What are the functions of insurance?

A) Providing certainty
B) Capital Destruction
C) Protection
D) Risk sharing

Choose the correct answer from below.

(A), (C) and (D) only

The correct answer is option 2-  (A), (C) and (D) only.

B) Capital Destruction is not the function of insurance. Capital formation is a function of insurance.

Insurance is a social device in which a group of individuals (insured) transfers risk to another party (insurer) in order to combine loss experience, which provides for payment of losses from funds contributed (premium) by all members. Insurance is meant to protect the insured, against uncertain events, which may cause disadvantage to him. The various functions of insurance are as follows:

(i) Providing certainty: Insurance provides certainity of payment for the risk of loss. There are uncertainties of happenings of time and amount of loss. Insurance removes these uncertainties and the assured receives payment of loss. The insurer charges premium for providing the certainity.

(ii) Protection: The second main function of insurance is to provide protection from probable chances of loss. Insurance cannot stop the happening of a risk or event but can compensate for losses arising out of it.

(iii) Risk sharing: On the happening of a risk event, the loss is shared by all the persons exposed to it. The share is obtained from every insured member by way of premiums.

(iv) Assist in capital formation: The accumulated funds of the insurer received by way of premium payments made by the insured are invested in various income generating schemes.