INSURANCE

Concepts/Terms used in insurance

1. Insure: To protect oneself or one’s property against
unforeseen calamities.
2. Insurance:
a contract (agreement) between the insured and the
insurer (insurance company) whereby the insurer
accepts to cover the insured against losses that
might occur due to the occurrence of the risk
insured against.
3. Insured: The individual or organization or business
that takes insurance.
4. Insurer: The insurance company that undertakes to
compensate the insured in case loss occurs due to the risk
insured against.
5. Risk: Hazards, Perils, contingencies, dangers or events
which an insurance company insures against. They cause
loss, e.g fire, theft, accidents, robberies.
6. Loss:
Damage caused by the occurrence of a risk.
7. Premium:
Specified amount of money paid at regular intervals by the
insured to the insurer for cover against insured risk.
8. Sum insured/assured:
The value of the insurance cover as stated by the insured.
It may or may not be equal to the value of the property
insured.
9. Cover note (binder)
This is a temporary document given by the insurance
company to the insured on payment of the first premium,
while awaiting the policy to be processed.
It is a prove that the insurer has accepted to cover the risk.
10. Policy (insurance certificate):
A document of contract between the insurer and the
insured.
It sets out the terms and conditions of the insurance policy.
11. Claim:
A demand by the insured for compensation from the insurer
for loss arising out of an insured risk.
Theory of insurance
Insurance operates on a principle of large numbers.
It believes that a large number of people are exposed to
the same risk.
Each person of the group can contribute a small amount
called premium into a common pool. This is called
pooling of risks.
It believes that few people can suffer loss at a time.
The money in the pool is then used to compensate those
who suffer loss.
Note: Insurance company uses past experience to
determine the number of people likely to take insurance,
the probability of risks occurring and future loss.
Benefits of pooling of risks
1. It enables the insurance company to be able to have a common
pool of funds from regular premiums from different clients.
2. Those who suffer loss can be compensated.
3. The insurance company is able to spread risks over a large number
of insured people.
4. The insurance company can invest the surplus funds elsewhere e.g
in real estates, stock market, financial institutions and giving loans.
5. It enables the insurance company meet its running (operating) costs
e.g paying rent and salaries.
6. The insurance company can earn profit which can be distributed as
dividends to the shareholders.
7. It enables the insurance company to calculate premium to be paid
by each of the insured.
8. It enables the insurance company to re-insure itself with another
insurance company (re-insurance company).
PRINCIPLES OF INSURANCE
These are guidelines or rules that are followed when
taking an insurance policy and when compensation
is done.
They govern the relationship between the insurance
company and the insured.
The insured should understand them before entering
into the insurance contract.
They are the following:
1. Principle of utmost good faith (uberrima Fidei)
This principle require that the person taking
insurance should be honest and disclose all
material facts about the life or property being
insured.
He should also do the same when claiming
compensation.
If risk occurs and is discovered that the insured had
concealed some information, then he will not be
compensated.
2. Principle of insurable interest
This requires that one only insures property or life he
has insurable interest in.
To have insurable interest means to have or suffer
direct financial loss in case the risk insured against
occurs.
The insured must be directly benefiting from the
destroyed property or life, and therefore its absence
will make him suffer e.g one can insure his house
but not that of his friend or neighbour.
This is to discourage people from insuring other
people’s properties and life and causing
3. Principle of proximate cause
It states that for one to be compensated, there must
be a very close relationship between the cause of
loss and the risk insured against.
The loss suffered must be caused by the risk insured
against e.g if a car is insured against fire and it gets
an accident, rolls and burns, the insurance company
cannot compensate because the cause of the loss is
accident and not (directly) fire.
4. Principle of indemnity
To indemnify means to bring one to the same financial
position he was in just before the loss.
Therefore insurance companies only indemnifies but
does not aim at benefiting anyone out of a
misfortune.
For instance, if one insures his vehicle for Sh.450,000
and loss of Sh.300,000 occurs, the insurer only
compensates Sh.300,000.
This is because compensating Sh.450,000 will make
the owner gain from the misfortune.
5. Principle of subrogation
It states that after the insured has been indemnified
(compensated) for the loss suffered, the remains of
the destroyed property (scrap) become the
property of the insurer.
This is because if the insured takes it, he will benefit
from the loss and this violates the principle of
indemnity.
6. Principle of contribution
This principle states that if the insured has taken
policies from different insurance companies against
the same risk, the loss will be shared among the
insurance companies.
