Insurance shades: Some Fundamentals you should know about
Payment of Losses
If a business burns down and has no means to resume operation, it would mean
financial hardship for the owner. But the negative impact would extend beyond the
owner and affect
• employees (who now are unemployed);
• those from whom the business purchases raw materials, goods or services
(who now must find a new customer); and
• those to whom the business provides goods and services (who now must find
another business to fill their needs).
The proceeds of an insurance policy benefit everyone by restoring the insured person
or organization to the same financial condition as before the loss and preventing
the loss from rippling out and affecting others negatively.
Economic Growth
The insurance industry plays an important role in the nation's economy. It is second
only to the commercial banking industry as a source of investment funds because
insurance companies invest the billions of the premium dollars they receive annually
in a wide range of investments.
Insurance companies use premiums collected from policyholders to
• pay for claims;
• pay for cost of doing business; and
• build cash reserves for future loss payments.
Cash reserves are invested in federal and municipal bonds that are used to build
roads, schools and utilities. Reserves are also invested in commercial developments
and the stock market. These investments promote economic growth in communities
and support the insurance company's requirement of maintaining sufficient capital
reserves to pay future losses and earn a profit.
Loss Prevention
Insurance also benefits society by encouraging activities and devices that reduce the
amount of losses and their economic impact.
Seat belts and other passive restraints in automobiles significantly reduce the extent
of injuries suffered by vehicle occupants involved in auto accidents. Insurance companies
were a major force behind requiring seat belts as standard equipment in all
vehicles. You may have noticed the "UL Approved" label on an appliance you own.
UL stands for Underwriters Laboratories, an insurance industry think tank that
develops safety standards for items used in residences and businesses.
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