EORUPA ACADEMY

Q. No. 24: What is insurance? Explain its Advantages.

I N S U R A N C E
INTRODUCTION: Business is surrounded by uncertain future events. There are some future risks. Which can be controlled or minimized by proper planning in methods of production and sale However, there are certain risks, which can be shifted on to other agencies, which specialize in bearing the risks. The insurance is the best way of shifting business risks. DEFINITIONS: In the words of justice tidal insurance is a contract in which a sum of money is paid by the assured in consideration of the insurers incurring the risk of paying larger sum upon a given contingency EXPLANATION: Insurance is a means to spread the loss caused by particular risks, over a number of people against some amount called premium. Insurance cannot prevent loss. It can only compensate those who suffers such loss. The contract of insurance in which where by one party undertakes to compensate the loss of another in return of consideration is called contract of insurance. ELEMENTS/PARTIES IN INSURANCES: The contract involves the following parties and terms: 1. Insurer (the parity promises to pay the amount) 2. Insured (the party to whom certain money is paid) 3. Policy (the document containing terms &condition) 4. Premium (the consideration) Insurance interest (the interest of the insured in the subject matter of insurance. ADVANTAGE OF INSURANCE: The contribution of insurance to business community and human life are significant the main advantage of insurance are a under. 1. PROMOTION OF SAVING. Insurance collects the small saving of the people and uses it for the long term investment. In modern business insurance companies are playing very important and effective role in collecting the saving of the people. Insurance mobilizes saving and accumulates capital. Insurance companies collect saving from general public and direct them; to the suitable channel of investment. Insurance helps to increase saving and investments within the society. 2. SECURITY: At every moment there is a chance of loss in business with the help of insurance risk is transferred to the insurance company and insurance gives the sense of security to businessman. 3. SOURCE OF CREDIT: At present modern business depend upon largely on credit. Insurance company collects large amount in shape of premium form its customer. Insurance company

Prepared By: H.ABDUL REHMAN

0321-6485593

EORUPA ACADEMY
collects large amount in shape of premium from its customer also lends the money to the institutions as well as the government. 4. SOLVE THE SOCIAL PROBLEMS: insurance company also solves many social problems by providing financial assistance e.g. in case of assured death insurance provides finance to assumed and on the other hand in case of any loss insurance compensates the loss. Insurance provides relief to the helpless families. Due to this every supporting member like to have his life insured. 5. SOURCE OF EMPLOYMENT Insurance companies provide the employment opportunity to unemployed persons, which is helps for the important and progress of social condition. 6. INDUSTRIAL DEVELOPMENT In modern worlds insurance companies are also playing an important and effective role investors who purchase and sell the securities. 7. SAFETY AGAINST ANY UNFORESEEN DANGER: Insurance covers risks and provides protection to goods transported from one country to cover losses or danger. 8. ENCOURAGE INTERNATIONAL TRADE: Insurance covers risks and provides protection to goods transported form one country to another by road or by danger. 9. SOURCE OF CAPITAL FORMATION: The insurance companies pool large 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. 10. STABILIZER OF ORGANIZATION The insurance companies helps in creating goodwill between employers and the employees by providing groups insurance to all the permanent employees of the company. They also introduce retirement income plans, which ensure a regular income to the employees of an organization greatly help in stabilizing the organization. 11. AFFORDS PEACE OF MIND: The insurance companies eliminate fear of loss caused by fire or theft on the payment of a fixed regular premium to the business. The insurance companies by offsetting the risk give a pleasant relaxation and peace of mind to the investors. 12. SPREAD OF RISK OF LOSS: A large number of persons get marine, life insurance policies and pay premium to the insurance companies whenever a loss occurs, it is compensated out of the funds of the insurers. The loss is spread among a large number of policyholders the insurance companies collect large funds are invested in government securities. The government securities the government thus gets sufficient loans easily for development. CONCLUSION Summing up insurance has become a business in which the party doing the business promises indemnifies others loss for some amount of money. It compensates the loss and it also creates a sense of confidence as regards future.

Prepared By: H.ABDUL REHMAN

0321-6485593