It provides employment opportunities especially with the entry of multinational insurers, employment opportunities have increased.
  • Insurance provides a sense of livelihood to those who might otherwise not have an income source e.g. retired people, students, sales agents that earn commission.
  • Insurance works on the principle of pooling of risks and distributes risks over many people. The burden of loss is shouldered by so many persons. Thus, insurance provides a form of social cooperation.

Benefits of Insurance to the Nation

• • Insurance provides funds to the government for providing basic facilities and to develop infrastructure.
  • It has enabled the country to get foreign exchange
  • Insurance relieves the government of the burden of supporting a family, in case of the untimely demise of the breadwinner.
  • Insurance promotes trade and industry by providing risk cover.
  • Insurance companies pay taxes out of profits earned. This is an important revenue source to the government.
  • Insurance companies are permitted to invest funds in the capital market. Such investments develop the capital market.