Functions of Insurance

Insurance performs the following main functions:

• Providing certainty — It gives certainty of payment for the risk of loss. Although the timing and amount of a loss are uncertain, insurance removes these uncertainties and the assured receives payment for the loss; the insurer charges a premium for providing this certainty.
• Protection — It provides protection from the probable chances of loss. Insurance cannot stop a risk or event from happening, but it can compensate for the losses arising out of it.
• Risk sharing — When a risk event occurs, the loss is shared by all the persons exposed to it, the share being collected from every insured member by way of premiums. …