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:
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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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