Benefits/ Advantages and Disadvantages Of Insurance 2022

Insurance is a type of risk management that protects people’s lives, homes, and businesses from financial risks.

In this article, we will mainly focus on the advantages and disadvantages of insurance.

Some insurance policies are required for businesses, and others are optional. Anyone who hires employees needs a workers’ compensation policy, for example, while general business liability or professional liability policies might only be required by companies in specific industries. Even if it isn’t required, there are pros and cons to having insurance. Business owners need to look at potential risks to determine if the benefits outweigh the disadvantages.

Advantage: Covers Business Property

Most businesses have business property and inventory. If there is a fire, robbery or another type of accident leading to damage or property loss of business assets, a general liability policy covers the business to the policy limits, according to Front Range Insurance. It also protects the building the business leases for operations. If a storefront window is broken by a vandal, the glass could be covered by the policy. Business owners should do a thorough inventory of assets including computers, furniture, supplies and inventory to have adequate coverage.

Disadvantage: Denies Claims or Pays Slowly

There are many limitations of insurance to consider. Because business insurance is confusing with many types of policies, a claim may arise that the company’s policy doesn’t cover. Additionally, many claims take time to process because insurance companies need to assess the damage and determine an accurate accounting of loss. The time and energy required can be frustrating and end unfavorably for the business claimant, according to Expansion Capital Group.

Business owners need a professional business insurance agent versed in the needs of the business industry to develop an insurance portfolio that meets a company’s specific needs and budget limits. For example, if the policy property limits are $20,000 but the business needs $50,000 to replace everything, it is underinsured and is responsible for the gap.

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Benefits of Insurance (Car, House, Medical & Business)

Advantage: Protects Against Liabilities

Businesses are sued for a lot of different things. One of the advantages of business insurance is protection from many types of lawsuits. Workers’ compensation covers employees from injury or illness at work. Business liability insurance protects the business if a consumer trips and falls in the office or otherwise is hurt. Professional liability insurance such as medical malpractice insurance protects professionals from mistakes that may result in harm to a client. Many insurance policies pay not just the settlement to the injured party but also cover legal fees incurred by the company when battling a lawsuit.

Disadvantage: Adds Expense

Business owners are constantly examining budgets and looking for ways to save money. Insurance can be expensive, especially in certain industries where workers’ compensation injuries are common. Construction business policies are more expensive than policies for accounting offices. As a business grows, it should review its policies to make sure they cover the existing needs. Otherwise, the policy may not cover a loss completely, leaving the business underinsured.

Advantage: Replaces Income

Another one of the benefits of insurance is the coverage of lost business. There are times when business operations must halt because of a break-in, fire, flood or another disaster. Some business policies cover revenues based on historical information. So if you average $10,000 a month in revenues, your policy would pay that to you up to the policy limits during the time your business is closed.

Advantages and Disadvantages of Insurance

Advantages of Insurance

Insurance provides benefits to an individual, family, businessman as well as a society. The main advantages of insurance can be described as follows: –

Provides economic protections

Economic Protection

Insurance provides economic and finanicial protection to the insured against the unexpected losses in consideration of nominal amount called premium. It provides financial protection to the nominee in case of the pre-matured death of insured. It also covers the loss of properties due to theft, fire, accident and other natural calamities.

Shares risks

People are exposed to various kinds of risks and uncertainties which may cause large losses. It is impossible to eliminate risks and uncertainties altogether but it can be reduced or shared. Insurance is a co-operative device, which helps to share the risks among the insured. Thus, the insurance company redeuces the risk of the insured in exchange for small premium.

Maintains standard of living

Insurance provides financial protection against an unexpected risk of losses due to which people can maintain their living standard. The insurance company provides a safeguard in terms of money to avoid the unfortunate financial crisis.

Encourages saving

Saving

An insured person pays the amount of premium in time as stated in the agreement which encourages for developing a saving habit of persons. Hence, insurance is a means of encouraging regular saving as it helps to reduce unnecessary expenses.

Eliminates dependency

Due to death or destruction of properties, the family suffers from unbearable and non-compensational table losses. The insurance protects against those unbearable losses. The life insurance policy gives full financial support to the dependent in case the death of the insured which helps to eliminate the dependency of people.

