Basic functions of Insurance

1. 1.Primary Functions
2. 2.Secondary Functions
3. 3.Other Functions

Primary functions of insurance

 Providing protection – The elementary purpose of insurance is to allow security against future risk,
accidents and uncertainty. Insurance cannot arrest the risk from taking place, but can for sure allow for the
losses arising with the risk. Insurance is in reality a protective cover against economic loss, by apportioning
the risk with others.
 Collective risk bearing – Insurance is an instrument to share the financial loss. It is a medium through
which few losses are divided among larger number of people. All the insured add the premiums towards a
fund and out of which the persons facing a specific risk is paid.
 Evaluating risk – Insurance fixes the likely volume of risk by assessing diverse factors that give rise to risk.
Risk is the basis for ascertaining the premium rate as well.
 Provide Certainty – Insurance is a device, which assists in changing uncertainty to certainty.

Secondary functions of insurance

 Preventing losses – Insurance warns individuals and businessmen to embrace appropriate device to
prevent unfortunate aftermaths of risk by observing safety instructions; installation of automatic sparkler or
alarm systems, etc.
 Covering larger risks with small capital – Insurance assuages the businessmen from security
investments. This is done by paying small amount of premium against larger risks and dubiety.
 Helps in the development of larger industries – Insurance provides an opportunity to develop to those
larger industries which have more risks in their setting up.

Other functions of insurance

 Is a savings and investment tool – Insurance is the best savings and investment option, restricting
unnecessary expenses by the insured. Also to take the benefit of income tax exemptions, people take up
insurance as a good investment option.
 Medium of earning foreign exchange – Being an international business, any country can earn foreign
exchange by way of issue of marine insurance policies and a different other ways.
 Risk Free trade – Insurance boosts exports insurance, making foreign trade risk free with the help of
different types of policies under marine insurance cover.

Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or disaster. There are different
types of insurance policies under the sun cover almost anything that one might think of. There are loads of
companies who are providing such customized insurance policies.

What Are the Functions of Insurance Companies?

By Rissa Watkins, eHow Contributor

. What Are the Functions of Insurance Companies? You might be wondering as you are facing another
high insurance bill, why do we need insurance? It may seem as if the only function of insurance
companies is to take your money, but that is not their only function. If you are to have a loss, all of those
insurance premium payments will be well worth it. Insurance can serve as your umbrella against a storm
of financial losses.

Restore Loss

An insurance company's main function is to restore you back to the condition you were in before a loss.
Some people think if they have multiple insurance policies, they will get more money for an item. They
are wrong. Over-insuring an item is a waste of your money. Insurance companies will not pay you for
more than an item is worth. In the event there are more than one insurance carriers, the insurance will
be paid based on the percentage of insurance. For example, if you break a vase worth $100 and own
two policies each written to cover the full amount of $100, you will not get $200 for the vase. Instead,
the first insurance company will cover 50 percent, and the next will cover the other 50 percent.
Insurance will not let you profit from a loss.

Spread Risk

Another function of insurance companies is to spread risk. Reinsurance is when one insurance company
will turn to another to spread risks over a set amount. Insurance companies wouldn't function after a
natural disaster without reinsurance. Imagine if one insurance company or even a handful had to pay all
the losses from Hurricane Katrina. The company would go bankrupt, and the insured would be left with
nothing.

Protection

Insurance is paying for a certain set amount to protect yourself from having to possibly pay a higher
amount. Some insurance companies started as a group of individuals who pooled their money to cover
any disasters that might occur to the individual. It is a community mindset similar to barn raisings in
which a whole community would gather to help build a barn for one family. You pay a set premium
amount for coverage you may not need, but if you do need it, the money is there.

Safety
Safety is a big concern for insurance companies. Insurance lobbyist campaign for changes to laws to
ensure drivers are following safer driving techniques. The Insurance Institute for Highway Safety is a
scientific and educational organization funded by insurance companies. Their goal is to reduce losses
from auto accidents on the road.

Profit

Insurance companies care about your safety, but not from an altruistic point of view. An insurance
company's main function is to make a profit. They are a business. This is one thing many consumers tend
to forget. Drivers get upset if their insurance rates go up after too many not-at-fault accidents and say it
is unfair for the insurance company to punish them when it is not their fault. What they fail to realize is,
from a business prospective, a loss is a loss, regardless of who is at fault. If your driving behavior causes
losses, your rates will go up to cover those potential losses. If your car is a magnet for hit and runs, your
insurance company will raise your rates to protect against your pattern of losses. Is it fair? No, but it is
good business

Read more: What Are the Functions of Insurance Companies? | eHow.com