Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. The amount of money paid by an individual or organization for insurance (cover/protection) to an insurance company is called the premium.
Benefits of insurance
- Insurance enables individuals and organizations not to suffer the financial loss that would result from the occurrence of an insured risk. Insurance therefore;
- Provides payment for covered losses when they occur. The uncertainty of paying for losses out of-pocket reduces significantly thus managing cash flow.
- Gives a peace of mind thereby enabling investments of larger amounts of money
- Provides financial protection to dependants in case of death of the breadwinner (Life insurance)
- Provides savings for future prosperity in case of life insurance
- It’s a means of mobilizing investment funds. When insurance companies collect premiums, they invest those premiums in a variety of investment vehicles, and pay claims when they occur.
- Controls and reduces losses through surveys and provides risk improvement advice to the public and those insured
- Enables continuity of micro businesses that depend on the insured business
- Reduces individual burden on society such as education of the children after the death of the breadwinner.
- Reduces the burden of loss since many people shoulder the loss thus providing a form of social cooperation.