Seven Primary Functions of Insurance

Insurance is a co-operative device to spread the loss caused by a particular risk over a number of persons, who are exposed to it and who agree to insure themselves against the risk.

Thus, the insuranceĀ is

  1. A co-operative device to spread the risk;
  2. The system to spread the risk over a number of persons who are insured against the risk;
  3. The principle to share the loss of each member of the society on the basis of probability of loss to their risk; and
  4. The method to provide security against losses to the insured.

The functions of insurance can be studied into two parts;

  1. Primary Functions, and,
  2. Secondary Functions.

Primary Functions

1. Insurance provides certainty

Insurance provides certainty of payment at the uncertainty of loss. The uncertainty of loss can be reduced by better planning and administration.

But, the insurance relieves the person from such difficult task. Moreover, if the subject matters arc not adequate, the self-provision may prove costlier. There are different types of uncertainty in a risk.

The risk will occur or not, when will occur, how much loss will be there? In other words, there are uncertainty of happening of time and amount of loss.

Insurance removes all these uncertainty and the assured is given certainty of payment of loss. The insurer charges premium for providing the said certainty.

2. Insurance provides protection

The main function of the insurance is to provide protection against the probable chances of loss. The time and amount of loss are uncertain and at the happening of risk, the person will suffer loss in absence of insurance.

The insurance guarantees the payment of loss and thus protects the assured from sufferings. The insurance cannot check the happening of risk but can provide for losses at the happening of the risk.

3. Risk-Sharing

The risk is uncertain, and therefore, the loss arising from the risk is also uncertain. When risk takes place, the loss is shared by all the persons who are exposed to the risk.

The risk-sharing in ancient times was done only at lime of damage or death; but today, on the basis of probability of risk, (he share is obtained from each and every insured in the shape of premium without which protection is not guaranteed by the insurer.


Besides the above primary functions, the insurance works for the following functions:

4. Prevention of loss

The insurance joins hands with those institutions which ate engaged in preventing the losses of the society because the reduction in loss causes lesser payment to the assured arid so more saving is possible which will assist in reducing the premium.

Lesser premium invites more business and more business cause lesser share to the assured.

So again premium is reduced to which will stimulate more business and more protection to the masses.

Therefore, the insurance assist financially to the health organization, fire brigade, educational institutions and other organizations which are engaged in preventing the losses of the masses from death or damage.

5. It Provides Capital

The insurance provides capital to the society. The accumulated funds are invested in productive channel.

The dearth of capital of the society is minimized to a greater extent with the help of investment of insurance. The industry, the business and the individual are benefited by the investment and loans of the insurers.

6. It Improves Efficiency

The insurance eliminates worries and miseries of losses at death and destruction of property. The carefree person can devote his body and soul together for better achievement, it improves not only his efficiency, but the efficiencies of the masses arc also advanced.

7. It helps Economic Progress

The insurance by protecting the society from huge losses of damage, destruction and death, provides an initiative to work hard for the betterment of the masses.

The next factor of economic progress, the capital, is also immensely provided by the masses. The property, the valuable assets, the man, the machine and the society cannot lose much at the disaster.