Question

Privateinsurersprovidesocialandeconomicbenefits to society. Explain the following benefits of insur- ance to society.
(1) Indemnification for loss
(2) Enhancement of credit
(3) Source of funds for capital accumulation

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Abdul-Rahim Taysir

Answer 1

1.Indemnification for loss:

Indemnity means providing compensation for the loss occurred by one party to another. An insurance company enters into insurance contract, under which it makes good of loses of insurer till a predetermined level. It helps individual or business houses to cover their losses to an extent by providing an insurance premium.

2.Enhancement of credit:

Enhancement of credit is a way to increase the credit worthiness of borrower or debt instrument based on guarantee provided by third party. An insurance provider, undertake the guarantee/reassurance that borrower will honour the repayment of debt to lenders.

Enhancement of credit from insurance companies helps to get credit facility at low collateral requirements.

3. Source of funds for capital accumulation:

Capital accumulation means rise in wealth through investments in assets or through profit. It is measured as increase in value of investment.

Insurance companies provides various investment schemes. Where, insurer gets return on part of his payment in addition to insurance benefits.