10th Nov 2008
Social Values of Insurance
By reducing risk insurance permits a better apportionment of capital, with a resulting increase in productivity. For example, if you were planning to invest in a grocery business and found yourself unable to buy fire insurance, you might well change your plans and invest in some other business in which insurance is available.
Other investors would very likely do the same, for they, too, would be unwilling to take a chance on having a total loss of their investment in a fire. The resulting lack of willingness to invest in grocery stores would mean higher prices through higher sales margins for those few willing to take a chance and stay in the grocery business.
Insurance companies also make a vital contribution to the economy by decreasing the chance of loss through loss-prevention activities. Insurance companies maintain large engineering staffs whose functions are to find out why accidents occur and how to prevent them. Obviously in some fields of insurance, particularly types of life insurance, this is not possible, however.
These companies spend large sums of money every year in an effort to make the public safety-minded. Losses would be much greater than they are today were it not for the loss-prevention service of insurance companies. These values are in addition to the obvious advantage of indemnification of loss.
There are several other important social contributions of insurance which must not be overlooked. Of primary importance is the use of insurance as the basis of our credit system. You may trust your friend Irma to repay the $100 you lent her last payday. Undoubtedly, she will pay youif she lives. By requiring debtors to insure their lives, lenders make the repayment of the loan even more certain, even if the policy is a no medical exam life insurance policy.
The situation is the same in connection with loans made not on character but on property. What good is an ironclad mortgage to a banker if the building is not covered by fire insurance? If a fire should occur, the mortgagee would be in no better position than if he had merely lent the money on the signature of the borrower.
Just as the pooling of risk in the field of business quiets the economic and business fears of the insured, personal forms of insurance relieve worry in the home lives of insureds. It is impossible to estimate the good that has been done for the people of the world by life insurancefor example, in relieving mental anguish through the protection it affords. A father has deep-seeded fears that he may die before he can provide for the education of his children. Life insurance provides the means of banishing that worry forever.
It will provide funds to keep the family unit together until the children are grown and to provide for the widow for the rest of her life. The provision of annuities for the aged performs a similar service. Concrete evidence of the effect of this relief from worry is found in life insurance statistics, which show that annuitants live longer than those who do not have annuities.” Fire and other property coverages perform similar functions in relieving worry.
Insurance companies play an active role in the field of finance. Insurance companies have, in recent years, grown to such an extent that their influence has been greatly felt in the investment and financial markets of the world. The aid of insurance companies in financing World War II was indeed spectacular. We have come a long way from the time when insurance companies performed only the simplest risk-taking functions.
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July 27th, 2010 at 4:06 am
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