Insurance is a kind of contract between an individual or an organization and an insurance company. It is designed to provide cover for losses that have occurred due to some reason. Insurance is an agreement between the insurance companies and individuals. In this insurance, there are two parties involved. One of them is the insurer, which takes an insurance policy on your behalf. On the other hand, you as a client, have taken an insurance policy on your behalf.
As per the definition provided by the Oxford Dictionary, “insurance” means “to ensure against loss or danger.” This definition clearly indicates that insurance provides the necessary guarantee to meet the cost or risk. It is important to understand that insurance does not give you any right to take precaution or defend yourself from dangers and losses. Rather, it aims to provide you with financial protection against certain losses that you may face.
To understand the primary functions or purposes of insurance, one must also understand the secondary functions or purposes of insurance. As per the dictionary, the secondary functions or purposes of insurance are concerned with the payment of claims and the assurance of loss. Thus, insurance provides certainty or protection in the form of financial security. For example, insurance provides you with money to meet your repair costs if your car gets damaged due to a road accident. In other words, insurance serves as a safety net.
However, we often tend to forget that insurance has its primary functions or purposes. The primary function or purpose of insurance is to provide monetary safety to its policy-holders. The main reason why an insurance policy is sold is that the policy-holder expects some form of monetary compensation from an insurer. He believes that if an insurance company were to pay him his claims, then he would be able to live his life normally again. The primary functions of insurance are to give you monetary security. The primary function of insurance is not to make you rich.
The financial experts suggest that we focus more on the secondary functions rather than the primary ones. Primary functions are better left for the primary insurers who deal with the goods and services directly. Primary insurers are generally considered to be the kings of the insurance industry. Primary insurers never make any compromise on the quality of their product. However, secondary or sub-insurance companies play a major role in the financial system of the nation.
The financial system of the nation is the main reason for the popularity of insurance companies. The fact that there is a lot of monetary liquidity in the nation helps the insurance companies to earn a lot of money. The success of insurance companies largely depends on how well they have mapped out and prepared for their future financial strategy. The financial analysts of the insurance companies are highly trained professionals who know all about the tricks of the trade. Therefore, it is very much possible that these financial experts may provide insurance companies with hints on how they should proceed. They can also provide hints on how they should go about lowering the cost of insurance so that the customers can get their full monetary returns.
The monetary support from the government is also a big factor behind the success of the insurance companies. The Federal government keeps on injecting money into the insurance sector so that there is a continuous inflow of funds for the various financial needs of the nation. The tax benefits and other monetary gifts are other aspects which help the insurance companies in getting increased sales. The increase in sales is also beneficial for the customers as the customer gets to pay a lesser amount of tax to the government and gets some tax breaks too.
The insurance companies can get a lot of customers due to the large number of companies that offer their insurance services. The competition in the insurance industry is a good thing for the customers as every company tries to offer the best service to its customers at the cheapest price. The customer is thus benefited by the variety of services and offers. However, a lot of precaution is necessary for the customer as he should not choose a company without proper research. There are a lot of websites that help you to get more information about insurance companies and their services.