What is Insurance? Meaning, Benefits, Importance, Types of Insurance, How it works in 2024?

Insurance 

Insurance is a special type of contract that transfers risk from one party to another. This means that in exchange for payment, an insurer will pay if you suffer a loss or damage.

Insurance is a type of contract. An agreement between two or more persons that can be legally enforceable is called a contract. The broad meaning of an insurance contract is that the insurer pays a certain sum of money to the person insured on the occurrence of the event described in the policy.

What is Insurance

The periodical premiums (insured, premium) that the insurer keeps on paying to the insured are redeemable in this contract. Unclear in the rule book is whether or not these premiums are non-returnable. In almost every other insurance contract, it has been decided by the courts that non-returnable amounts like insurance premiums do not constitute a return and are hence eligible for deduction from income under section 16(1)(c) of IT ACT 1961.

This is the contract between you, the insured, and the insurance company. The insurance company pays you a certain amount of money (the sum assured) in exchange for which they agree to pay you a fixed sum (premium) upon the occurrence of an event that is called a peril.

Insurance is a kind of association in which all the insured may be the victims of the risk, while only a few (very few) of them who actually suffer Losses are taken, and compensation is given. 

In fact, the risk appetite is high but only a few of them suffer losses in a given period. The insurer (company) undertakes to distribute losses to the remaining insured parties.

Under what circumstances can insurance be done?

Insurance can be done in all possible circumstances.

First of all, it is necessary to have a contract with a third party. There are many disputable cases: the law prohibits entering into an insurance agreement without the consent of a person on whose life you want to insure. Then, one must consider the person's suitability for insurance; this is determined by examining several points such as age, health and occupation. Before any insurance contract is entered into, it should be established that the insured party is able fully to read and understand text documents.

Parties involved in Insurance

The act of insuring is usually carried out between the person who wishes to insure (insured), and the entity that will provide the insurance (insurer). As simple as the above statement may seem, more than two parties are involved in contracting and following up on insurance. Next, we will deal with the:

Policy 

The most important part of insurance is the contract between both parties. It is the document in which the rights and obligations of the parties are recorded. It must have been accepted by both and it must contain the personal data of the insured and the company, the amount to be paid and how often the payments will be made, a description of the insurance in question, from when and until when the policy is valid, the coverage that includes the insurance and the beneficiary of the insurance (who is the person who receives the compensation if the established conditions are met).

Insurer 

The entity that assumes the risk coverage of the insured.

Contractor 

A person who agrees and signs the insurance contract. He is the one obliged to assume the conditions of the contract, especially the premium, that is, he is the person who contracts the insurance and whose name appears on the policy.

Normally it coincides with the insured, although in some cases it may not be so, since it may be that the insurance is paid by a person but the insured is a relative.

Insured 

Person or object under which the insurance falls. Rather, who has the coverage and, therefore, who is exposed to risk. You are the holder of the insurance contract.

Beneficiary 

It is the person who is compensated if the conditions provided for in the contracted policy are met. Depending on the case, the policyholder, insured and beneficiary may or may not be the same person. In life insurance, for example, they can be three different people.

Mediators (optional) 

An insurance mediator is an advisor who advises the client when hiring a policy. They must inform you of the different existing prices and what type of coverage is best for you. There are several types of mediators: traditional and online brokerages, insurance agents, bank operators, etc.

Features and Nature of Insurance

• Protection against risks - Insurance is a powerful way to protect against risks. It frees a person from all the uncertainties prevailing in life. These risks may relate to life, health, rights and financial resources, and assets. Therefore, one way of protection against all these risks is insurance.

• Method of Spreading the Risks – In insurance, work is done based on a cooperative spirit “one for all and all for one”. A fund is formed by collecting people who are surrounded by similar types of risks so that the risk of one person is distributed among all the members and when any one member is exposed to the risk, payment is made from that fund to that particular member.

• Transfer of risk from the insured to the insurer - In insurance, the risks of all the insured are transferred to the insurer. A fixed payment is made by the insurer in case of loss to the insured.

• Insurance is a process - Insurance is also a process that is conducted in a predetermined manner. First, the insured transfers his risk to the insurer in exchange for a fixed premium, and then the insurance obligation provides protection against that risk.

• Insurance a contract - Insurance has the property of legality, it is a valid contract. In this, an offer is made by the insured to the insurer and upon acceptance by the insurer, a valid contract is formed between the two in exchange for a fixed premium. In which the insurer gives the undertaking to cover the loss on the occurrence of a certain event.

