Advantages and Disadvantages of Insurance

👤 Diwas Poudel    🕒 Aug 28 2021    📁 Fix    📜 0 comment

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 be financial losses, but they 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 that 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 life and property uncertainties.

Insurance has both advantages and disadvantages to individuals, property, society, and businesses. Many advantages and disadvantages of insurance are beyond the scope of this article and cannot cover all of them.

Advantages of Insurance

These are some of the advantages of doing insurance.

1 Financial Protection

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 fields.


5 Job Opportunities
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 cash flow and runs the business they need employees, so they open vacancies in the various post according to qualification and provide job opportunities.

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.

international trades

So, there is various commercial trade insurance like Export Credit Insurance(ECI) doing such activities.

7 Loan Facilities

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.

9 Specialization

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.

11 Competitiveness

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.

12 Society and Country Welfare
The insurance company collects a large amount of money from an insured and they invest in the development of trade and industry, which finally leads the society and country toward development.
13 Preserves Confidentiality
If there is some death in the family then the death benefit or to whom the death benefits is payable will not be recorded publicly. This helps to preserve confidentiality for the beneficiary of the policy.
14 Tax-free money
Another advantage of insurance is that the funds are often tax-delayed. The benefits and all other earnings you may earn under the policy are tax-free, except in the case of employer insurance schemes where benefits are regarded as normal taxable income.
For example, life insurance reduces the risk that your family will be unable, if you have saved enough to pay off your remaining debt, to pay the normal bills in the event of sudden death. If you die during your lifetime insurance, your beneficiary's payment is tax-free.
15 Short Term Coverage
The insurance coverage period can be changed. If you have short-term needs then you can choose shorter-length insurance.
16 Long Term Coverage
If you have long-term needs then you can choose long length insurance. It may be more cost-effective in some situations in the long run compared to short-term coverage.
You can substitute life insurance without paying tax for other policies like pensions or long-term care. Furthermore, with features like this, you can improve the cash accumulation by increasing your life insurance death benefit.
17  Easy to Apply
There are many genuine sources where you can get insurance information and compare insurance of one company with another and can apply online form as well. Example:policygenius   

Disadvantages of Insurance

Insurance also has some defects in it. Some of them are as follows:

1 Term 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. Also, take the help from the right person for getting the right information about an insurance policy.

2 Long Legal formalities

It may take a long legal procedure for receiving your claims.

3 Fraud Agency

There are lots of fraud agencies available in the market so, before taking any type of insurance does exercise yourself or take the help of an expert.

4 Not for all People

Some insurance like life and health insurance in most cases doesn't provide for unhealthy and old people. Their insurance might be expensive. Do research before taking participate in insurance 

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.

6 Temporary and Termination
Insurance is temporary and will be terminated when the individual no longer belongs to the group.
7 Can be Expensive
Often, depending on the policy and certain factors can affect the cost. However, you could get the right price if you buy at the right time for the right reasons and with the right coverage. 
8 Rise in Subsequent Premium
Many insurance firms have different subsequent premium rates, and you should pay special attention to them. Before you purchase a policy, ensure that you know at the start, whether your premium is guaranteed throughout the policy, or whether inflation shifts from time to time.
The premium depends on your medical profile, medical history, and age. If these factors are identified to increase your rate of death, life insurance may charge you more for coverage.
Insurance Premium: Amount of money paid by individual or business for the insurance policy to the insurance company
9 Because of a lack of efficient awareness, everyone is not able to get knowledge of insurance, so may needs agents and have to pay an extra amount for him.
10 Some insurance will not pay back if the policyholder never suffers from the loss.
11 Often, if the program is surrendered, political holder cannot recover the premium.

12 Adds Expense For Some Projects
Some construction projects where compensation for the workers for injuries are common, then insurance for these company can be expensive. They are expensive as compared to other IT and accounting offices.

13 Annoying and Frustration
Many claims in insurance are required to fulfill and checking all of them takes time and energy which annoys the people and may lead to frustration. So, it's better good to know insurance you have done properly.