What Are the Functions of Insurance Companies?

The money you pay for your business's many insurance premiums might seem to be a waste, especially if you never claim a loss. But the primary function of an insurance company is to safeguard your business against such losses. 

The type of business you own determines the type of insurance you need. The government requires you to have certain types of insurance to protect the public, and lenders require insurance to protect their investment. Optional policies exist to protect your own interests if you suffer a loss.

Required Insurance

The government requires certain types of insurance if you are an employer. According to the Small Business Administration, you must purchase, at minimum, workers' compensation and unemployment insurance. If your business is in Rhode Island, California, Puerto Rico, Hawaii, New York or New Jersey, or any part of the world you also must purchase disability insurance for your employees.

These insurances provide your employees with a financial safety net if they are hurt on the job or lose their job. Your employees do not pay any part of the premiums for these plans. You can deduct the premiums you pay as a business expense when you file your taxes.

Liability Insurance

Liability insurance policies pay the legal fees and judgments associated with accidents, negligence and professional errors. The government requires some companies and professionals to carry liability insurance. For example, trucking companies must have general liability insurance, and physicians must have professional liability insurance.

If you receive notice of a lawsuit, your insurance company's function is to hire lawyers to represent you in court. Your insurance company pays any settlements or judgments against your company up to the policy's limits. Manufacturers often have product liability insurance that pays if a product has a defect that results in an injury.

Property Insurance

Property insurance comes in three types: basic, broad and special, according to the InsureU website. Examples of items covered by policies include your business's buildings, machinery, inventory and even your copyrights and trademarks. While coverage differs depending on the type of policy, the insurance company's function is to pay for damages or losses after storm damage or theft.

Business interruption policies pay for your lost earnings if you have to close your business while repairs are made from storm or fire damage. Property insurance policies typically pay for either replacement costs or the actual value of the property before the damage or loss occurred.

Home-based Businesses

If you have a home-based business, you may think your homeowner's policy covers all of your insurance needs. This is not necessarily so. It may be possible to add an endorsement to your homeowner's policy to cover your business. If your revenues are above $5,000, clients come to your home or you have expensive equipment, you should talk to an agent about stand-alone policies such as a business owner's policy. The company insuring your home-based business is there to provide assistance if you are sued and pay for losses from theft and storms.

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Importance of Insurance to Businesses and Individuals

Insurance has evolved as a process of safeguarding the interest of people from loss and uncertainty. It may be described as a social device to reduce or eliminate risk of loss to life and property. The insurance has been useful to the business society also. Some of the uses are discussed below:

Read Also: List of Insurance Companies in Ghana

                   What is insurance?

Medical support

A medical insurance considered essential in managing risk in health. Anyone can be a victim of critical illness unexpectedly. And rising medical expense is of great concern. Medical Insurance is one of the insurance policies that cater for different type of health risks. The insured gets a medical support in case of medical insurance policy.

Business Continuation

In any business particularly partnership business may discontinue at the death of any partner although the surviving partners can restart the business, but in both the cases the business and die partners will suffer economically.

The insurance policies provide adequate funds at the time of death. Each partner may be insured for the amount of his interest in the partnership and his dependents may get that amount at the death of the partner.

With the help of property insurance, the property of the business is protected against disasters and the chance of disclosure of the business due to the tremendous waste or loss.

Provide safety and security

Insurance provide financial support and reduce uncertainties in business and human life. It provides safety and security against particular event. There is always a fear of sudden loss. Insurance provides a cover against any sudden loss.

For example, in case of life insurance financial assistance is provided to the family of the insured on his death. In case of other insurance security is provided against the loss due to fire, marine, accidents etc.

Enhancement of Credit

The business can obtain loan by pledging the policy as collateral for the loan. The insured persons are getting more loans due to certainty of payment at their deaths. The amount of loan that can be obtained with such pledging of policy, with interest, thereon will not exceed the cash value of the policy.

In the case of death, this value can be utilized for setting of the loan along with the interest. If the borrower is unwilling to repay the interest, the lender can surrender the policy and get the amount of loan and interest thereon paid.

The redeemable debentures can be issued on the collateral of capital redemption policies. The insured properties are the best collateral and adequate loans are granted by the lenders. 

Source of collecting funds

Large funds are collected by the way of premium. These funds are utilised in the industrial development of a country, which accelerates the economic growth. Employment opportunities are increased by such big investments. Thus, insurance has become an important source of capital formation. 

Life insurance encourages savings

Insurance does not only protect against risks and uncertainties, but also provides an investment channel too. Life insurance enables systematic savings due to payment of regular premium. Life insurance provides a mode of investment. It develops a habit of saving money by paying premium. The insured get the lump sum amount at the maturity of the contract. Thus life insurance encourages savings.

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What is 'Insurance' - Insurance Definition

Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.

Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.

There are a multitude of different types of insurance policies available, and virtually any individuals or businesses can find an insurance company willing to insure them, for a price. The most common types of personal insurance policies are auto, health, homeowners and life insurance policies. Most individuals in the United States have at least one of these types of insurance.

Businesses require special types of insurance policies that insure against specific types of risks faced by the particular business. A fast food restaurant, for example, needs a policy that covers damage or injury that occurs as a result of cooking with a deep fryer.