• Insurance is a cooperative approach - Insurance is based on the spirit of cooperation. Persons exposed to similar types of risks contribute to a certain fund, out of which the risk to any member is paid out of that fund. Thus the spirit of “all for one and one for all is worked out.

• Determining the risks of losses - In insurance, the risks cannot be eliminated, but the uncertainty of the risks is minimized and certain. The risks are transferred by the insured to the insurance company and the value of that risk is fixed with a fixed return/premium. That is, instead of fixed premiums, uncertain losses are determined as the sum insured to be received by the insurance company. This amount is called the insurance claim amount.

• Payment only on the occurrence of the event - In insurance, the payment is made only on the occurrence of the event. In life insurance, if the occurrence of an event is certain, such as the death of a person, suffering from a particular disease, or completion of the insurance period, then in such a situation, the insured must be paid. But in normal insurance, payment will be made only after the occurrence of the event, otherwise, the insured will not be considered liable for payment.

• Assessment and Assessment of Risk - In insurance, the assessment of risk is done before the contract of insurance. The premium is pre-determined based on the amount of risk and the likelihood of the risk arising. Instead of this fixed return/premium, a certain sum assured is paid on the occurrence of a certain risk.

• Basis of payment - Life insurance has an investment element, so on the death of the party or the completion of the term, a certain amount is paid to the insured. But in other insurance, the payment will be made equal to the actual damage. This damage will be paid only in case of risk arising due to the insured reasons as per the contract and within the limit of the sum insured, not more than that amount will be paid.

• Wide Scope - The scope of insurance has now become very wide. Earlier only life insurance, marine insurance, and fire insurance were insured, but now along with traditional risks, non-traditional risks are also insured. Now the scope of miscellaneous insurance has become very broad. In this, many types of insurance have been included like theft insurance, accident insurance, livestock insurance, crop insurance, etc.

• Institutional Structure - Big organizations all over the world are engaged in insurance work. In India Life Insurance Corporations, General Insurance Corporations and their four subsidiaries, and many private companies are engaged in the work of insurance.

• Insurance is not gambling - In insurance, the damage is compensated only when there is compensation or normal damage equal to the actual damage, so it is wrong to compare insurance with gambling. In gambling, one party is in profit and the other party always remains in loss, but it does not happen in insurance.

• Insurance is not a donation, it is a right - the right is obtained by contributing to the insurance by the insured, based on the contractual relationship, the insurer pays the insured money/claim after a certain period in exchange for the fixed consideration (premium).

• Measures to solve social problems - Many social problems prevailing in society are solved by insurance because the uncertainties and risks of society are reduced by insurance.

• Insurance Law Compulsory - In the modern era, the field of insurance is expanding, and along with it it is becoming the duty of the governments to make regulatory acts related to insurance. Acts have also been made in India for life insurance, marine insurance, and general insurance. Apart from this, the entire insurance business is regulated and controlled by the Insurance Control and Development Authority.

• Essentials of Insurance Principles - It is necessary to have certain principles for an insurance contract. Among them, insurable interest, principles of ultimate good faith, cooperation and potential, etc. are the main principles. In the absence of the principle of insurable interest, insurance would be treated as gambling.

• Insured only valid properties/works - Insured can be done only on legitimate properties. Goods of theft, dacoity, smuggling, etc. cannot be insured.

• Having a Large Number of Insureds - The larger the group of persons exposed to the same type of risk, the more the insured will get protection against lower premiums.

• Loss is beyond the control of the insured - Only unknown and uncertain losses can be insured. Whether there will be loss or not, what will be the intensity and intensity of loss, it should all be out of control.

Types of Insurance contracts

Contracts of insurance can be divided into two types of categories. Those contracts in which there is a liability to indemnify and those in which there is no question of indemnity but a contract to pay a fixed amount. Indemnity insurance can be marine insurance as well as non-marine.

The first example overseas by sea is the insurance of the safety of the goods being sent and another example is the insurance of the fire hazard or the motor.

In a contract of indemnity, only damages are covered. Even if the same item is insured in more than one place (insurance institutions), only the amount of compensation is available to the insurer. Yes, those insurance companies share the payment amount among themselves.

Therefore, this principle of indemnity contract does not apply to life insurance and accident insurance. Therefore, for whatever amount of life insurance and accident insurance is done, the entire amount is available to the insured (if he is alive) or his nominee.