Each company will contribute towards the
compensation in proportion to the sum insured by
each company.
This is to stop the insured from benefiting out of the
loss
7. Principle of Loss Minimization
• According to the Principle of Loss Minimization, insured must
always try his level best to minimize the loss of his insured
property, in case of uncertain events like a fire outbreak or blast,
etc. The insured must take all possible measures and necessary
steps to control and reduce the losses in such a scenario. The
insured must not neglect and behave irresponsibly during such
events just because the property is insured. Hence it is a
responsibility of the insured to protect his insured property and
avoid further losses.
• For example :- Assume, Mr. John's house is set on fire due to an
electric short-circuit. In this tragic scenario, Mr. John must try his
level best to stop fire by all possible means, like first calling
nearest fire department office, asking neighbours for emergency
fire extinguishers, etc. He must not remain inactive and watch his
house burning hoping, "Why should I worry? I've insured my
The top 10 insurance companies as ranked in Kenya
There are very many insurance companies in Kenya today since
everyone is looking for a means of earning a living. This resulted to
the insurance industry pointing out the top 10 insurance companies
and making them known to everyone. They include:
1. Jubilee Insurance Company Limited
2. Kenindia Assurance Company
3. British American Insurance Company
4. Pan Africa Insurance Holdings
5. Heritage Insurance Company
6. APA Insurance Services: which stands for American Photographic
Artist insurance
7. Insurance company of East Africa (ICEA)
8. Blue shield Insurance Company
9. UAP Provincial Insurance Company
Insurance contract: Conditions of a contract
A contract is an agreement between two or more people and has to
meet the following conditions;
 It must be for a legal purpose.
One should insure a legal activity or property.
 The parties must have a legal capacity to contract
 e.g one should have attained the age of majority (18yrs), should be
sane and should not be bankrupt.
 The terms and conditions of the contract must be acceptable to
both the insured and the insurer.
In a contract one party makes an offer and the other party accepts it.
In insurance the insurer offers an application from which if the insured
accepts, he fills (completes and signs).
 There must be payment and consideration.
In insurance payment is in form of premiums, while consideration is
 Classes of insurance
Insurance is divided into two main classes:
 General insurance, and
 Life Assurance

General insurance
Also known as property insurance or non-life insurance
Covers properties against various risks.
Characteristics of general insurance
1. Covers properties only (non-life)
2. It is a contract of indemnity
3. Principle of subrogation applies
Policies under general insurance
[Link] policy (insurance)
Covers loss or damage of property caused by fire.
For one to be compensated the following conditions
must be fulfilled
I. The fire must be accidental.
II. Fire must be the immediate cause of loss and not
incidental cause.
III. Real (actual) fire must have occurred.
Types of fire policy
Consequential loss (profit interruption policy):
Covers the insured against loss of profits due to interruption
of business due to fire outbreak.
Sprinkler leakage policy:
covers loss or damage of goods caused by accidental
leakages of sprinklers installed in the building to
automatically fight fire outbreaks.
Fire related peril policy (material) damage policy):
Covers buildings and their contents, excluding loss of profits.
Rent:
Protects tenants from paying rent to landlord when the
business has been destroyed.
[Link] policy
This covers all risks which occur by accident.
The following are the policies included:
 Motor policy and
 General accident policies.
Motor policy
 Also called motor vehicle policy.
 It covers vehicles from loss arising out of accidents.
 The policies under motor vehicle are:
1. Third party insurance
It covers losses caused by vehicles to others (Third party)
Third party include:
 Passengers (in case of PSVs e.g matatus.
 Pedestrians.
 Other vehicles.
 Property e.g shops.
 Livestock
It does not cover the vehicle, the owner or driver.
In kenya it is a must to for every vehicle to have third party policy
(insurance).
2. Third party, fire and theft
Covers third parties and the vehicle from fire and theft.
3. Comprehensive policy
General accident policy
The policies under general accident include the following:
1. Personal accident policy (cover)
It covers physical injuries caused to a person as a result of an
accident, and also loss of income.
The person is paid compensation in the following ways:
I. The insurer can pay medical bill.
II. Regular payment e.g monthly, in case of partial or total
disability.
III. A lump sum
IV. In case of death the beneficiaries are paid the sum assured
or more.
2. Workmen’s compensation policy
 Also called employer’s accident liability insurance
cover.
 Covers workers (employees) who get injured due to
accidents in work place, while on duty assigned by
the employer.
