Functions of Insurance, Definition of Insurance, What is Insurance?

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Functions of Insurance

Functions of Insurance: In this Blog, we are providing Basic Functions of Insurance, What is Insurance? Definition of Insurance, let us check.

What is Insurance?

Insurance is a method that spreads the loss likely to be caused by an unknown occurrence among a number of people who are exposed to it and plan to protect themselves against it. It is a contract or agreement in which one party promises to pay an agreed amount of money to another party in exchange for compensation to make a loss, damage, or harm to anything of value in which the insured has a financial interest as a result of some unpredictable event.

Definition:

Insurance is an agreement between two parties, where one is an insurance company and the other is an individual or a group. The individual or group pays money to the insurance company (called a premium) in exchange for the company’s promise to help them financially in case something unexpected happens that causes financial loss (called a risk) and is covered by the policy.

The main idea behind insurance is that the person buying it would rather pay a small amount of money on a regular basis than risk losing a lot of money unexpectedly. Many people buy insurance, and when something bad happens, the money collected from everyone’s premiums is used to help the person who suffered the loss. The insurance policy explains exactly how much money the person will get if something goes wrong, so they know exactly what to expect.

Basic Functions of Insurance:

Insurance is an agreement between an individual or a group and an insurance company to protect against financial losses due to unexpected events. There are several functions of insurance that are important for policyholders to understand. Here are some of them:

  • To provide safety and security to the insured: – Insurance provides financial protection to the policyholder against future hazards, vulnerabilities and accidents. Although no insurer can prevent dangerous events from occurring, they can help by providing some sort of financial protection to compensate the insured party.
  • Protection for your loved ones: – Medical insurance can help you and your family get the right sort of treatment and cover hospitalization expenses. It helps to take care of their health in case of an accident, illness or any other unfortunate event.
  • Collective Risks: Insurance allows a number of individuals to get an insurance policy to safeguard themselves from the losses that may occur due to an unfortunate event.
  • Risk Assessment:- Insurance organizations play an important role in determining the actual amount of risk from the occurrence of a particular event by assessing the situation.
  • Certainty:- Insurance gives the insured party the security that they can meet future losses after taking coverage for a particular risk.
  • It helps to forestall losses: An insurance contract can help the insured to mitigate their losses by providing some sort of security in case of an unforeseen event.
  • Fulfill the legal requirements:- In some countries, any business is required to have certain insurance covers in order to engage in any economic activity.
  • It allows the development of big businesses:- Insurance helps to mitigate risks and encourage businesses to take bold decisions.
  • It can help in boosting the economy:- When businesses have sufficient insurance cover, they can increase their scope of economic activity that will bring commensurate rewards. This can provide an impetus to the overall economy of a country in the long run.

FAQ on Functions of Insurance

Q. What are some of the types of general insurance?

Ans: General Insurance has a number of classifications, some of which are mentioned as follows:
Travel Insurance
Health Insurance
Motor Insurance
Marine Insurance
Renters Insurance
Homeowners Insurance
Liability Insurance
Pet Insurance

Q. What is the maximum amount for tax deduction that is available under Section 80C of the Income Tax Act?

Ans: The maximum amount for the purpose of tax deduction that is available under Section 80C of the Income Tax Act is Rupees One Lakh Fifty Thousand.

Q. What are the main principles of insurance?

Ans: The main principles of any insurance contract between an insurer and insured are as follows:
Utmost Good Faith
Insurable Interest
Indemnity
Subrogation
Contribution
Proximate Cause

Q. What are the two different types of insurance which have tax benefits under the Income Tax Act?

Ans: The two different types of insurance which have tax benefits under the Income Tax Act are Life Insurance and Health Insurance.

Functions of Insurance, Definition of Insurance, What is Insurance?

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