Fire insurance

As it has been said, fire insurance is a contract of indemnity, that is, the amount which is mentioned by the insured will definitely be received, but not so that the indemnity will be possible to that extent.

A fire insurance contract, although it is only in respect of some property, yet is a personal contract, that is, the owner of the said property or the person having insurance interest in that property is assured of indemnity by that contract.

Therefore, if the insured does not have ownership or any other right in which property, provides him with an insurance interest, then he cannot take advantage of the contract even after getting the insurance done.

Although the insurance interest is transferred on a change of ownership of the property, the insurance contract does not automatically transfer as per English law. The permission of the insurer is required even if it is intended to transfer the contractual benefit thereof along with the sale of the property. This is not the case in Indian law.

As per Sections 49 and 133 of the Fixed Asset Transfer Law, in the absence of a contrary contract, the recipient of the property can claim the benefit of the insurance contract for compensation. Some rights may be available to more than one person in the same commodity and they may have different types of insurance interests. So all of them can take multiple insurances on the property of that one depending on their interests.

To claim indemnity on a fire insurance contract, the immediate cause of the damage must be fire and fire means that a spark has been ejected (in English it is called Ignition).

Scorching of an object due to excessive pressure is not considered fire. The rule of the necessity of "sparking" does not apply to loss caused by lightning.

Loss caused by an explosion is not called loss due to fire, even if that explosion was caused by fire. Its premise is that the immediate cause of the loss should be fire. Similarly, the loss arising out of the acts of a third party in the event of a fire is also not included in the fire loss. But the extent of fire or water damage is determined not immediately after the fire is extinguished but at the time when the said insured property is handed over to the insured.

There are three types of fire insurance contracts:

1. Rated or undervalued
2. Complete and indefinite
3. Fixed an average

In the appraised insurance contract, if the property is completely destroyed, then the amount written on the insurance letter has to be given to the insurer. In an unvalued insurance contract, if the entire property is destroyed, the said property is valued at that time. In a complete and indefinite fire insurance contract, the list of items is not given, but the risk of loss from fire is normally insured.

In a closed fire insurance contract, the amount is written on the prescribed insurance letter. Proportionate compensation is done in the average fire insurance contract: The principles of restoration or restitution, and average and partial liability are applied in the fire insurance contract.

Life insurance

Life insurance often originated at the same time as marine insurance, because while the owners of ships on a commercial voyage were concerned about managing against the possibility of shipwreck, the lives of the captains of those ships were equally valuable.

At the same time, when unions of artisans began to be established and rules could be established to calculate the average age limit along with the account of births and deaths, then life insurance contracts also became widely spread. But at that time the terms of insurance letters were quite difficult.

According to the terms of pre-American Civil War life insurance contracts, a letter of insurance had no Surrender Value. No loan could be availed on insurance. There was no grace period to pay the insurance premium and insurance was declared invalid in case of suicide, duel, or a sea voyage.

Life insurance is a contract between two persons - the insurer and the insurer - according to which the insurer undertakes to receive a fixed sum of money in return for timely payments for a specified period and the insurer at a specified time in return for those fixed payments. promises to pay.

The difference between other types of insurance contracts and life insurance contracts is that it is concerned only with human life and whatever the type or form of the insurance contract, the basic condition is that if the insured dies during the continuance of the contract.

If so, the insurer shall pay the amount written on the insured. The cause of death can terminate this contract only in two situations.

One, if the death of the insured is by any unlawful act himself. Two, If the death of the insured is due to such causes as having been given in the letter of insurance. There is some difference between English law and Indian law on this subject.

Attempting to commit suicide in India is a crime but suicide is not a crime, so a similar insurance contract can be terminated upon committing suicide, which has this condition written in the insurance letter. The subject of suicide comes in the first category in English law.

The amount received in insurance is considered a loan to the insured. Therefore, it falls under the category of "property" under Section 3 of the Transfer of Property Law (TPA) and it could be transferred according to Section 130 of the said law. Now the arrangement for the transfer of the amount of life insurance has been made in sections 38 and 39 of the insurance law.

The transfer of the said amount can also be done by assignment (Section 38) and also by nomination (39). In the assignment, the insurer transfers his rights and interests arising out of that insurance contract to another. Nomination only means that if the nominee is alive on the death of the insured, then the sum assured becomes available to him. The nomination can be changed without notice.

