Uncertainty leads to risks. Sometimes, people take risks for a better tomorrow. But, since there is always an element of uncertainty, risks can result in losses – both tangible and intangible.
It is due to this unpredictability, insurance has come up as perhaps the best risk management tool. Today, it has become one of the most critical components of a financial plan. The basic objective of opting for insurance is to cover unforeseen risks, which may result in the loss of life and assets.
In other words, insurance is basically a protection tool to save oneself from potential financial risks. With the development of insurance industry, protection plans are not only a tool to cover risks but have also come up as an instrument for savings and investment. In this article, we will discuss the concept of insurance and the benefits a common man and society gets through insurance.What is insurance?
Insurance basically means protection against future losses. It can be defined as a forward planning by a common man to arrange against the unexpected possible contingencies, which can arise in the future.
A man can ensure security against unexpected financial losses. This security can be bought in exchange of a particular amount called as premium. In short, insurance is a measure one can take to fight against the financial odds, on the base of a pre-payment.
Technically, procuring protection is a course of action through which an individual manages the potential risk and transfers it efficiently to the structure that is capable of handling it.Why insurance is a need?
A person needs protection through insurance to cover unforeseen risks and ensure financial security. It is well defined in the Maslow’s theory wherein the physiological needs of hunger and thirst are termed as the biggest need of a person. Once this need is satiated, the second most important need is protection.
In the primitive age, it was about getting protection against environmental factors. The need of protection has evolved by multiple folds from then to now. In the era of technology, it is about getting security against every kind of risk, be it a life or any asset with an insurable interest.It has become an imperative because:•It brings protection element:
The prime purpose of insurance is to avail protection against unforeseen financial contingencies for business and human. It brings the sense of security. It helps to hedge against the uncertainties of life. •It generates wealth:
Insurance generates resources to save and create wealth, in the long term. Certain types of life plans act as means to develop a corpus and generate rate of returns. Then these funds are gainfully employed in various government securities and bonds to generate returns. •It brings disciplined saving approach:
Acquiring coverage calls for a fixed amount to be invested regularly by the policyholder. This develops a disciplined approach to save as the policyholder is required to compulsorily pay a particular amount as premium, at regular intervals. It, thus, cultivates a habit of saving, which ultimately helps in developing a corpus, over a period of time. •It supports risk taking capacity:
Insurance coverage, be it for personal or for commercial purpose, supports risk bearing capacity of individuals and organisations alike. It enables the person or the management of an organization to focus on constructive activities with the hope that any kind of financial loss will be taken care of by the insurer.•It brings social stability for individuals:
In absence of a public social security scheme, protection policies in India become all the more significant. Insurers provide plans which can focus on the well-being of the communities through group schemes. Group schemes are provided to employers for their employees, to people below poverty line, and to various associations and societies.
This brings host of benefits for the society as a whole. Relations between business entities and their employees become more trusted and employees work in a much more confident manner, without any worries. •It assembles the resources for economic development:
Fund available with insurance companies play a greater part in the economic development. The government is able to fund projects that can enhance basic amenities pertaining to transport, housing, electricity, water supply and communication. Insurers channelize the vast pool of savings contributed by organisations and individuals and employ it for productive purposes, which further ensure well-being.