Grants loan

Loan

An insured can get the facility of a loan from an insurance company or can take loan from other financial institutions through the security of insurance policy. Thus, this provision of loan helps a person can also meet the need of fund. Bank and financial institutions prefer the insured assets as collateral for providing a loan.

Creates employment opportunities

As insurance has become business in the modern day business world, hundreds of entrepreneurs and thousands of employees have been engaging in this line. Hence, by establishing and developing insurance companies, it has provided employment opportunities to thousands of people as per their qualification and calibre.

Promotes foreign trade

The growth of the international trade of the country has been greatly helped by shifting of risk to insurance company. A ship sailing in the sea faces some miss-fortune. A fire breaks out and burns to ashes all the merchandise of a business man. But insurance is one of the devices by which these risks may be reduced or eliminated. So industrialists and exporter may devote their full attention toward the promotion of business which may increase the export activities

Helps to operate business smoothly

A business gets financial compensation in case of loss or damage to the properties of the business through insurance. An insurance policy taken for the employees increases their motivation at work. Therefore, insurance plays a vital role to let the business run smoothly even in the situation of unfavorable events.

Help to reduce inflation

Inflation Reduction

The inflation means increase in price of goods or service. Inflation gives painful experienced to the citizen so it should be control. To control inflation, the volume of money need to be reduce. An insurance company takes the money from the people in the form of premium, which reduces the volume of money in the market. Hence, it helps to control the inflation in the country.

Help to develop economy

Insurance companies collect premium through life or non life policies which are invested in various development areas like trade and industry. Such investment helps to promote trade and industry in the country. Ultimately, it helps for the economic development of the country.

Disadvantages of Insurance

The following are the main disadvantages of insurance: –

It does not compensate all types of losses which caused baisness to insured by insurance company.

It takes more time to provide financial compensation because lengthy legal formalities.

Although insurance encourages savings, it does not provide the facilities that are provided by bank.

It intentionally tries to compensate as less as possible to the sufferer with the aim of maximizing profit rather than maximizing well-being of the insured.

It may lead to the crimes in the society as the beneficiaries of the policy may be tempted to commit crimes to receive the insured amount.

Sometimes, the total amount of premium might be higher than the policy amount receivable on maturity.

What is insurance?

Insurance is a type of risk management that protects people’s lives, homes, and businesses from financial risks.

In this article, we will mainly focus on the advantages and disadvantages of insurance.

What happens in Insurance?

You pay a monthly or annual fee to the insurance company to insure your life, health, vehicle, property, and so on for a set period of time. In exchange, if the insured person or object is damaged, the insurer pays for the financial loss. So, for a small fee, you are transferring the risk of financial loss to an insurance company due to life and property uncertainties.

Insurance has benefits and drawbacks for individuals, property, society, and businesses. Many of the benefits and drawbacks of insurance are beyond the scope of this article, which cannot cover them all.

Advantages of Insurance

These are some of the advantages of doing insurance.

1 Financial Protection

In life, there is no such thing as a guarantee. There may be a loss of life, as well as some business accidents. The loss is difficult to bear in both of these cases. As a result, insurance provides financial protection against such a sudden loss.

financialprotection

In the event of death, he/she family member may be able to receive financial assistance from insurance. In the event of a business loss, insurance provides financial assistance to help the company recover and rebuild. In the case of health insurance, he or she may be eligible for financial assistance in treating his or her health.

Note: Insurance has terms and conditions and if all the things meet then only he/she will get financial support from insurance.

2 Distribution of Risk/Spreading of Risk

The underlying concept of insurance is to spread the risk across a large number of people. People pay a certain amount to an insurance company up to a certain time or lifetime and receive a refund if a loss occurs. Risk in life or business cannot be eliminated, but it can be reduced, distributed, or shared. So, in this case, insurance companies bear risks in order to redistribute business and individual risks among insurance companies.

3 Stability of Living Standard

Insurance provides financial support to ensure that people can sustain and maintain stability in living standards against an unforeseen risk of losses.

4 Encouragement to Savings

In insurance, people pay a certain amount of money for a fixed time or lifetime based on an agreement and this helps to develop a habit of saving money. Knowing the importance of saving, people start saving in various fields.

encourage_saving

5 Job Opportunities

Insurance, like any other business, is a successful business model. It targets many entrepreneurs and business owners. As a result, there is a lot of cash flow in the business. They need employees to handle and maintain cash flow and run the business, so they open vacancies in various positions based on qualifications and provide job opportunities.

