Why Insurance is necessary for the Economic Development of a Country
Insurance is an arrangement between a company or an individual with and insurance company to offer guaranteed compensation for a particular loss, death, damage, illness in return for a payment of a premium that is specified by the insurer. The insurance sector provides capital for investments that are productive in various sectors. The insurance sector enables financial stability for companies and also improves trading and commercial activities that facilitate economic growth and development. Insurance policy for an organization contributes to the sustainable growth of an economy through the various compensation policies often offered by the insurer (Asongu & Odhiambo, 2019). This discussion expounds on the benefits of insurance for the economic development of a country and the types of insurance policies and their benefits on the property insured.
Insurance helps business organizations to mitigate imminent risks and protect their employees. Assisting the business to mitigate various risks often has a long-term positive implication on the economy. A business may suffer financial stagnation because of disasters and other unpredictable challenges. Insurance is often the best available tool that can assist deal with the challenges leading to financial losses within a business. When businesses become insured, they gain the confidence to invest in higher risks. Higher risks often result in higher returns. As a result, higher risks rip higher returns from the investment (Asongu & Odhiambo, 2019). The economy grows faster from activities that reap higher returns for the business because more jobs will be created, companies expanded, and this significantly results in increased economic activities. Workplace injuries leading to absenteeism are also covers by insurance, which helps treat the employee and also cover the account for any potential wage interruption and company output. Don't use plagiarised sources.Get your custom essay just from $11/page
Insurance companies help in financing economic development projects in a country or region. Insurers operating in a country often have trillions of dollars invested but not being used in paying claims for losses. Such finances are often typically invested by the insurance company into real estate mortgages, which finance building and construction. The financed also contribute to other important projects that support economic development within a country. Insurance is involved in more activities than just the payment of premiums and giving compensations in return (Nguyen, Avram & Skully, 2010) Farmers and consumers often have a bigger share of benefits from the insurance company because of the risks involved such as floods, droughts, and equipment lapse. Insurance ensures a steady flow of commodities across the supply chain and keeps the economy running round the clock. This is because the schemes minimize the risks involved in the transportation of goods from the farm to the manufacturer to the retailers and the immediate consumers.
Types of Insurance
Life Insurance: This type of insurance includes the insurance of a person’s life from the risk of death as a result of an accident or disease. The aim of life insurance is providing for the bereaved because their life was dependent on the deceased’s salary to cater to the bills. The life insurance cover caters to the mortgage payment, funeral expenses, and daily living expenses. Life insurance may be classified into whole-life or term-life insurance, depending on the purpose of the insured. In whole life insurance, the insured continues to pay premiums until the time they die, and the family becomes a beneficiary of the scheme. Term-life insurance, on the other hand, is a policy for a specified time (McMaken, 2019). If the time lapses but the assured is still alive, they are issued with a certain percentage of the premiums according to the agreement of the contract. Term life insurance can be considered as a saving plan for the insured because the premiums paid can be redeemable if the insured is still alive.
Property Insurance: This type of insurance covers the property of a person insured against the loss through perils such as fire, theft, breakdown of machines, and marine disasters. The property is often insured against a specified peril, where compensation is given after the occurrence of the peril. The cause of loss under property insurance should not be caused by the person insured. The risk of loss should be accidental for the insured to qualify for compensation, as specified in the insurance contract. Insurance policies under property insurance apply the principle of indemnity in which the insured must prove they have suffered a financial loss after the occurrence of a risk to qualify for compensation (McMaken, 2019).
Health Insurance: This type of insurance assures compensation against illnesses. The insured often receives compensation for medical bills for diseases depending on the terms of the contract and the payment of the premiums. Studies have discovered that every family is at risk of becoming bankrupt due to one serious illness. This implies that people should sign a health insurance policy or increase the scope of their premiums to enable address medical problems within their families (McMaken, 2019).
Motor Vehicle/Accident Insurance: This type of insurance covers the insured against a road accident. The compensations under motor vehicle insurance are issued according to the type of motor vehicle insurance policy signed by the insured. Motor vehicle insurance policy may either be first-party or third-party insurance (McMaken, 2019). In the first party, the vehicle and its occupants are entitled to compensation in the event of an accident, while for the third party insurance, harm caused by the vehicle to the road users receives compensation.
Benefits for Premium Insurance for House, Car, Health, and Life
Insurance premiums reap numerous benefits for the insured in regards to the item or issue insured against. With respect to car insurance, the insurance premium quickly restores the insured back to their financial position before the occurrence of the accident. The immediate restoration of the damaged vehicle prevents the stagnation of the business or economic activities caused by the loss. The owners are often assured of resuming business immediately without having to use their savings in the process. Insuring one’s vehicle also takes care of the other road users’ life because they are often insured under the third-party policy (Nguyen, Avram & Skully, 2010). Generally, motor vehicle insurance assures the people of taking care of all the harm caused by the vehicle to the owner, occupants, and users.
House insurance also assures the owner of recovering their property in the event of fire and theft incidents. The disaster may happen when the owner is in a critical financial situation, thereby plunging them into a critical financial situation. Having a fully insured car drives confidence over conducting business and engaging in numerous risky dealings. In terms of profit-making, the measure assures the owner of taking high risks and making huge profits. This further builds and improves the economy because of the confidence for business people to produce high returns (Nguyen, Avram & Skully, 2010).
Health Insurance is of a huge benefit to the person or the family under a health scheme because it reduces the possibility of a bankruptcy situation in the event of a serious illness in the family. Insurance against illnesses gives the family the confidence to improve on their diet of undertakes to visit places with different climatic conditions without fear of failing to meet the medical bills. Life insurance policy is beneficial to the insured because it caters for the funeral expenses and supports the bereaved in continuing with their normal living (Nguyen, Avram & Skully, 2010). In some schemes, life insurance can also be used as a saving plan which earns finances to the insured in case they do not die within the time specified in the policy.