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Is There Economic Essence in terms of Insurance

admin June 2, 2015 Leave a Comment

It is important to consider the essence of insurance to the nation’s economy since it has great impact after all. According to an old expression, insurance means acting at own risks. For instance, you have to act on your own responsibility. Hence, people have their own risks to handle and fear is pretty natural. In fact, there is no one in this world who knows how to predict or evaluate risk in order to avoid them.

However, the term was later on used separating or transferring risks related to property loss. Thus, insurance became an English term from its root word “sure”. To be able to effectively prevent losses from specific events, humanity has significantly developed 2 general ways on how to protect people’s interests, repressive and preventive.

Fiscal Essence of Life Insurance

Basically, insurance provides adequate funding intended for specific measures in order to prevent unfavorable events while reducing negative effects. However, the main purpose actually is redressing the damaged material due to a particular adverse event.

As a matter of fact, insurance is an old yet highly sustainable form in terms of economic and financial life way back then. Over time, it increasingly became an essential component of the national economy. The objective need when it comes to insurance is the potential losses which may arise from destructive factors, criminal acts, disasters as well as own negligence.

Role of Insurance in the Society

The society actually plays a significant role in terms of the insurance mechanism. Hence, the redistribution of funds for every member of the society who needs sufficient financial assistance is the result of such insurance claims. In contrast to social insurance, in which the insured in fact serves the majority of the group.

However, for commercial insurance, the redistribution only happens among members of certain insurance fund, through paying insurance premium. Consequently, the society and business fund’s redeployment generally gain stability because of the chance in restoring the lost by using an insurance fund. As a result, the insurance provides additional momentum on the development of the economy.

While it decreases the contributions of businesses and citizens in eliminating the consequences due to these adverse events, it also significantly replaces them for lowered insurance premiums. Thus, it releases once the funds are successfully sent to national economy. On the other hand, there are some risks associated to individuals as well as the society as a whole.

So, there is an apparent reason that insurances and reserve funds will be inescapably created within various organizational forms while service different purposes such as the following:

  • Government including social facilities, extrabudgetary funds, and many more

  • Individual and corporate reserve funds

  • Insurance companies’ proper insurance funding where in all forms are used in particular practice while having its own scope

Insurance as involved in the financial activity sphere actually developed from distribution of work while developing awareness of human life, property, and health value as its entirety. Insurance is indeed important in the development of the economy within a country.

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