What is Insurance? Wikipedia defines Insurance as a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter. A person or entity who buys insurance is known as an insured or policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and usually involves something in which the insured has an insurable interest established by ownership, possession, or preexisting relationship.

The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insurer will compensate the insured. The amount of money charged by the insurer to the insured for the coverage set forth in the insurance policy is called the premium. If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster. The insurer may hedge its own risk by taking out reinsurance, whereby another insurance company agrees to carry some of the risk, especially if the risk is too large for the primary insurer to carry.


Difference between Assurance and Insurance : The terms insurance and assurance are used frequently in the financial industry. Insurance provides financial coverage for unforeseen circumstances surrounding an event, such as fire, theft, or flooding. Assurance provides coverage for events that will occur, such as death. A life insurance policy, for example, provides coverage to an individual for a specified period of time. If the individual dies during that specific period, the insurance carrier will pay the amount of money agreed upon in the contract. If the insured individual lives past the specified time period, the insurance policy becomes void, and the provider is not obligated to make any payment.


Importance of Insurance:

1. Provide safety and security:
Insurance provide financial support and reduce uncertainties in business and human life. It provides safety and security against particular event. There is always a fear of sudden loss. Insurance provides a cover against any sudden loss. For example, in case of life insurance financial assistance is provided to the family of the insured on his death. In case of other insurance security is provided against the loss due to fire, marine, accidents etc.

2. Generates financial resources:
Insurance generate funds by collecting premium. These funds are invested in government securities and stock. These funds are gainfully employed in industrial development of a country for generating more funds and utilised for the economic development of the country. Employment opportunities are increased by big investments leading to capital formation.

3. Life insurance encourages savings:
Insurance does not only protect against risks and uncertainties, but also provides an investment channel too. Life insurance enables systematic savings due to payment of regular premium. Life insurance provides a mode of investment. It develops a habit of saving money by paying premium. The insured get the lump sum amount at the maturity of the contract. Thus life insurance encourages savings.

4. Promotes economic growth:
Insurance generates significant impact on the economy by mobilizing domestic savings. Insurance turn accumulated capital into productive investments. Insurance enables to mitigate loss, financial stability and promotes trade and commerce activities those results into economic growth and development. Thus, insurance plays a crucial role in sustainable growth of an economy.

5. Medical support:
A medical insurance considered essential in managing risk in health. Anyone can be a victim of critical illness unexpectedly. And rising medical expense is of great concern. Medical Insurance is one of the insurance policies that cater for different type of health risks. The insured gets a medical support in case of medical insurance policy.

6. Spreading of risk:
Insurance facilitates spreading of risk from the insured to the insurer. 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.




Mynd44

There are several factors that makes an average Nigerian uninterested in getting an insurance policy.

1. Economic Situation : Many people understand the importance of insurance, but when you sit to discuss with them why they don't have a policy they all come up with the same response! "The economy is bad!" "No money for insurance"
Insurance is the bedrock of commerce! Commerce involves taking risks, and Insurance covers that risk! It is important for every business to take an Insurance policy. This helps protect the business!


2. Ignorance: Many people don't understand how insurance works, I have heard cases of people buying life insurance, thinking they have a cover for their business. Only to find out they been swindled into buying the wrong policy.

3. Trust: We distrust what we don't understand! People find it difficult to comprehend how insurance works, also some Insurance companies look for ways to avoid paying indemnity! This leads to distrust!

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