The various functions of insurance are
(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.