Question

Discuss the purpose of insurance as it relates to risk management, and identify and describe some major types of insurance coverage.

Answer 1

Purpose of insurance as it relates to risk management-

Risk management involves the purchasing of insurance to reduce the financial impact of adverse events on a company when, despite your best efforts, bad things happen. It reduces the vulnerability to theft, control the liability risks, reduce the motor vehicle risks, reduce the risk of work related injuries, disaster response and recovery planning.

Major types of insurance coverage are-

1. Property insurance- assets of the company such as land, building and plant are covered under it.

2. Liability insurance- liabilities which company has to pay are also gets covered under this head.

3. Business vehicle insurance- firm’s vehicles used for firm’s work are covered in it.

4. Workers compensation insurance- compensation to workers given by the company also get insured, in case if company incurred losses and not able to pay its workers then they get compensation through this.

5. Life insurance for key employees- this is generally for the top and middle level management employees. In case of any life loss their nominee gets coverage amount.