 It is taken by employers to cover their workers who
would claim compensation from them.
3. Cash or, and goods on transit cover
 It covers loss of cash or goods, or both while being
transported.
 Loss of goods may be due to theft, spoilage, damage
4. Theft and Burglary
 Covers loss caused by burglary/robbery and theft of
goods from the premises of the insured.
 The policy may also cover damage caused on buildings
or premises as a result of burglary.
[Link] liability policy
 Covers damages, loss or injuries that may be caused to
other people (the public) and other businesses by the
insured, or its workers (staff) in the process of carrying
out the activities of the organization(insured).
 The insured takes this policy so that when members of
the public are injured the insurance company can
compensate.
[Link] guarantee policy
This covers an insured against loss from dishonest
employees e.g employees taking cash or goods, or
embezzling cash, fraud or accidental mistakes e.g
when counting.
All or certain class of workers may be covered.
7. Bad debt policy
Covers the insured/organization against losses
resulting from debtors failing to pay their debts.
This is common with financial institutions such as
banks.
[Link] insurance
Covers losses that occur at sea; due to marine risks.
Marine risks include; Fire, Storms, Collisions, Capsizing,
Sinking and stranding.
The following are policies under marine insurance:
i. Marine Hull: Covers loss or damage to the ship, caused by
fire, storms, collisions, theft capsizing etc.
ii. Marine cargo: Covers cargo against loss or damage while
being transported by the ship.
The owner of the cargo is compensated.
iii. Port policy: Covers the ship while at the port; either
being loaded or being serviced.
iv. Voyage policy: Covers ship and cargo for a specific
v. Floating policy: Covers ships of a particular person/company. A lump sum
is paid from which deductions are made after a journey, until it is
exhausted
vi. Time policy: Covers ships for a particular period, usually not more than
12 months.
vii. Fleet policy: Covers a fleet of ships against losses.
One policy is taken for all the ships of a company.
viii. Mixed policy: Covers ships for a specific journey for a specific period.
ix. Construction (builders) policy: Covers ships against risks while being
constructed, tested or delivered.
x. Freight policy: covers ship owner against failure by hirer to pay freight
charges.
xi. Composite policy: Situation where several insurance companies insure a
particular ship against the same risk.
This occurs where the sum insured is too high to be covered by one insurer.
xii. Third party liability: Covers owner of a ship against claims from loss
caused to other people by the ship.
Marine losses
Marine losses are classified into the following:
1. Total loss
This refers to total loss of either ship or cargo or both.
Total loss may be constructive total loss or actual total loss.
Constructive total loss: Occurs when the ship is not
completely destroyed, but the cost of salvaging the
wreckage is more than the wreckage.
Actual total loss: Occurs when there is total loss on either the
cargo or the ship.
2. Partial loss
Also called average loss.
Occurs when the matter insured is not completely.
i. Particular average loss: Loss that occur to the ship
or cargo.
The ship owner and the cargo owner will each seek
compensation.
ii. General average: This is loss that occurs due to
deliberate action to save the ship and the cargo
from total loss e.g some cargo may be thrown in
order to save the ship from sinking.
Such loss is shared by the ship owner and cargo
owner. Therefore, the insurers of the ship and those
of the cargo both contribute toward the
compensation.
Characteristics of General insurance
1. The insured must have insurable interest in the property being
insured.
2. It is a contract of indemnity.
3. The owner of the property is only restored back to the original
financial position just before the loss.
4. It is usually a short term contract that requires periodic renewal e.g
yearly.
5. The policy cannot be assigned (transferred) to anybody else.
6. It has no surrender value.
This means that if the owner of the property terminates the policy
(contract), he is not refunded any money.
7. The premium charge depend on the value of the property and the
degree of the risk.
8. The compensation is either upto the maximum of the sum insured
or the actual value of the property insured, whichever is less.
 Factors considered when determining
premium to be charged in general insurance
1. Value of the property insured
2. Frequency of occurrence of risks.
3. Extend of previous losses.
4. Period to be covered by the policy.
5. Age of the property insured.
Determination of compensation
It is calculated using the following formula;
Compensation=Sum insured x Loss
Actual value of the property
Example 1: where there is total loss.
Kioko insured his house valued at Sh.500,000,against
fire. Fire occurred and the house was completely
destroyed.
Calculate the amount of compensation.
Example 2: where there is partial loss
Kimilili had a car valued at Sh.400,000, which he insured for
Sh.400,000 against accident.
