What is insurance? Explain it’s any four primary functions?

Insurance is a kind of contract between insurer and the insured. First of all, the insured has to pay insurance premium to the insurer then the insurer should promise to pay the compensation due to the destruction of wealth and properties, expiry of time period and untimely the risk and uncertainty but it can reduce them providing financial assistance.

To conclude, we can say that insurance is a cooperative method of spreading loss resulting from a particular risk over a number of persons. Who are exposed to it and who agree to ensure themselves against it by paying an amount of money to the common pool?

The primary functions of insurance are given below:

1. Providing assurance: insurance provides assurance by the agreement of compensating loss which takes place in future against premium. It guarantees protection and provides security against risk of losses in exchange of a small amount of premium.

2. Distributes the risk: Insurance is a cooperative risk. The impact of risk can be reduced through the distribution of risk. Hence, the risk of loss is spread to a number of persons.

3. Providing grantee for the protection: Insurance is a way which provides financial protection against large and uncertain losses in return of nominal amount of premium. So, it provides grantee for the protection of wealth and properties by giving financial assurance or assistance.

4. Provides social security and welfare to the security: The social insurance scheme like accident insurance, health insurance and unemployment insurance provides funds to person while in distress. So, insurance provides the various facilities to the society by giving loan to the projects for the development in basic infrastructure.