If the nominee dies earlier, then the insurer will have the right to get the amount again. is received. This is not the case for assignments. Once the rights to an insurance contract have been assigned, a second assignment cannot be made without his prior permission.

If the assignee dies before the insurer, those rights are not returned to the insured but become available to the heirs of that deceased person.

There are many types of life insurance, such as term life insurance, endowment policy, unit linked insurance, whole life insurance plan, money back plan, etc. Buying a life insurance plan at a young age gives you good coverage at low premium rates. If you buy the same insurance policy when you are older, you will be paying a much higher premium than that plan.

Accident insurance

There can be two types of circumstances under the contract-

• The burden of indemnifying others by accident and

• Accidental damage to self or property. In America, it is called 'Casualty Insurance'. In English law, it is referred to as 'indemnity insurance. These types are not accepted in the Indian insurance law, but here it is divided into life insurance and general insurance. Therefore, in the above-mentioned two situations, the latter comes under the category of life insurance. Insurance of such accidents has been made mandatory under the Motor Vehicle Act (1930) and Air Navigation Act 1934 so that the interests of the injured can be protected.

Home Insurance

Home insurance i.e. the insurance that is done in home insurance, in which policies are made according to your building material and construction. In this, the insurance company gives the loss of both the things of the house and the household items.

This insurance comes in handy in case of a fall or an accident, theft of the goods, burning of the goods, or any such inconvenience. In which there has been damage to the house or the goods kept inside. 

Other insurance 

• Health insurance
• Automobile insurance

Need for insurance

The life of individuals is surrounded by many types of uncertainties and risks. He has some property-related risks and sometimes his life is at risk, so the idea of ​​how to get protection against these risks has made insurance a necessity.

If insurance is said to be the basis of the present industrial development, directly and indirectly, then there will be no exaggeration. Insurance has become an important necessity to make human life stress-free. The need for insurance can be estimated based on the following points-

• To get protection against risks - Assets are insured because there is a constant possibility of their destruction or that they may become inactive before their expected life due to the occurrence of a contingency

• To get protection from potential risks - The insured may or may not be subject to damage, an earthquake may or may not occur, and an earthquake may or may not cause damage to the property. Human death is certain, but when death will occur is uncertain, so insurance has become a necessity to get protection from this uncertainty or possible risks

• To reduce the impact of risks - Insurance does not provide protection to the insured subject, it does not even prevent the loss caused by the hazard. But sometimes the danger can be avoided or the intensity can be reduced by better safety and preventive measures so that the effect of the danger on the life and property of the persons dependent on the subject can be reduced.

• To get rid of the need for additional capital for security – Insurance frees industrialists, businessmen, and other persons from investing capital for security. The risk is capped to that extent by paying a small premium. Therefore, the money spent in this arrangement can be used elsewhere.

• Necessary for the Development of Large-Scale Enterprises - There is so much risk in large-scale enterprises that starting without insurance is not only difficult but also impossible.

• For obtaining finance from financial institutions - Financial institutions also provide finance to these industrial and business institutions only when their properties have been insured. Therefore, insurance is also necessary to meet huge financial needs.

• Necessary for foreign trade development - Insurance is also necessary for the promotion of export business. Insurance provides complete protection even in the event of loss of value to the goods so that exporters can export free from the uncertainty of injury.

• To encourage saving and investment - Life insurance is a good source of savings and investment. Covering the uncertainties of life through insurance ensures a higher amount, which encourages savings by reducing wastage.

Importance of insurance

With the development of civilization, the importance of insurance is also increasing, because risks, accidents, and uncertainties are increasing, today we cannot imagine any country which is not taking advantage of insurance. Today, insurance has moved from its initial form to the social and business world and has been gaining popularity based on its usefulness. Impressed by the usefulness of insurance, the British Prime Minister, Sir Winston Churchill, said, "If I am under my control, then I should mark it on the door-to-door that insure it."

Insurance benefits the entire human race and all its related sections socially and economically. In short, it can be said that the importance of insurance is increasing day by day and quadrupling in the modern era. The importance or benefits of insurance can be understood by the following classification.

Personal or family importance

Insurance can have the following benefits at the micro level.

• Promotion of thrift and savings – By taking insurance, a person is worried about depositing interest, so he starts saving and adopting frugality from the very beginning. Pro. According to Regal, Miller, and Williams – “Insurance provides an environment that encourages savings.” If he has not paid the premium, he can also waste that money. Crores of rupees per year under the savings scheme.

