In this blog post I will be writing on the types of insurance, importance, meaning and benefits of insurance.
Meaning Of Insurance
Insurance can be defined as an agreement whereby one party promise to indemnify or pay another party a sum of money in the event of his suffering a specified loss or damages. It can also be defined as a system for providing financial compensation for the effect of loss, the payments being made from the accumulated contribution of all parties participating in the fund or scheme.
Types of Insurance
There are two major groups or types of insurance and these are: Life Insurance and non Life Insurance
A) Life Insurance
These include:
- While life assurance
- Endowment
- Term insurance
- Annuities
B) Non life insurance
This is a branch of insurance which is taking as a protection against loss of properties and other valuables. The non-life insurance includes:
- Bad debts
- Goods in transit
- Group insurance
- Cash in transit
- Fidelity guarantee
- Export credit guarantee
- Plates glass
- Agricultural insurance
- Burglary, theft, robbery.
- Consequential loss
- Contractor all risk
- Employer liability
- Aviation insurance
- Accidental glass
- Motor vehicle insurance
- Marine insurance
- Fire insurance.
Bad debt Insurance: Bad debts are debt that are difficult to collect. Therefore bad debt insurance cover debt that may not be paid by the debtors to the business. The risk of non payment is the subject matter of this type of insurance. Hence, the insurance company will guarantee to protect the business against irrecoverable debts.
Goods in transit: Goods in transit insurance is a types of insurance which covers against accidental damage or loss to goods in transit. It provides compensation to the owner of goods if the goods are damaged or lost in transit. Goods sent by any means of transportation should be covered by this policy. Parcels, letters or luggages can also be ensured under this policy.
Group insurance: Group insurance is taken to cover a group of people or workers. This are policies on a collective basis, assuring members of a particular group such as a football team or a group of employees of a firm. The insurance is liable for everyone convered by the single policy. It reduces the cost of administration and the dependents will benefits if the workers is involved in an accident. This policy also encourages employees to remain in and employment.
Cash in Transit: Cash in transit policy provides compensation to the insured in the event of cash being stolen either from the business premises, home or while it is being carried to or from the bank. It covers cash taken outside to purchase goods and cash brought into the office for workers salary. It may provide compensation to employees who may be injured during a robbery operation.
Fidelity guarantee Insurance: Fidelity guarantee is a type of policy affected by an employer, insuring him against the possibility of the dishonesty of an employee. The object is to provide cover against loss by reason of dishonesty of people holding positions of trust. This is taking by a firm to guide against the risk or loss arising from misappropriation of money by their employees in charge of cash, e.g cashier, accountants.
Export credit guarantee Insurance: The export credit guarantee insurance policy provides cover for exporters against the risk of exporting. It guarantees to cover exporters of goods against the risk of bad debt as a result of goods sold of foreign buyers. Some uncertainties in international trade, like insolvency of buyers, action of some foreign government, e.g, preventing performance of contract, trade restrictions, Civic disturbances and exchange control difficulties are also covered by this policy.
Export credit guarantee insurance functions to:
- Cover non payment by the buyer.
- Indemnify the exporter in the event of non-payment.
- Encourage Sales of Goods on credit from the international trade
Glass plates insurance: The glass plate insurance policy covers accidental damages to glass plates, Windows, doors and shelves. It guarantees to cover for the replacement of plates – glass windows in the event of damage, e.g, etiebet’s place (which is a glass house) amobolaji bank Anthony Way in ikeja Lagos.
Agricultural Insurance: Agricultural Insurance is the type of insurance which provides relief to farmers for losses suffered on their crops as a result of drought, pest and diseases.
Burglary, theft and robbery: The policy provides compensation for losses which may arise from goods or property stolen or damaged through breaking into a shop of business premises. And individual can also take this policy against the risk of losing his house property to thieves. As a matter of necessity, it must be proved that thieves have actually broken into the house and Carted away the property under consideration.
Consequential loss Insurance: Consequential loss policy covers losses to Commercial firms after a fire incident, resulting in interruption of business activities and stoppage of production. It covers loss of profits arising from the stockage of the production process.
Contractor all risk: The contractor all risk provides for contractors in the event of any damage being done to the construction work from a wide range of Perils. The risk is that the project may sustain severe damage and this would delay the completion of the project.
Employers liability insurance: The intention of employer liability insurance policy is to ensure that the employer does not suffer financially but is compensated for any money he may have to pay in respect of a claim to provide compensation if any employees was injured of killed. This policy provides cover for employers in the event of liability to employees arising from industrial fatality, disease or injury. It gives employees some protection.
Aviation insurance: All risk associated with the use of aircraft as a means of transport are covered by the aviation insurance policy. The component parts and complete jumbo jets are all insured in the aviation insurance market. The buyers are large commercial airlines, aircraft users and private owners. The policy also covers the aircraft and The liabilities to passengers.
Accident insurance: Accident policy guarantees the payment of compensation in the event of an accident, causing death or injury. It covers protection for death or injury arising from accidental, violent, external and visible means. It can cover personal accident and sickness.
Motorcycle Insurance: The motor vehicle insurance policy provides for liability for death or bodily injury to any person arising from the use of vehicles on the road. Compensation will be paid to the victim injured in road accident, i.e, injury to the body.
Marine Insurance: Marine insurance is another types of insurance or branch of insurance which covers losses or liability relating to ship and their cargos against the dangers or perils of the sea. This is probably the oldest form of insurance. The Perils of the sea include include storm, tempest, collision, theft and fire.
Fire insurance: Fire insurance is a types of insurance which provide cover for loss or damages cause by burning. A person can ensure himself or property against any loss as a result of fire lighting, wiring, lighting and explosion. It covers all risk associated with fire. However, the insurer can only be compensated if the fault was not caused by him. The compensation covers possible damages to buildings, factories, goods and shops, although the structure of the building and some inflammable items kept inside will be taken into consideration. Fire insurance may be taken with average or without average clause.
Importance of Insurance
Below are the importance of insurance in commerce. They include:
- It facilitate international trade: Insurance stimulate and facilitate international trade. This is because marine policy provide cover for cargoes and vessels. The export credit guarantee also guarantees credit sales.
- It offers investment opportunities: This is another benefits of insurance. Insurance makes funds available for investment. A large proportion of this resources are invested in the capital market where business men can obtain loan. This helps in developing the country’s economy.
- Leads to risk reduction: Here is another importance of insurance because insurance helps to reduce or control loss or liabilities of a businessman. It spread the financial losses of the insured.
- Provision of security: Insurance provides security to commercial activities. Some small enterprises would have collapse as a result of major losses, but insurance always takes care of such and uncertainty.
- Provides a means of saving: Another benefits of insurance is that insurance provide the means of saving regularly which will help to provide for the future, e.g, endowment policy.
- It serve as collateral security: Life assurance policy can be used as a collateral security to obtain loan from the bank for business investments.
- It helps to motivate workers: Another importance of insurance is that through group insurance policy, the workers are fully aware of secured future, hence they will work harder which will bring about higher productivity.
- Provision for old age and disability: Life assurance can be used as a way of providing for old age and to make provision for permanent disability.
Wow good you finished reading through this very long article. I’m sure by now you have understood what is insurance, types of Insurance, importance and their benefits.