Insurance has become an important detail to live in the modern day world.This is because it provides a safety to a number of problems that arise and are inevitable. What is insurance? Insurance is an arrangement between one and the company which undertakes to compensate for specified damage,loss,illness or death caused by matters confined in the agreement in return of prepayments made as premiums. This means that in the occurrence of an incident under which an insurance contract stipulate, the company ought to show a duty of care and compensate you in the agreed what as per the contract. This can be in the form of money or asset.
Main importance of insurance
1. Security to business and individuals
As you pay the premiums towards your insurance cover you are securing yourself against an uncertain risk occurrence. This means that if the risk occurs you will get compensated for it in such a way that you will be back to the position you were at before the incident occurred. It provides an ideal risk mitigation method as you do not need to worry about loss caused by the risk insured against. However its good to know that insurance is not there to make you gain profit for losses neither is it there to compensate you against what you had not insured against.
2. Guarantee to long term financial resources
Funds accumulated by insurance companies from clients can be used to fund projects that are long term in nature. This is because these funds need not to stay in the bank but instead can be made useful and obey the time value off money and earn interest out of circulation into the economy. However once the clients needs his cover used the company cannot say it has used his funds. It ought to obey the contract and compensate. Insurance firms have seen economies grow as the funds have been used to build bridges of growth and let countries thrive in long term projects.
3. Spread the risk
Insurance can be used as a good way of spreading the risk. This is because once the loss occurs on what insured against you have no reason to worry. The loss is both yours and the insurance company. You have paid premiums to them and hence the liability of the loss is on their side to compensate you against. Provided you have honored their premiums they have to now share the loss with you. You will also not that once investors are looking into your business they need to know about your insurance. They cannot certainly invest in a risky business with no insurance cover. This is because if something occurs all their capital and resources put in the business will end up as a waste.