• Protection from risks- Not only human life but business is also full of risks, and insurance removes those uncertainties. Pro. According to Angel – Insurance is the permanent basis of protection against uncertain losses. Business and industry have developed due to insurance and the risk posed to the employment of the person is also eliminated.

• Investment- There is also an investment element in life insurance. The person who deposits the amount as a premium. That is his savings. On the completion of the specified period or the occurrence of a certain event, the insured or his heirs receive a fixed amount. Thus, insurance becomes a means of investment as well as protection for the individual.

• Complete protection to the insured and his heirs - By insuring the insured and his heirs get complete statutory protection. Before death, the insured can nominate a letter of insurance in the name of the desired person, so that family wealth and divisional disputes can be resolved and the heirs are also completely safe.

• Tax Exemption – Insurance also provides tax exemption. Income tax exemption can be availed on the amount of premium paid in IPS. Similarly, there is also an exemption in wealth tax.

• Capitalization of Income Potential:- Through insurance, a person can also capitalize his income potential. He can also capitalize on his income by insuring the amount he can earn in the future. If the insured dies or the functionality ceases, the same amount can be received from the insured.

• Credit facilities - Lenders prefer not to give loans to such persons who are insured. Financial institutions also do not want to give loans to insured persons only. Apart from this, credit facilities can also be obtained from the insurance company.

• Freedom from Statutory Liabilities - A person can get freedom from his liabilities towards third parties by taking statutory liability insurance. Instead of the fixed premium, the insurance company will pay those liabilities.

• Increase in efficiency - Uncertainty is the biggest concern of life and insurance helps individuals to get rid of that uncertainty. When a person works without worry, then he can work with full concentration, which increases his efficiency.

• Peace of mind - When a person becomes free from uncertainties, he works with a happy mind. He does not even worry about the liabilities arising after death because he has already insured them.

• Promotion of self-reliance - a feeling of economic self-reliance is created in the insured. A person can easily get a loan even in the living stage and even after death, the dependent family gets financial independence by getting the sum insured.

• Planning for future needs - Many types of insurance letters like education, marriage, pension, etc. are issued by the insurance company. A person prepares for the future out of his limited income in the present, when, on what needs, and how much amount will be required. On this basis, he can be successful in selecting those special insurances, and even after death, he can fulfil the needs of the family in a fully planned manner.

• Promotion of Vigilance - Insurance companies keep on giving many protective tips to avoid losses. With these protective measures, human life becomes more secure, and he takes measures to avoid various diseases from time to time. In compensatory insurances, the premium exemption is also provided for adopting vigilance measures and presenting below-normal average payer which ultimately reduces the insurance cost.

• Increase in social prestige and self-esteem - Insurance increases the self-esteem and prestige of a person in society. The people who are insured, society respects them as more secure, they do not have to look towards others in times of trouble, and they can also easily get a loan or an insurance letter.

• Support in old age: - At present, while the joint family system is disappearing, insurance is becoming support for old age of the person. In old age, the sources of income become limited and the responsibilities increase, in such a situation, the money received from insurance becomes his main support.

Importance from a business / economic point of view

The imagination of the present economic world is incomplete without insurance. The businessman makes a plan to get the insurance done so that he can complete the business activities with complete peace and calmness. According to the eminent management thinker Peter F. Drucker – “It is not an exaggeration to say that without insurance the industrial economy cannot function at all.” The reality is that insurance is indispensable for the successful operation of the business. The importance of insurance from an economic point of view is visible as follows -

• Promotion of Savings – Insurance is a means of essential savings. Insurance encourages people to make small savings. With a small premium, he can easily fulfil many big dreams of the future. The insurance company receives a premium amount of crores of rupees from the small savings of these insured which accumulates to become a huge sum of money. The insurance company after meeting the necessary expenses invests in the schemes of social and national interest.

• Capital formation - When the insurance company invests the amount of interest received from the insured in various national schemes, then business businesses get easy capital from it, and many people also get employment.

• Instrument of investment - Capital is created from the amount received in the form of premium in the insurance contract, this capital is invested in the business, business industry, and other areas. The public cannot directly get the benefit by investing that small amount in business, but through this indirect investment, the insured gets more bonus on the insured, as well as the economic development of the nation.

