Benefits of Insurance
The existence of a sound insurance market is an essential component of any successful economy. The fact that insurance is much less talked about than other financial institutions such as banks is no reflection of its real importance. Many writers on economic history and the history of insurance comment on the link between a sound insurance market and industrial development.
The primary function of insurance is to act as a risk transfer mechanism. The benefit of this is that you can exchange your uncertainty for certainty. In return for a definite loss, which is the premium, you are relived from the uncertainty of a mucher larger loss. The risks themselves are not removed, but the financial consequences of some are now known with greater certainty and you cab budget accordingly.
Peace of Mind.
The knowledge that insurance exists to meet the financial consequences of certain risks, provides a form of peace of mind. This is important for private individuals when they insure their car, house, possessions, and so on, but it is also of vital importance to industry and commerce. This peace of mind, or security, has become an important aspect of business activity in many sectors.
The fact that the owner of the business has the funds available to recover from a loss provides a stimulus to business activity. It also means that jobs may not be lost and goods or services can still be sold. The social benefit of all this is that people keep their jobs, their sources of income are maintained and they can continue to contribute to the national economy. We all know the effects on the community when a large employer moves or ceases operation; the area runs the risk of being depressed, people have less money to spend and the consequences of this can be far reaching.
To a lesser extent, a major loss resulting in the closure of business can have the same impact on the community. It may not be as noticeable as the shutdown of a large factory, but when losses are aggregated throughout the country the effect is considerable. It is not suggested insurance alone keeps people in jobs, but it does play a significant role in ensuring that there are not unnecessary economic hardships.