Do you know that if you have an insurance policy then it is not only beneficial for you or your whole family. Rather it is beneficial for the whole society. So, today we are going to discuss about the major social and economic benefits of insurance the following;
- Indemnification for loss.
- Reduction of worry and fear.
- Source of investment funds.
- Loss prevention.
- Enhancement of credit.
Indemnification for Loss; Indemnification permits individuals and families to be restored to their former financial position after a loss occurs. As a result, they can maintain their financial security. Because insureds are restored either in part or in whole after a loss occurs. they are less likely apply for public assistance from relatives and friends.
Indemnification to business firms also permits firms to remain in business and employees to keep their jobs. Suppliers continue to receive orders, and customers receive orders, and customers receive the goods and services they desire. The community also benefits because its tax base is not eroded. In short, the indemnification function contributes greatly to family and business stability and therefore is one of the most important social and economic benefits of insurance.
Reduction of Worry and Fear; A second benefit of insurance is that worry and fear are reduced. This is true both before and after a loss. For example, if family heads have adequate amounts of life insurance, they are less likely to worry about the financial security of their dependents in the event of premature death; persons insured for long-term disability do not have to worry about the loss of earnings if a serious illness or accident occurs; and property owners who are insured enjoy greater peace of mind because they know they are covered if a loss occurs. Worry and fear are also reduced after a loss occurs, because the insureds know that they have insurance that will pay for the loss.
Source of Investment Funds; The insurance industry is an important source of funds for capital investment and accumulation. Premiums are collected in advance of the loss, and funds not needed to pay immediate losses and expenses can be loaned to business firms. These funds typically are invested in shopping centers, hospitals and new machinery and equipment. The investments increase society’s stock of capital goods, and promote economic growth and full employment. Insurers also invest in social investments, such as housing, nursing homes, and economic development projects. In addition, because the total supply of loan able funds is increased by the advance payment of insurance premiums, the cost of capital to business firms that borrow is lower than it would be in the absence of insurance.
Loss Prevention; Insurance companies are actively involved in numerous loss prevention programs and also employ a wide variety of loss prevention personnel, including safety engineers and specialists in fire prevention, occupational safety and health and products liability. Some important loss-prevention activities that property and casualty insurers strongly support include the following;
- Highway safety and reduction of auto accidents and deaths.
- Fire prevention.
- Reduction of work-related injuries and disease.
- Prevention of auto thefts.
- Prevention and detection of arson losses.
- Prevention of defective products that could injure the user.
- Prevention of boiler explosions.
- Educational programs on loss prevention.
The loss -prevention activities reduce both direct and indirect, or consequential, losses. Society benefits, because both types of losses are reduced.
Enhancement of Credit; A final benefit is that insurance enhances a person’s credit. Insurance makes a borrower a better credit risk because it guarantees the value of the borrower’s collateral or gives greater assurance that the loan will be repaid. Thus insurance can enhance a person’s credit.
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