• Increase in trade and commerce - Insurance provides protection against various types of risks, which increases both domestic and foreign trade. The origin and development of insurance are basically in the form of marine insurance. Protection was provided for risky commercial sea voyages, and then fire insurance was developed, in which measures and insurance were started to protect factories, warehouses, offices, and other properties from fire.

• With protection from such losses, businessmen do business with certainty without fear and insurance helps as a true friend when risks arise.

• Helpful in the development of infrastructure for industrialization - Insurance institutions provide a huge amount of funds for the development of means of power, transport, communication, industrial estate, etc. in the country, which prepares the infrastructure for industrialization in the country.

• Growth of Large-Scale Businesses:- Insurance has paved the way for the growth of many large businesses. Pro. May Gee has also written that without insurance the existence of large business entities cannot be possible. The insurance company not only provides finance for these huge business entities but also provides protection at very low premiums.

• Development of small and cottage industries: - The means of large-scale industries are also wide. They can bear the accidental loss, but if any risk arises in small-scale industries, they cannot face it and their existence ends, but insurance is provided to these industries using insurance. They conduct business with absolute certainty.

• Development of Entrepreneurship - Entrepreneurship is developed through insurance because by having insurance for business and industry, the risk of entrepreneurs is reduced. They start new businesses with full confidence and certainty. Loans are also obtained on easy terms by financial institutions. Many young people with technical and professional education are setting up many big enterprises.

• Development of Enterprises in the Service Sector - At present, enterprises in the service sector are developing in all countries. The success of these ventures depends on the quality of services they provide. These organizations also provide liability insurance to limit the risks. This is contributing substantially to the development of these enterprises.

• Promotion of foreign trade - There are many risks in foreign trade, such as the risk of shipping goods by sea, the risks arising out of diplomatic relations between the importing and exporting countries, etc. By getting protection from the insurance company, the businessman can avoid the risks of foreign trade.

• Sustainability in partnership business - The death of a partner in a partnership firm or any sudden risk arising in the firm can lead to great trouble. To deal with such crises, joint insurance of the partners can be done so that in the event of the death of a partner, his share can be paid from the firm, and on the other hand, due to non-fulfilment of the sum insured, the personal insurance of the partners can be taken from that sum insured. The needs are easily met.

• Development of Employment Opportunities - Employment opportunities develop in the country through the insurance business. Businesses and industries expand in the country due to insurance, due to which people get employment for working at many levels in it. Due to the insurance business, various types of insurance such as marine, fire, accident, life, and other types of insurance are expanded, due to which a large number of employees and agents are appointed in the insurance organization itself.

• Helps in business stability - Insurance lays the foundation for business stability in the country. The reason for this is that business risks can be limited through insurance, which creates favourable conditions for business development in the country and brings business stability.

• Protection from loss of important persons - Life of some important persons is invaluable for every organization. Organizations earn a profit because of the reputation, ability, management tact, etc. of those individuals. In the absence of those important people, the organization is in danger, so to save the organization from this financial danger, these important people are insured. In the event of the death of these persons, the organization gets compensation from the insurance company.

• Promotion of protection methods - The insurance company insists on adopting protection methods for the insured. The organization which adopts these measures is also provided premium rebates. 16. Determining the cost of accidents:- Some accidents are major and some are minor. If the cost of these accidents is added to the cost of the commodity, then the costs will increase greatly and that entrepreneur will be left behind in the competition. Therefore, the uncertainty of these accidents can be converted into certainty by insurance.

• Protection of Employee Interests - There are possibilities of both profit and loss in business. The loss situation has a bad effect on the employees and they may even have to be fired. If business organizations ensure gratuity, pension, and other benefits for the employees, then their interests are protected.

• Easy Management of Employee Protection Schemes - According to the laws of the country, many schemes for the welfare of the employees such as a pension, gratuity, sickness benefits, protection of income of dependents on disability or death, pregnancy, and child The operation of benefits on birth, etc., is accomplished through insurance such as collective insurance scheme, by operating social security schemes. It can also fulfil legal obligations.

• Contribution to Human Resource Development - Training programs are conducted by insurance organizations for the agents which contribute to their personality and skills. Not only this, but it also trains the officers and employees of the insured institutions for the maintenance and protection of the assets. This contributes to human resource development.

