What is insurance and why is it needed | What are the benefits of insurance

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What is insurance and why is it needed?

Insurance is a contract.  It is a legally binding agreement between two parties.  A contract is entered into by one party promising to indemnify the other party.  The other party enters into a contract promising to pay a premium at a fixed rate to receive compensation.  An agreement between the first party insurer and the second party insured guaranteeing payment of indemnity and payment of premium respectively.  In case of life insurance loss is not covered, no value of human life can be quantified.  Hence financial security is provided in life insurance.

 Insurance industry plays a very important role in the economic development of any country.  Insurance helps in capital formation by collecting small savings (premium) from the public.  Guarantees compensation for human life, debt and property.  Having such assurance makes people feel secure in their workplace and can concentrate on work.  As a result, personal productivity increases.  Thus, if individual production increases, national production increases.  When production increases, the standard of living of the people improves and the overall economic prosperity of the country.  Example: Life insurance contract, fire insurance contract.

 What are the benefits of insurance?

Benefits of insurance:

 (1) It provides security of life and property.

 (2) It creates capital.

 (3) It is old age and emergency assets.

 (4) It gives peace of mind.

 (5) It provides finance to business.

 (6) It reduces inflation.

 (7) It provides security of social property.