The car was involved in an accident and was damaged to a tune of
Sh.300,000.
Calculate the amount of compensation.
Example 3: Where one under insures the property and there is
partial loss.
Under insurance is where one understates the value of his property
while taking insurance.
The sum insured is therefore less than the actual value of the
property.
Onyango insured his goods valued at Sh. 500,000 for Sh.400,000
against fire. Fire occurred and the goods got partially destroyed,
to a loss of Sh.300,000.
Compensation will be Sum insured/real value x loss
=400,000 x 300,000
500,000
=Sh.240,000.
This is because Onyango underinsured his goods, (He
didn’t insure all of it).
It is therefore assumed that he self insured the part
that he didn’t declare, and will compensate himself
Sh.60,000.
One insures himself by accumulating funds to meet
any losses that might occur instead of taking cover.
Example 4: Where one over insures a property.
This is a situation where one overstates the value of
his property when taking insurance e.g. where one
insures a property of Sh. 200,000 for Sh. 300,000.
One does this in the hope that he will receive large
sum of compensation.
When loss occurs he will only be compensated the
value of the loss.
Example 5: Where one insures with two or more insurance
companies.
This is called double insurance.
It is where one insures the same property with two or more insurance
firms against the same risk.
People do this in the hope that when the risk occurs each insurer will
fully compensate and the owner of the property will benefit.
However, this results in greater financial loss for the insured. e.g
Kuria insured his property worth Sh. 240,000 Sh. for 200,000 with two
insurance firms as follows:
Company A: Sh.150,000
Company B: Sh.50,000
Loss of Sh.120,000 occurred.
Calculate;
i. The amount of compensation.
Example 6: Where two people jointly own a
property.
Juma and Ali bought a vehicle worth
Sh.400,000,where Juma contributed Sh.240,000,
and Ali contributed the balance.
They insured the vehicle for Sh.360,000against fire.
Later the vehicle was burnt and only a value of
Sh.60,000 was salvaged.
Calculate the amount of compensation that each
person is entitled to. bastard
Factors that lead to termination of insurance policy
1. When the policy matures. When this happens it becomes
invalid.
2. When the insured fails to pay premiums.
3. When the risk insured against occurs and full compensation
has been made.
4. When the insurer discovers that the insured has no insurable
interest.
5. When the insured decides to terminate through surrender.
6. When the insured did not disclose all relevant facts (did not
observe the principle of utmost good faith).
7. When the property is destroyed by natural disasters that are
not insurable
8. When loss was deliberate.
Insurable and Uninsurable risks
Insurable risks
These are risks which insurance firms will accept to
insure.
They can be predicted in terms of probability of
occurrence, financial loss and number of people
likely to suffer.
Examples of insurable risks include accidents,
robbery, death, fire, bad debts.
Conditions for a risk to be insurable
1. There should be insurable interest
2. It should be accidental
3. The loss must not affect many people
4. There must be a large number of people willing to be
insured under the same risk.
5. The risk should not be imaginary, it should be pure and not
speculative.
6. The loss must be great enough to affect the insured
financially.
7. Premiums to be paid must be reasonable.
8. The property insured should be legal.
9. The risk must be unlikely to affect all the insured at the
Uninsurable risks
These are risks which cannot be insured by
insurance companies.
They include the following:
1. Loss which result from war, rebellions and
riots.
2. Depreciation of an equipment.
3. Loss of money invested in bad investments.
4. Loss of money due to unsold goods.
LIFE ASSUARANCE
 Also called life cover or life policy
 This is insurance that covers life of a person; against
risk of death or incapacitation.
 One takes life assurance so that at his death or
incapacitation, his/her beneficiaries do not suffer.
 Beneficiaries are close relatives such as children,
wife, husband and other dependants.
 If the insured dies such people are likely to suffer
loss of income which was the responsibility of the
insured.
Policies in life assurance
1. Whole life policy (cover)
 The insured pays premium throughout his life (until
death) or for an agreed period.
 Sum assured is payable at death, to the beneficiaries.
 The sum assured also acts as a saving.
 The policy can be used as a security for a loan.
2. Endowment policy
 One pays regular income for a specific period e.g 10
years.
 Sum assured is payable at the end of the period to the
insured, or the named beneficiaries if he dies before
Endowment policy is divided into two:
i. Anticipated endowment policy
It matures at specific period, but the insured can get payment
periodically e.g after every 3 years.
ii. Ordinary endowment policy
Payment is spread over the period of the endowment.