Social importance

Insurance is an important tool for the stability and redressal of social problems in society. There are many benefits of insurance to society which are as follows -

• Instrument of Social Security – Insurance provides social security. By taking insurance, a person becomes free from his worries. Through life insurance, dependents get social security in case of old age, disability, illness, and death. Fire insurance, protection of valuable properties, industrial establishments, and marine insurance can get protection from road difficulties and damage to goods. Due to these protection elements, insurance is becoming important in every sector of society.

• Transfer of Risks - Through insurance, the risks of one person insured are divided into groups of many people. The liability of damage does not remain on the insured or any one person but is distributed to the whole group (insurer) which is beneficial for the whole of society.

• Stability in family life - Stability in the family can be brought through insurance. When the head of the family dies, the whole family life gets disturbed. But through life insurance, a person can provide stability to the family even after death.

• Protection from family disintegration - Joint family itself provides protection similar to insurance, but in nuclear families, if the head dies, then his widow, wife, and children have the full responsibility of the family. In such a situation, not everyone can give full attention to maintaining family relations. Many times, due to the busyness and mourning of the mother, the children also go on the wrong path. But due to the timely availability of insurance amount from life insurance, the family contributes to the development in a pre-planned manner.

• Social satisfaction - Insurance benefits all sections of society, so there is a sense of social satisfaction and social satisfaction in society.

• Symbol of social prestige - Insurance is also considered a sign of social prestige in today's era. The more and more suitable the person who insures his life and properties, the more prestigious he is considered. Society is educated and advanced.

• Prevention of social evils - Through insurance, economic certainty comes into the life of the individuals, so that the dependents are not destitute even on the death of the person. Similarly, other compensatory insurance also protects the assets of the person. Therefore, when the risk arises, his economic and social condition does not deteriorate and social evils do not even take birth.

• Promotion of education:- Education is also encouraged through insurance. By purchasing education insurance, parents can make proper arrangements for the education of their children.

• Promotion of Vigilance - Insurance also encourages people to be vigilant in society. Insurance companies waive the insurance premium amount for properties that adopt precautionary measures and submit claim amounts below the normal average. The insurance company itself also keeps apprised about the vigilance measures from time to time.

• Development of Civilization and Culture - The criterion of how civilized, cultured, and developed any society is, is its insurance system. A country in which there is no development of insurance is considered backward. Along with the protection of social assets, insurance protects the human and basic assets of society. The insured has to make arrangements for the protection of these resources as per the conditions mentioned in the insurance contract. In addition, insurance companies also provide public education about the safety of the insured material. As a result, social assets are protected through insurance.

• Development of employment opportunities - Insurance also increases employment opportunities in society. There are several thousand employees in different positions and many insurance agents are also working in insurance companies. According to an estimate, about 85000 employees are employed by General Insurance Corporation and its subsidiaries, and about 1.25 lakh employees by Life Insurance Corporation. Not only this, more than five lakh agents of Life Insurance Corporation are also working.

• Contribution to social upliftment works - The contribution to social upliftment works is the development of the country. It has been seen that in India poor people are increasing day by day and it is necessary to provide them opportunities for earning their livelihood. The Insurance companies have taken such an initiative by offering this scheme to prevent poverty among people who have no other source of income.

• Protection from civil liability - Many industrial establishments have to use many hazardous chemicals and gases, hazardous wastes are also generated, and industrial manufacturing processes can also be dangerous for the people around. Such entities get their civil liability insurance and are protected from the effects of risk.

• Improvement in standard of living – Insurance allows people to save and transfer the risks to the insurance company. Due to this, the economic condition of the people is balanced and additional means can be used to improve the standard of living.

• Promotion of charitable works - Individuals do not want to donate to any institution in their old age or after death, but they also want to have their own financial security while alive, in such a situation, they buy an insurance letter and enrol it in the name of that institution. They are those to whom charity is to be given. On the death of the insured, the nominee gets the payment of that insured.

• Health Awareness - Insurance companies also conduct many types of tests while insuring, due to which many diseases are known. It also distributes educational material to maintain good health. All these measures create health awareness among the people.

National Utility

Insurance benefits not only the individual but the entire nation. The details of which are as follows-

• Increase in National Savings - Every person saves for getting insurance. These small savings add up to the total national savings.

• Contribution to the development of the money market - Large amounts of insurance premiums also contribute to the development of the money market of the country. As a result, transactions of short-term and long-term securities become easy. Government banks and companies, all can get and invest the money as per their requirement immediately.