An auto dealer is not subject to this type of risk but does require coverage for damage or injury that could occur during test drives. There are also insurance policies available for very specific needs, such as kidnap and ransom (K&R), medical malpractice and professional liability insurance, also called errors and omissions insurance.

Insurance Policy Components

When choosing a policy, it is important to understand how insurance works. Two of the most important components of all insurance policies are the premium and the deductible. A firm understanding of these two concepts goes a long way to helping you choose the policy that is best for you.

A policy's premium is simply its price, typically expressed as a monthly cost. The premium is determined by the insurance company based on your, or your business', risk profile. For example, if you own several expensive automobiles and have a history of reckless driving, you pay more for an auto policy than someone with a single mid-range sedan and a perfect record. 

However, different insurers may charge different premiums for similar policies, so finding the price that is right for you requires some legwork.

The second important policy component is the deductible. Whenever you make a claim, you are required to meet a minimum out-of-pocket expense, or deductible, before the insurance company pays for your losses. Deductibles can apply per-policy or per-claim depending on the insurer and the type of policy.

Policies with very high deductibles are typically cheaper because the high out-of-pocket cost means insureds are less likely to make small claims. When it comes to health insurance, for example, people who have chronic health issues or need regular medical attention should look for policies with lower deductibles. Though the annual premium is higher than a comparable policy with a higher deductible, cheaper access to medical care throughout the year may be worth the trade-off.

Insurance Premium

An insurance premium is the amount of money that an individual or business must pay for an insurance policy. The insurance premium is considered income by the insurance company once it is earned, and also represents a liability in that the insurer must provide coverage for claims being made against the policy.

The amount of insurance premium that is required for insurance coverage depends on a variety of factors. Insurance companies examine the type of coverage, the likelihood of a claim being made, the area where the policyholder lives or operates a business, the behavior of the person or business being covered, and the amount of competition that the insurer faces.

Actuaries employed by an insurance company can determine, for example, the likelihood of a claim being made against a teenage driver living in an urban area compared to one in a suburban area. In general, the greater the risk associated with a policy the more expensive the insurance policy will be.

Policyholders are often given a number of options when it comes to paying an insurance premium. Some insurers allow the policyholder to pay the insurance premium in installments, for example monthly or semi-annual payments, or may require the policyholder to pay the total amount before coverage starts.

Insurance premiums may increase after the policy period ends. The insurer may increase the premium if claims were made during the previous period, if the risk associated with offering a particular type of insurance increases, or if the cost of providing coverage increases.

Insurers use the insurance premium to cover the liabilities associated with the policies that they underwrite, as well as to invest the premium in order to generate higher returns. Insurers will invest the premiums in assets with varying levels of liquidity and return, with the amount of liquid assets often set by state insurance regulators. Regulators want to make sure that policyholders will be able to have their claims paid for, and thus require insurers to retain adequate reserves.

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List of Insurance Companies in Ghana

There are 53 insurance companies in Ghana, with 23 life insurer companies, 26 non-life insurers and 4 reinsurer companies. Are you looking for an insurance company? Here is the list of the insurance companies in Ghana, 2017.

List of Life Insurers

1. Adamas Life Assurance Company Limited

2. A-Plus Life Assurance Company Limited

3. Capital Express Assurance (Gh) Ltd.

4. Donewell Life Insurance Company

5. Enterprise Life Assurance Company

6. Esich Life Assurance Company Limited

7. First Insurance Company Limited

8. Ghana Life Insurance Company

9. Ghana Union Assurance Life Company

10. Glico Life Insurance Company

11. GN Life Assurance Limited.

12. Metropolitan Life Insurance Ghana Ltd.

13. Millenium Life Insurance Ghana Ltd.

14. Old Mutual Life Assurance Company (Ghana) Limited

15. Phoenix Life Assurance Company

16. Prudential Life Insurance Ghana Ltd.

17. Quality Life Assurance Company

18. Saham Life Insurance Ghana Ltd.

19. SIC Life Company Ltd. (also listed on the Ghana Stock Exchange)

20. Starlife Assurance Company

21. Unique Life Assurance Company.

22. UT Life Insurance Company

23. Vanguard Life Assurance Company

Non-Life Insurers

24. Activa International Insurance Company Ghana

25. Allianz Insurance Company Ghana Limited

26. Best Point Insurance Limited

27. Donewell Insurance Company Limited

28. Enterprise Insurance Company Limited

29. Equity Assurance Company Limited

30. Ghana Union Assurance Limited

31. Glico General Insurance Company Limited

32. Imperial General Assurance Company Limited

33. International Energy Insurance Company Limited

34. Hollard Insurance Ghana Limited

35. Millennium Insurance Company Limited

36. NEM Insurance (Ghana) Limited

37. NSIA Ghana Insurance Company Limited

38. Phoenix Insurance Company Limited

39. Prime Insurance Company Limited

40. Priority Insurance Company Limited

41. Provident Insurance Company Limited

42. Quality Insurance Company Limited

43. Regency Alliance Insurance Ghana Limited

44. Saham Insurance Ghana Limited

45. SIC Insurance Company Limited

46. Star Assurance Company Limited

47. Unique Insurance Company Limited

48. Vanguard Assurance Company Limited

49. Wapic Insurance (Ghana) Limited

List of Reinsurers

50. Ghana Reinsurance Company

51. Mainstream Reinsurance

52. GN Reinsurance Company Limited

53. WAICA Reinsurance Corporation PLC

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