Insurance is the very common word in the financial world. This is the financial product sold by companies to you against the risk of loss, damage and death. It is the formal contact between you and company which you agree to pay premium in exchange for the insurance company’s promise to pay a set amount of money if you and your property damage, loss or death. It is commonly used to cover the cost related to life, health, Vehicles and Property.

Suppose you buy insurance for your life, health, vehicle, property or travel. The insurer agrees to pay you for the losses incurred on special event or insured items.

It is important for individual as well as economy

• It supports social security system
• It supports economic growth by managing, diversifying and absorbing risk that prevent to individual person and business in engaging in business and financial activities.

It is divided into two major categories:

1 Life and Health : Life and health insurance protect people from financial loss due to unexpected death, sickness or diseases.

2 Property and Casualty: Property and casualty insurance provide protect to business and individual for losses related to their belonging or assets, both physical and financial.

How does it works?

When you buy policy, you should pay the regular payment to the company. That payment is called premium. That policy has mention about the condition and circumstance which the insurance policy will pay out the amount to either the insured person or the nominee. It is the way of protecting yourself and your family from financial loss.

Generally, the premium for a big insurance cover is much lesser in terms of money paid. The company takes this risk of providing a high cover for a small premium because very few insured people claiming the insurance. That’s why you get insurance for a big amount at low price. one insurance company can transfer their risk to another company if they want to minimize the risk, that is called re- insurance.

Benefits

1 Security

People have always fear of unexpected loss. There may be fire in your factory, damage your property or loss of life. In all these situation it’s very difficult to bear the loss. Insurance provide cover against such losses. Suppose any head of family member dies unexpectedly, the family will get money to continue their life. If your car damage by accident, you can claim that cost with insurance company. So it gives security to individual person and business as well. These days it cover various schemes.

2 Spreading your risk

 The basic principle of insurance is spreading your risk among large number of people. Large number of people get policy and paid premium to insurer. If loss occur, it is compensated from that insurer fund. That loss is transfer to large number of policy holder. It cannot eliminate the loss but it can reduce the risk to the individual.

3 Source of fund

  Policy holder pay the premium to insurance company. The premium is receiving regularly with installment basis. Large funds are collected by way of premium. These fund can be used  to economic development and industrial development of country. It has become an important source of capital formation.

4 Encourage for saving

Insurance does not only protect risk it also provides investment channel. Life insurance provide a way of investment. It develops your habit of saving to pay premium. After matured of the policy you can get lump sum amount

5 It help to encourage international trade

 There are so many risk factor involve in international trade from one country to another country. If there is no insurance than trader will always be worried for the safe arrival of goods. Very few amount of goods will only transfer because of uncertainties and risk involve during transit. It provide protection against all kind of risk. It helps the development of international trade.