Advantages & Disadvantages of Insurance

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Advantages & Disadvantages of Insurance

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The main advantages of insurance can be described as follows: -

  1. Provides economic protections
    Insurance provides economic and financial protection to the insured against the unexpected losses in consideration of nominal amount called premium. It provides financial protection to the nominee in case of the pre-matured death of insured. It also covers the loss of properties due to theft, fire, accident and other natural calamities.
  2. Shares risksPeople are exposed to various kinds of risks and uncertainties which may cause large losses. It is impossible to eliminate risks and uncertainties altogether but it can be reduced or shared. Insurance is a co-operative device, which helps to share the risks among the insured. Thus, the insurance company reduces the risk of the insured in exchange for small premium.
  3. Maintains standard of livingInsurance provides financial protection against an unexpected risk of losses due to which people can maintain their living standard. The insurance company provides a safeguard in terms of money to avoid the unfortunate financial crisis.
  4. Encourages saving
    An insured person pays the amount of premium in time as stated in the agreement which encourages for developing a saving habit of persons. Hence, insurance is a means of encouraging regular saving as it helps to reduce unnecessary expenses.
  5. Eliminates dependencyDue to death or destruction of properties, the family suffers from unbearable and non-compensational table losses. The insurance protects against those unbearable losses. The life insurance policy gives full financial support to the dependent in case the death of the insured which helps to eliminate the dependency of people.
  6. Grants loan
    An insured can get the facility of a loan from an insurance company or can take loan from other financial institutions through the security of insurance policy. Thus, this provision of loan helps a person can also meet the need of fund. Bank and financial institutions prefer the insured assets as collateral for providing a loan.
  7. Creates employment opportunitiesAs insurance has become business in the modern day business world, hundreds of entrepreneurs and thousands of employees have been engaging in this line. Hence, by establishing and developing insurance companies, it has provided employment opportunities to thousands of people as per their qualification and caliber.
  8. Promotes foreign tradeThe growth of the international trade of the country has been greatly helped by shifting of risk to insurance company. A ship sailing in the sea faces some miss-fortune. A fire breaks out and burns to ashes all the merchandise of a business man. But insurance is one of the devices by which these risks may be reduced or eliminated. So industrialists and exporter may devote their full attention toward the promotion of business which may increase the export activities
  9. Helps to operate business smoothlyA business gets financial compensation in case of loss or damage to the properties of the business through insurance. An insurance policy taken for the employees increases their motivation at work. Therefore, insurance plays a vital role to let the business run smoothly even in the situation of unfavorable events.
  10. Help to reduce inflation
    Inflation Reduction
    The inflation means increase in price of goods or service. Inflation gives painful experienced to the citizen so it should be control. To control inflation, the volume of money need to be reduce. An insurance company takes the money from the people in the form of premium, which reduces the volume of money in the market. Hence, it helps to control the inflation in the country.
  11. Help to develop economyInsurance companies collect premium through life or non life policies which are invested in various development areas like trade and industry. Such investment helps to promote trade and industry in the country. Ultimately, it helps for the economic development of the country.

Disadvantages of Insurance

The following are the main disadvantages of insurance: -
  1. It does not compensate all types of losses which caused baisness to insured by insurance company.
  2. It takes more time to provide financial compensation because lengthy legal formalities.
  3. Although insurance encourages savings, it does not provide the facilities that are provided by bank.
  4. It intentionally tries to compensate as less as possible to the sufferer with the aim of maximizing profit rather than maximizing well-being of the insured.
  5. It may lead to the crimes in the society as the beneficiaries of the policy may be tempted to commit crimes to receive the insured amount.
  6. Sometimes, the total amount of premium might be higher than the policy amount receivable on maturity.

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