Objectives of Insurance
Insurance is the legal agreement between an insurance company and the individual or a business in which a business pays some sum of money periodically and in return it gets the assurance of protection of its property from any unforeseen events.
The following are the main objectives of insurance.
Provide Financial Security
One of the main objectives of insurance is to provide financial security to policyholders or the insured. In fact, the basic reason people or businesses think of getting an insurance contract is that they want the financial security of their properties or nominees.
Insurance companies provide financial securities to their insured parties in the occurrence of events or accidents as stipulated in the insurance contract.
Risk Transfer
Another objective of insurance is to transfer the risk or diversify one’s risks with a large number of people. It usually transfers the risk of the policyholder to the insurer i.e. insurance company.
For this, policyholders are liable to pay some amount of money to the insurance company monthly, semi-annually, or annually i.e. premium.
Insurance is a mechanism for individuals to distribute their risks among a larger pool of people. In exchange for premiums paid by policyholders, insurance companies provide compensation to those who experience losses.
Provide Peace of Mind
Similarly, the third notable objective of insurance is that it provides peace of mind to the policyholders.
Think of yourself as a policyholder, knowing that your property or assets are in safe hands, you will be surely free from anxiety and tensions.
As such, with insurance contracts individuals as well as business organizations enjoy peace of mind.
Fulfill Legal Process
Insurance is also important for fulfilling the legal process. In most counties, take the example of auto insurance and worker compensation insurance. These are compulsory insurance in most countries.
When you purchase an automobile you must have to purchase an insurance contract for your automobile. And, businesses, must purchase insurance for their worker’s compensation.
This can help individuals and businesses comply with legal requirements and avoid penalties.
Protection From Unexpected Events
One of the significant objectives of insurance is that it protects insured parties from unexpected events. You can be sure that you are safe now and you will be tomorrow. Tomorrow can happen anything.
As such businesses or people purchase different insurance policies to protect themselves, their loved ones, and their properties from unexpected events such as accidents, earthquakes, and other unforeseen calamities.
Minimize Loss
The primary aim of insurance is to mitigate potential losses that may arise from future risks and uncertainties, providing individuals with a sense of security and certainty in the face of unforeseen events.
By offering compensation for covered losses, insurance helps to reduce the impact of such events on individuals and businesses.
Effective planning and administration further help to minimize risk and ensure that insurance policies are able to deliver on their promises.
Promote Continuity To Business Operations
Insurance policies can protect assets such as property, vehicles, and equipment from damage or loss. This protection can help individuals and businesses avoid financial losses and disruption to operations.
Mobilize the Saving
Insurance serves as a means to mobilize savings by offering various policies that guarantee compensation for losses, attracting a large number of people to invest.
Insurance companies generate significant funds through regular premium payments and invest them in securities and stocks to generate income. This enables insurance companies to utilize the resources of the public towards income-generating sources and maximize their earnings.