Insurance is an agreement between two parties in which one party assures to safeguard the other party's risk and interests. It also guarantees payment of a specified amount upon happening of an uncertain event to compensate the party for the loss so incurred. The party that ensures the risk is known as an insurer, a company, so it is also called an insurance company. The other party whose risk is covered is known as the insured. Insurance policies allow people to carry their work, operations without fearing the risk of loss or damage. Considering the risks a business or life is exposed to, insurance plans help deal with them in the best way possible. With growing exposure to hazards, more and more people are readily taking up insurance policies.
Importance of taking insurance policies-
• Provide safety and security to individuals and businesses-
Every business is exposed to some risks and uncertainties. Life is uncertain. Insurance helps in reducing the chances of difficulties. They help in providing business safety and security by assuring them to compensate in case of any mishappenings. For example- a person having a godown full of grains experiences fire in the godown. In this case, he will be shattered. But in case of insurance policies, he can receive the claim and can rebuild his business. They help in providing security and safety to the company.
• Helps in providing long term financial resources-
In the long term, insurance policies help in providing necessary long term financial resources to the party. In case of death of a person on whom the entire family depends dies due to some disease or otherwise. In that case, the family of the deceased person would be shattered mentally as well as financially. But if the person has life insurance, he can be sure and secure that after his death, his family will get money on which they can survive. Also, in case of business, if any loss occurs, they will receive the corresponding claim, which will help them to stand back in business. They help in providing long term financial resources.
• Helps in expanding business-
Insurance policies help people to carry out their activities without worrying about the risk of loss of theft or fire. They guarantee payment of a specified amount to the owner in case of any hazard happening. This allows business people to expand their business fearlessly and not to worry about the risks. This will enable people to carry out operations on a large scale and expand continuously without fear.
• Work can be carried out without doubt-
Since the risks are covered and insured, the work can be carried out by the owner fearlessly. It relieves one from mental stress, which is a lot of burdens. It allows people to think beyond their fears and insecurities. One cannot work efficiently when they are continuously worried about risk. So insurance policies free people's minds from such tensions and anxieties and allow them to be free, happy, and stress-free.
• Spreads risk-
Insurance policies work in such a way that the risk of a person is spread among many other people who choose to save themselves from a particular loss. The premium from people having a common interest and intending to safeguard a similar risk is contributed to the one who incurs a loss. This way, the burden regarding the loss is shared among people. This way, even the insurance companies don't get charged. Any damage is compensated by the premiums of people covering the same risk.
• Promotes economic growth-
Insurance companies deviate the excess money so collected by way of dividends into productive investments. They don't keep the money idle but try to earn from it as much as possible. This helps in economic growth. Peoples' savings are channelized to these companies who further invest them in productive ventures. All of this increases the supply of money in the economy. It also increases the investments and thereby economic growth of the economy. They enable the businesses to carry and expand their operations without fear of loss which further helps in the growth of the economy as a whole
• Provides support to the families in case of medical emergencies-
In a family, if there is a single earning member, then all the other members are directly or indirectly dependent on them. In case anything happens to the main earning person like death, mental problem, or anything permanent, which disables them, and they can't work anymore. The entire family gets shattered emotionally and financially. They get helpless. In such cases, the insurance companies help people to ensure their life in which they assure that a foxed amount which is previously decided will be paid to the family of the beneficiary in case of any mishappening to the primary earner. This policy allows people to support their families financially, even after their death.
• Life insurance encourages savings-
The life insurance policy covers the risk and uncertainties associated with the end of a person. In addition to providing security, they also help in encouraging savings. These policies involve the payment of a fixed amount monthly or yearly. And on maturity or death, they provide the lump sum money to the beneficiary or the owner. They help in channeling savings to productive purposes and later on return cash at maturity. In the case of life insurance policies, the risk is also insured, and savings are also encouraged.
As discussed above, it is evident how important these insurance policies are. With changing times, growing businesses, and risks to life, the need for these insurance policies is also increasing. There are many policies from which one can choose and safeguard any chance. One can select the system and the plan according to their requirements and according to the availability of resources for paying the premium. There are fire insurance plans, life insurance plans, health insurance plans, marine insurance plans, etc. one can choose which risk they want to get insured and accordingly consult regarding. It is advisable to cover risks to avoid pressure at a later stage.