Job Opportunities

Here, employees may get on the basis of the following policies: “harder you work, more money you earn“.

Insurance companies and agencies make lots of money by selling and providing service insurance.

6 Promotes foreign/international trades

Many years ago, people were afraid to engage in international trade because of the possibility of accidents while transporting goods via ships, roads, or other modes of transportation. However, in today’s competitive global economy, insurance companies bear all of those risks and compensate for losses. They also protect an exporter of goods and services from nonpayment by a foreign buyer.

international trades

So, there is various commercial trade insurance like Export Credit Insurance(ECI) doing such activities.

7 Loan Facilities

If a company has purchased insurance, banks are more likely to lend to that company. No, the problem for large businesses is getting a loan from a bank, but if you have a small business or a startup and have done business insurance, your chances of getting a loan from a bank increase.

loans

Furthermore, banks will almost always require new companies that rely on the main founders to obtain insurance against the deaths of one or more of the founders in order to reduce risk. In addition, the fine print directs that the payment on death be made to the bank first, in order to pay off the loan.

Also, if you have life and health insurance yourself, you have a better chance of getting a loan from a financial institution.

8 Stability of Business

Even if your company suffers unexpected losses, insurance can help you manage your losses. Taking out an insurance policy for your employees will encourage them to come into the office. As a result, insurance aids in the smooth operation of the office. And business will become more stable.

9 Specialization

Insurance, like other financial products, is designated for specific purposes. This allows you to use the funds for the initial purpose you selected.

10 Increase in investment

Insurance promotes individuals and businesses to invest in new things.

11 Competitiveness

If you have insurance, then there will not be any tension related to business, and life, and health. so, you can focus on your task and compete with others.

12 Society and Country Welfare

The insurance company collects a large amount of money from an insured and they invest in the development of trade and industry, which finally leads the society and country toward development.

13 Preserves Confidentiality

If there is some death in the family then the death benefit or to whom the death benefits are payable will not be recorded publicly. This helps to preserve confidentiality for the beneficiary of the policy.

14 Tax-free money

Another advantage of insurance is that the funds are often tax-delayed. The benefits and all other earnings you may earn under the policy are tax-free, except in the case of employer insurance schemes where benefits are regarded as normal taxable income.

For example, life insurance reduces the risk that your family will be unable, if you have saved enough to pay off your remaining debt, to pay the normal bills in the event of sudden death. If you die during your lifetime insurance, your beneficiary’s payment is tax-free.

15 Short Term Coverage

The insurance coverage period can be changed. If you have short-term needs then you can choose shorter-length insurance.

16 Long Term Coverage

Long-term insurance is an option if you have long-term needs. It may be more cost-effective in some situations in the long run compared to short-term coverage.

You can use life insurance to pay for other policies such as pensions or long-term care without paying taxes on the difference. Furthermore, by utilizing features such as this, you can improve your cash accumulation by increasing your life insurance death benefit.

17 Easy to Apply

There are many genuine sources where you can get insurance information and compare insurance of one company with another and can apply online form as well. Example:policygenius

18 Peace of Mind

Peace of mind from knowing that your family is financially secure if something happens to you and you are the only source of income.

Disadvantages of Insurance

Insurance also has some defects in it. Some of them are as follows:

1 Term and Conditions

Insurance does not cover every type of loss that can happen to an individual or a business. They have terms and conditions, and they only provide financial assistance based on those terms. Please read the terms and conditions of any insurance before purchasing it. Also, seek assistance from the appropriate person in order to obtain accurate information about an insurance policy.

2 Long Legal formalities

It may take a long legal procedure for receiving your claims.

3 Fraud Agency

There are lots of fraud agencies available in the market so, before taking any type of insurance do exercise yourself or take the help of an expert.

4 Not for all People

Some insurance, such as life and health insurance, do not cover sick or elderly people in most cases. Their insurance may be costly. Do your homework before enrolling in insurance.

5 Potential crime incidents

It could lead to social crimes as the users of the policy are tempted to commit crimes to get the insured money.

6 Temporary and Termination

Insurance is temporary and will be terminated when the individual no longer belongs to the group.

