Our lives and property have no guarantees or certainties of the future and are at full risk. Also, there is no guarantee that an unexpected loss or damage will not occur to the property and company. These risks may or may not to financial losses, but it must be reduced to financial terms. We cannot protect all these risks so there is one option and that is insurance.
What is insurance?
Insurance is a form of risk management which protects individuals life, property, and business from financial risks.
In this article, we will mainly focus on the advantages and disadvantages of insurance.
What happens in Insurance?
You pay the insurance company a monthly or annual fee to insure your life, health, vehicle, property, etc for a certain period. In return, in case of any damage to the insured person or object, the insurer pays for the financial damage. So you are passing the risk of a financial loss to an insurance company for a small fee due to lives and property uncertainties.
Insurance has both advantages and disadvantages to individuals, property, society, and businesses.
Advantages of Insurance
These are some of the advantages of doing insurance.
There is nothing a guarantee in life. There may be a loss of life, some accidents in business. In both of these cases, the loss is difficult to bear. So, Insurance provides protection from such a sudden loss in financial terms.
In the case of life, he/she family member may get some financial support from insurance. In case of loss in business, insurance provides financial support to stand up and recreate the business. In the case of health insurance, he/she may get financial support for treating his/her health.
Note: Insurance has terms and conditions and if all the things meet then only he/she will get financial support from insurance.
2)Distribution of Risk/Spreading of Risk
The underlying concept of insurance is to distribute the risk to many people. People pay a certain amount up to a certain time or lifetime to the insurance company and will get back when some loss happens. Risk in life or business is impossible to eliminate but can be reduced and distributed or shared such risk. So, here insurance companies bear risks so that business and individuals risks are redistributed amongst insurance companies.
3) Stability of Living Standard
Insurance provides financial support to ensure that people can sustain and maintain stability in living standards against an unforeseen risk of losses.
4)Encouragement to Savings
In insurance, people pay a certain amount of money for a fixed time or lifetime based on an agreement and this helps to develop a habit of saving money. Knowing the importance of saving, people start doing saving in various field.
Like any business, insurance is one of the successful business models. It attacks many entrepreneurs and businessmen. So, lots of cash flow happens in business. To handles and maintains cashflow and runs the business they need employees, so they open vacancies in the various post according to qualification and provide job opportunities.
Here, employees may get on the basis of following policies: "harder you work, more money you earn".
Insurance companies and agencies make lots of money by selling and providing service insurance.
6)Promotes foreign/international trades
Many years ago, people used to fear to do international trades because there may occur some accidents in transporting goods via ships or roads or many media of transportation. But now in this competitive global economy, insurance companies bear all those risks and provides compensation for the loss. Also, they provide protection against non-payment by a foreign buyer to an exporter of goods and services.
So, there is various commercial trade insurance like Export Credit Insurance(ECI) doing such activities.
If a business has done insurance, then banks have more chances of providing loans to the business.No, the problem for large business for getting the loan from a bank but if you have small business and startups and has done insurance of your business then chance of getting a loan from banks increases.
Also, Mostly, banks for reducing the risk will always ask new companies that rely on the main founders to take out insurance against the deaths of one or more of the founders. And the fine print will direct the payment on death to go to the bank first, to pay off the loan.
Also if you have done life insurance and health insurance for yourself, then it's more probability of getting loans from financial institutions.
8) Stability of Business
Even if you suffer unexpected losses at the company, insurance can help manage your losses. An insurance policy taken for your employees will encourage them to work in the office. So, insurance helps in the smooth operation of the office.And business will get stable.
Unlike other financial stuff, insurance is designated for particular purposes as well. This lets you utilize the funds for the purpose you have initially chosen.
10)Increase in investment
Insurance promotes individuals and businesses to invest in new things.
If you have insurance, then there will not be any tension related to business, and life, and health. so, you can focus on your task and compete with others.
Disadvantages of Insurance
1) Terms and Conditions
Insurance does not bear every type of loss that occur in individual and business. They have terms and conditions and they provide financial support only on the basis of those terms. So, before taking any insurance please read the terms and conditions.
2) Long Legal formalities
It may take a long legal procedure for receiving your claims.
There are lots of fraud agencies available in the market so, before taking any type of insurance do exercise yourself or take the help of an expert.
4) Not for all People
Some insurance like life and health insurance in most of the cases doesn't provide for unhealthy and old people.
5)Potential crime incidents
It could lead to social crimes as the users of the policy are tempted to commit crimes to get the insured money.