Importance of Insurance to Businessmen
The importance of insurance to a businessman can be understood from the following points.
1. Security and Safety: It gives a sense of security and safety to the businessman. It enables him to receive compensation against actual loss. He can concentrate on his business with a secure feeling that in case of losses arising from insurable risk, his losses will be compensated.
2. Distribution of risk: Risk in insurance is spread over a number of people rather being concentrated on a single individual.
3. Normal expected profit: An insured trader can enjoy normal margin of profit all the time. He is protected from unexpected losses because of insurance.
4. Easy to get loans: A trader can get bank loans easily if his stock or property is insured, as insurance provides a sense of security to the lenders.
5. Advantages of Specialization: Businessmen can concentrate on their business activities without spending more time on safeguarding their property. The insurance companies, on the other hand, can provide specialized insurance services.
6. Development of Social Sectors: Insurance funds are available for economic development particularly for the development of social sectors. Especially for a developing country like India, insurance funds are an important source for investing in infrastructure projects (roads, power, water supply, telecom etc).
7. Social cooperation: The burden of loss is shouldered by so many persons. Thus, insurance provides a form of social cooperation.
Benefits of Insurance
Insurance is important because both human life and business environment are characterized by risk and uncertainty. Insurance plays a key role in mitigation of risks. The benefits of insurance are discussed below:
Benefits of Insurance to insured
1. Insurance provides security against risk and uncertainty.
2. It enables the insured to concentrate on his work without fear of loss due to risk and uncertainty.
3. It inculcates regular savings habit, as in the case of life insurance.
4. The insurance policy can be mortgaged and funds raised in case of financial requirements.
5. Insurance policies, especially pension plans provide for income security during old age.
6. The insured gets tax benefits for the amount of premium paid.
7. Insurance of goods may be a mandatory requirement in certain contracts.
Benefits of Insurance to society
1. Insurance is an important risk mitigation device.
2. Insurance companies provide the required funds for infrastructure development.
3. It provides a sense of security.
4. Insurance provides security to the insured during his life and to his dependents.
5. It provides employment opportunities. With the entry of private insurers employment opportunities have increased greatly.
6. Insurance provides a sense of livelihood to those who might otherwise not have an income source — housewives, retired people, students etc can work as agents and earn commission.
7. Insurance works on the principle of pooling of risks and distributes risks over many people.
8. Insurance is an invaluable aid to trade.
Benefits of Insurance to the Nation
1. Insurance provides funds to the government for providing basic facilities and to develop infrastructure.
2. It has enabled the country to get foreign exchange (49% FDI is permitted in the insurance sector in India).
3. Insurance relieves the government of the burden of supporting a family, in case of the untimely demise of the breadwinner.
4. Insurance promotes trade and industry by providing risk cover.
5. Insurance companies pay taxes out of profits earned. This is an important revenue source to the government.
6. Insurance companies are permitted to invest 5% of the funds in the capital market. LIC alone has invested around Rs.28,000 crore in the Indian capital markets. Such investments develop the capital market.