Advantages of endowment policy.
1. The premium paid regularly become a saving to the insured
and is paid to him at the end of the period.
2. The sum of money payable to the beneficiaries act as financial
security in case the insured dies.
3. It can also act as financial security when the insured retires.
4. It earns profit and therefore the insured gets the sum assured
plus profits when the policy matures.
3. Term policy
This life policy taken for a short (specific)
period(term)
It operates like insurance, as it can be renewed,
and is not a saving contract.
If policy holder dies within the period, there is
no compensation to the beneficiaries.
 Difference between whole life and endowment policies
Whole life Policy Endowment Policy
i. Compensation paid after i. Compensation after
death. expiry of agreed period.

Ii. Premiums paid ii. Premium paid for an

throughout life. agreed period.

Iii. Benefits go to iii. Assured benefits if he

dependants. doesn’t die.

Iv. Aims at financial Iv. Aims at financial

security of the security of the assured
dependants. and dependants.
Characteristics of life assurance policy
1. It deals with life of a person only
2. It is a long term contract
3. The value depends on assureds' ability to pay
premium.
4. Policy can be used as security for a loan
5. Policy can be assigned to beneficiaries
6. It has surrender value
7. The principle of indemnity doesn’t apply
8. The principle of subrogation doesn’t apply
9. The policy can act as a saving plan, to benefit the
assured at maturity or beneficiaries at death of
Factors that determine premium to be paid
1. Health of the person
2. Occupation of the assured
3. Residence (area) of the person.
4. Period to be covered by the policy.
5. Sum assured.
6. Hobbies of the assured
7. Type of policy
Termination of life assurance policy
Life assurance policy may come to an end in the following
circumstances:
1. When it matures
In case of endowment policy, when the period of the policy is
over and the assured is still alive, the policy ends and the
assured is paid, and the policy comes to an end.
2. At death
When the assured person dies, the sum assured is paid to the
beneficiaries and the policy comes to an end.
3. Lapse of the policy.
This occurs when one fails to pay premiums, even after the grace
period is over.
Therefore the policy comes to an end (lapses).
4. By surrender
This is where the assured surrenders the policy to the
insurer for cash called surrender value.
This bring the policy to an end.
5. When the insurance company winds up .
The assureds are paid back their money
Difference between life assurance and general insurance
Life assurance General insurance
1. Subject matter is property
1. Subject matter is life
2. Principle of indemnity doesn’t apply 2. Principle of indemnity applies
3. Principle of subrogation doesn’t apply 3. Principle of subrogation applies
4. It is long term 4. Short term contract
5. It may not be renewed 5. Renewable
6. Premiums depend on the ability of the person 6. Premiums depend on value of
property
7. T he subject matter is life and cannot be valued 7. Property can be valued
8. Has surrender value 8. Has no surrender value
9. Can be assigned to others e.g beneficiaries 9. Cannot be assigned to anyone
Procedures for taking insurance
[Link] a proposal form
One wishing to take insurance approaches (visits) the
insurance company, its agents or brokers and asks for
the type of insurance cover he wants.
He is the given a proposal form which he fills, observing
the principle of utmost good faith;
giving the details of the property or life to be insured.
2. Calculation of the premium
The insurance company then uses the information in
the proposal form to calculate premium to be paid.
The insurance company may inspect the property to be
3. Payment of first premium
If the insurance company accepts to insure the risk it will ask for the first
premium from the insured and issues him with a cover note (Binder).
This is a temporary document acting as evidence that the holder is
covered by the company and would be compensated in case of loss
arising from the insured risk.
4. Issuing of policy
After 30 days of issuing a cover note the insurance company issues the
policy.
This is the actual legal document that shows the contract between the
insurer and the insured.
It contains the following:
• Terms and conditions of the contract
• Period of the policy
• Premium to be paid
• Extend to which the policy is not applicable
Claiming compensation
The following steps are followed:
1. Reporting the occurrence to the insurer
The insured should report the occurrence of the risk
immediately; within 24 hours.
2. Filling a claim form
After reporting, the insured is given a claim form giving all
details about the occurrence of the risk.
The details include;
 When and where the risk occurred
 Circumstances under which it occurred
 Financial loss suffered etc.
3. Investigation/assessment of loss/claim
After receiving the claim form the insurer sends
assessors to the scene of the accident to investigate
and establish the truth about the occurrence e.g
 The truth of the incident
 Circumstances under which the loss occurred
 Extend of the damage (value of the loss)
 Prove the principle of proximate cause.