• Protection from natural hazards - The insurance facility is providing protection from various types of natural hazards to all the components of the economy. Insurance companies insure fire, storm surge, sea route risks, coastal areas risks, etc., and provide national security to those people and contribute to furthering the pace of economic development of the nation.

• Control of inflation - Money collected in the form of insurance premiums prevents the spread of money in the market, later this money is used in the development of industries. About 5 per cent of the total currency in circulation in India is collected as insurance premiums.

• Promotion of investment - Through insurance, a person buys various types of insurance by collecting small savings, and a certain percentage of that premium amount is invested in industries.

• Contribution to Foreign Exchange Fund - The insurance business is also done by insurance institutions in foreign countries. Foreign currency is obtained from insurance businesses in foreign countries.

• Development of Stock Exchange Centers - The insurance company also invests a part of its accumulated funds in stock exchange centres and actively participates in the stock exchange business, hence the development of stock exchange centres also takes place.

• Availability of capital to large-scale industries - Insurance companies buy shares and debentures of industries from their accumulation funds, due to which these industries get both long-term and short-term share capital in huge quantities.

• Contribution to economic projects by investment in Government securities - Insurance institutions have contributed significantly to the economic development of the country by investing in the securities of the Central Government and State Governments and other securities guaranteed by them. The amount invested in these securities is spent on completing the economic projects of the country. Due to this the economic development of the country takes place.

• Promotion of medium and small businesses - These institutions can pay full attention to the efficient operation of business by insuring the entire business. Banks and financial institutions also provide loans based on insurance. These small and medium businessmen contribute to domestic and foreign trade as well as increase the total national output and income.

• Promotion of employment in the country - Insurance companies, directly and indirectly, promote employment in the country. She provides employment to many individuals and the institutions insured by her are also increasing the total national income by creating employment.

• Promotion of Risky Activities of National Importance - Insurance has given incentives to take up several activities that involve high risk. For example - Insurance is cooperating in risky work like world-class sports competitions, testing of modern military equipment, spacecraft and laboratories, etc.

• Continuity in national income and production too - Insurance also contributes to maintaining the continuity of national income. Due to many natural and man-made reasons, many industries, businesses, ships, etc. are destroyed every year, from which the government receives direct and indirect taxes, employment to lakhs of people, and production of goods and services worth crores of rupees if they are not insured. So most of these units will not be able to be resettled and unemployment will spread. But due to insurance, these industries are re-established and there is continuity in national income and production.

• Contribution to the overall national development - All the factors contribute to the overall national development, such as the development of industries, development of employment opportunities, more savings, and capital formation. Looking at the above benefits and importance of insurance, we can say that insurance has the same qualities as kindness. In this both the insurer and the insured are fortunate and insurance proves helpful from birth till death.

Insurance limits

Insurance is very important in a life full of uncertainties and apprehensions, today insurance has become the primary need of the entire business world and human community, yet insurance has some limitations due to which the desired benefits of insurance are not available. Some of the limits of insurance are as follows -

• Not all risks can be insured - There are many risks in life but it is not possible to insure all, only pure risks can be insured, and hypothetical risks cannot be insured.

• High Premium Rates - People are not particularly interested in life insurance in the country. Vehicle insurance is also done due to legal imperative. Insurance of big factories is prevalent but insurance of houses, shops, theft, etc. is not much in vogue. The main reason for all this is the high insurance premium.

• Moral hazard - Some people who get insurance also misuse the insurance. The success of insurance becomes doubtful because of the moral weaknesses of the individual in the following circumstances:

• Insurance is not a profitable investment - Insurance is an investment as well as protection, but it is also not a very attractive investment. The return from this is less than other investments. In indemnity insurance, the person has the right to receive only the actual damages. Hence it is not considered an attractive investment.

• High operating costs of insurance - Insurance companies spend about 20 per cent of the premium on their own operations. Which ultimately leads to an increase in premium rates.

• The extent of risk of an individual is not comprehensive - The success of insurance is possible only when there is a large group of persons who are exposed to similar types of risks. If only one person or very few persons are at risk, it is not possible to insure them.

• Insurance is limited only to the financial value - Insurance is possible only if the actual loss of an event that is happening can be measured in money. Thus, it is not possible to ensure only material losses, but both measure and ensure the compensation for non-monetary losses such as mental pain, harassment, stress, anxiety, etc.

• Some insurance policies rely solely on government support - Private insurers cannot insure certain types of risks, requiring government support. For example, unemployment insurance, etc.