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7 Functions of Insurance - Basic Functions of Insurance

7 Functions Of Insurance

Following are the 7 functions of insurance:
  1. To provide Protection
  2. To Provide Certainty
  3. Distribution of Risk
  4. Helps in Economic Progress
  5. Insurance Prevents Loss
  6. A forced Saving
  7. Promote Foreign Trade

7 functions of insurance

What are the three basic functions of  insurance?

Insurance becomes very useful in today's life. It plays significant role in the competitive era. According to sir William Beveridge the functions of Insurance can be divided into following three categories:
  1. Primary Functions
  2. Secondary Functions
  3. Indirect Functions

1.Primary Functions

  • To Provide protection - The most Important function of insurance is to provide protection against risk of loss. It is one check the reality of the misfortunate happening and pays the cost of damages of losses.
  • To provide Certainty - The future is totally uncertain. Any misfortune happening may occur at any stage of life. The amount of loss and time of losses both are uncertain. Insurance provides certainly towards the losses. The policy holders pay the premium to get certainty.
  • Distribution of risk - It is co-operative effort where the risk is distributed among the group of people. Thus, no one have to bear the losses occurred due to uncertainty.

2.Secondary Functions

  • Helps in economic progress - Insurance plays an important role in economic progress. It gives fully certainty to the industrialists towards the risks. The entrepreneurs can more concentrate on innovative and profitable techniques of the production. They should not require Thinking over the risks. The industrialists can establish new industries in environment. Thus industries have got development in economic and commerce of the nation.
  • Insurance prevents losses - Insurance Plays vital role in preventing the losses. The amount of premium is minimized by using such appliances like the fire extinguisher. If one uses interior Machinery which may be caused for misfortunate, the amount of premium will be high. Thus, indirectly insurance provides help to minimize the chances of risks.

3.Indirect Function

  • A forced savings - Life Insurance is also a method of savings . Income tax act gives relief in payment of income tax because government wants to habituate general public to save money. It encourages the habit of savings among the people . Thus it becomes compulsory savings to people of nation.
  • Promote foreign trade - It is compulsory to take marine insurance policy in foreign trade in India . Foreigners can't issue the foreign trade bill unless the cargo is fully insured. Thus Foreign trade is totally depends upon the insurance sector of the nation. It gives relief to entrepreneurs from the uncertainty of foreign trade.
  • Others - Insurance Provides certainties towards risks in entrepreneurship . It gives confidence in general public. It is one of the important source of Investment which develops the trade and commerce of the nation.

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