7 Can be Expensive

Often, the cost can vary depending on the policy and other factors. However, if you buy at the right time, for the right reasons, and with the right coverage, you may be able to get the best price.

8 Rise in Subsequent Premium

You should keep an eye out for the different premium prices offered by various insurance companies. Determine at the beginning whether or not your premium will be fixed or if the rate of inflation will change from time to time.

The premium depends on your medical profile, medical history, and age. If these factors are identified to increase your rate of death, life insurance may charge you more for coverage.

Insurance Premium: Amount of money paid by an individual or business for the insurance policy to the insurance company

9 Because of a lack of efficient awareness, everyone is not able to get knowledge of insurance, so may needs agents and have to pay an extra amount for him.

10 Some insurance will not pay back if the policyholder never suffers from the loss.

11 Often, if the program is surrendered, a political holder cannot recover the premium.

12 Adds Expense For Some Projects

In some construction projects where compensation for the workers for injuries is common, then insurance for these companies can be expensive. They are expensive as compared to other IT and accounting offices.

13 Annoying and Frustration

It takes time and energy to review all the insurance claims, which irritates people and may lead to frustration. So, it’s a good idea to make sure you’ve done your insurance correctly.

14 In general, in all types of insurance, Cash surrender values are typically lower than premiums paid in the first few years of the policy, and a policy owner may not be able to recover all of the premiums paid if the policy is surrendered.

15 There are many exclusions in life insurance policies, so you should understand everything about the policy you intend to purchase before signing on the dotted line. For example, your policy may not cover death caused by a drug overdose or involvement in criminal or illegal activities.

Conclusion:

Insurance is critical and should be obtained by everyone in order to ensure a happy and secure future for future generations.

The insurance has become an integral part of business and human life. ‘The fear of loss’ has been a constraint on the growth of business and trade. An uncertain future of business and of individual has always been haunting him. Insurance has been helpful in solving many problems of business and private life.

The following are the advantages of insurance:

1. Providing Security:

There is always a fear of sudden loss. There may be a fire in the factory, storm in the sea or loss of a life. In all these cases it becomes difficult to bear the loss. Insurance provides a cover against any sudden loss. In case of marine and fire insurance the loss suffered by the insured is fully compensated and he is restored to his earlier position.

In the same way, if a bread-bringing member of the family dies prematurely, the family is provided with money to continue with its livelihood. So, insurance gives security to both individual and business-man. These days insurance covers various social welfare schemes also. There are schemes providing for unemployment, sickness, accident, health and old age insurances. These schemes are helpful for poor people and help in establishing social justice.

2. Spreading of Risk:

The basic principle of insurance is to spread risk among a large number of people. A large number of persons get insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out of funds of the insurer. The loss is spread among a large number of policy-holders.

Insurance covers the loss of an individual but the social loss cannot be eliminated. If the property of a person is lost by fire, he will be compensated by the insurance company. The loss of goods will remain as a social loss. Insurance cannot eliminate loss but it can reduce the risk to the individual.

3. Source for Collecting Funds:

In lieu of an insurance cover, the insured pays premium to the insurer. The premium is received regularly in installments. Large funds are collected by way of premium. These funds can be gainfully employed in industrial development of a country. Life insurance policies are purchased by persons from all walks of life. It helps in collecting savings from a large number of persons.

In India, Life Insurance Corporation of India provides large funds to the industries for long-term investments. These funds are productively used in exploiting natural resources which accelerates industrial growth of a country. The employment opportunities are also increased by big investments made by insurance companies. So, insurance has become an important source of capital formation.

4. Encourage Savings:

Insurance does not only protect risks but it provides an investment channel too. Life insurance provides a mode of investment. The insurance develops a habit of saving money by paying premium. The amount of policy is paid to the insured or to his nominees. In case of fixed time policies, the insured gets a lump-sum amount after the maturity of the policy.

5. Encourage International Trade:

International trade involves many risks in transporting goods from one country to another. In the absence of insurance the traders will always be worried for the safe arrival of goods. The quantum of trade will be limited because of uncertainties and risk involved during transit. Insurance provides protection against all types of sea-risks. It has helped the development of international trade on a large scale

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Benefits/ Advantages and Disadvantages Of Insurance 2022