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What are the functions of insurance?

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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.