4. Preparation of assessment report.
The assessors then prepare a report showing the
extend of loss and the amount of money payable as
compensation.
5. Compensation (payment of the claim)
On receiving the assessment report the insurer makes
compensation and the policy ceases to exist.
Forms of compensation
1. Repairing the damaged property
2. Giving money compensation
3. Replacing the damaged property e.g buying a new
one.
Circumstances when the insurers may not
compensate
1. When the insured had no insurable interest
2. When the cause of loss was deliberate
3. When the insurance company is insolvent (bankrupt) at the
time of the claim
4. When the insured fails to observe the principle of utmost
good faith e.g not disclosing all information about the
occurrence.
5. When one reports and claims compensation after a long
period.
6. When one failed to pay some premium
6. When the cause of loss is not what was insured
against (when principle of proximate cause does
not apply).
7. When loss is caused by natural disasters which are
not insurable.
8. When the risk does not cause financial loss.
9. When the insured fails to follow the right procedure
when claiming compensation.
10. If the insured failed to pay some premiums
11. When the insured fails to claim compensation
Difference between insurance and Gambling
Insurance Gambling
[Link] are paid 1. Gambling money is paid
regularly. once.
2. Persons taking insurance [Link] insurable interest in
should have insurable gambling.
interest.
3. Aims at indemnifying the [Link] at benefiting/
person; does not benefit a improving financial position of
person financially. the person.
[Link] event of loss might not 4. Event must occur to
occur. determine the winner or loser.
[Link] loser is paid [Link] benefits
6. Insurance involves pure [Link] involves
risks speculative risks.
Co-insurance
 This is a situation where an insurer (insurance
company) approaches other insurance companies
to assist in covering a risk of very high value.
 The insurance company that approaches the others
is called the leader, and covers a higher proportion
of the risk.
 It collects premium from the insured, does all
documentation and handles all claims in case of
loss, by collecting compensation from the co-
insurers.
 Co-insurance is common with marine insurance, air
Reasons/circumstances that necessitates co-insurance
1. When the value of property is high.
2. When there is a high risk of loss.
3. Where an insurance company covers many risks
4. Where there is need to spread risks.
5. Where the government policy demands so.
Re-insurance
This is a situation where an insurance company insures itself
with a bigger insurance company called re-insurance
company against big claims.
This enables insurance companies to cover property of high
value.
In Kenya, it is a legal requirement to re-insure with Kenya
Factors that necessitate re-insurance
1. Government policy
The government policy makes it mandatory to
re-insure.
2. High value of property
The value of property may be too high for a single insurance firm to
compensate.
3. Number of risks to be covered
When an insurance company has insured many risks, it would be too
costly to compensate; hence the need for re-insurance.
4. High risk of loss
When the chances of a risk taking place are high, re-insurance
becomes necessary.
5. Need to spread risks
When an insurance company wishes to share risks (liability) it becomes
Challenges facing insurance companies
1. Inconsistency in payment of premium
2. False claims leading to losses
3. Lack of adequate capital
4. Lack of skilled personnel
5. Underdeveloped market; most people don’t
embrace (take) insurance.
6. Competition from other businesses offering the
some service e.g Saccos and some banks.
Importance of insurance
[Link] of business
Insurance guarantees continuity of business when misfortune
occurs.
2. Removes uncertainty in business
It removes fear of uncertainty and creates confidence in the
minds of investors who invest in risky but profitable businesses.
This is because they are assured of compensation .
3. Creates employment
Insurance creates employment opportunities in the economy,
hence reducing unemployment problem.
4. Spreads risk
It spreads risk of financial loss to many businessmen so that few
who suffer loss are compensated and can continue again in
business.
5. Earn revenue to the government
Income earned in insurance industry, such as profits and
salaries are taxed by the government and therefore
become a source of revenue to the government.
6. Act as a form of saving
The premiums contributed act as savings to policy holders .
This is especially true with life assurance policies.
[Link] investment
This is because part of premiums contributed by policy
holder are invested by insurance companies in areas such
as real estates and shares.
The premiums in life assurance policies act as savings which
can be invested when the policy matures.
8. Promotes development.
This is because insurance encourage development of
commercial and industrial enterprises through
provision of compensation for financial losses that
occur.
[Link] eliminates the culture of keeping large sums of
money in reserve to meet losses or repairs to
capital assets arising from perils.