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Commercial Significance of Insurance -11 Major Commercial Significance | Management Notes

Commercial Significance of Insurance

Some of the major Commercial Significance of Insurance are described below:

1) Continuity of Business:

Continuity of Business
The continuing partner of a partnership firm must repay the dues and share of a retired or deceased partner. The insurance company pays the share and other dues of such a partner so that the remaining partners can continue to run the business. 
As well as protecting the life and assets of individuals, insurance protects them as well from a variety of risks. Insurers can compensate losses caused by unforeseen events. In this way, insurance ensures the stability and safety of a business.

2) Trade and Industry Development:

Trade and Industry Development

Thousands of premiums are collected each year by insurance companies, which are mobilized to benefit trade and industry. Invested in the industrial sector, these funds are used as share capital, loans, and advances by insurance companies. New projects and new business opportunities can be undertaken by traders and industrialists.
As a result, industrial development and trade are accelerated. In addition, the insurance arrangement reduces the uncertainty in business considerably. This reduces the difficulty and tension of expanding a business for business people. The business activities are thus encouraged to progress.

3) Promotes the development of trade and service sector aids:

Promotes the development of trade and service sector aids

Trade and industry development are largely dependent on the development of trade aids, such as transport facilities, banks, warehouses, and communication networks. In today’s world, the service sector has become an integral part of nation building. Trade and industry developed simultaneously, resulting in the growth of the service sector.

By providing assurance of compensation in the event of loss caused by unexpected events, insurance helps to develop such aids to trade. Also, insurance contributes to the development of these services in the country by providing financial assistance.

4) Promoting Foreign Trade:

Promoting Foreign Trade

International trade is developed through the promotion of foreign trade by insurance. Marine trade is generally foreign trade involving exports. A great deal of risk is involved in marine transport, such as vessel crashes, sinkings, robberies, fire, jettisoning war perils, cargo or vessel seized by enemies, etc. Such perils may result in huge losses. By providing protection against these perils, insurance assures to compensate in the event of a loss. Insurance promotes exports, which are foreign trades.

5) Insurance of Key men/ Key Personnel:

Insurance of Key men/ Key Personnel

An organization’s assets are its key men. In business, the key person is the one whose capital, experience, goodwill, ability to control, devotion, etc. make him the most valuable asset. It is possible for the profit to be considerably reduced if such a key person is absent. Having key men with experience and abilities helps businesses run efficiently and effectively.

It is possible to guarantee the continuity of business operation by insuring the lives of keymen in business. If a keyman of a firm dies or leaves, especially in a proprietary business, or if another key officer on whom the firm relies, the business’s future is in jeopardy. A key men insurance policy helps to cover the loss in such a case by providing compensation to dependents.

6) Protection of employee interests and welfare:

Protection of employee interests and welfare

Provident funds, gratuities, pensions, and other welfare benefits are required by various labour laws. Aside from that, the organization provides bonuses and rewards to motivate its employees. As a result, the employer has taken out a group insurance policy on behalf of all employees by paying the premiums on their behalf. A worker’s interest is protected by an insurance mechanism that facilitates prompt payment of these liabilities.

7) Enhances Business Efficiency:

Enhances Business Efficiency

There are many risks and uncertainties associated with business entities. Property losses can occur due to damages, fire, accidents, theft, etc. These properties are protected by insurance by paying compensation. It allows the organization of the business to be rearranged. Consequently, business owners do not have to worry about business losses. Business activities can be concentrated on and profits can be maximized. In this way, insurance contributes to the efficiency of businesses.

8) Statutory Liability Provisions:

There are a number of statutory liabilities imposed on business entities under various legislations, such as workmen’s compensation liability, product liability, professional liability, consumer protection act, and corporate social responsibility. By taking appropriate insurance policies, these liabilities can be adequately covered. In this way, the business people do not have to worry about discharging these obligations.

9) Probability of Loss Reduction:

Through insurance, the insured can reduce the probability of loss by suggesting ways and means to reduce risk. Before accepting the risk, their technical personnel and surveyors inspect the assets and recommend precautions that can reduce loss and improve performance. It is possible to reduce insurance premiums by adopting these measures.

10) Asset Value Increases:

As collateral security, assets are more valuable when insured. More loans are available against these assets from banks and other financial institutions. As a result, businesses are able to borrow more money. As a result, these assets are less likely to lose money.

11) Measures to Prevent Loss:

Insurance not only provides protection against loss of assets due to specific risks, but also suggests measures for loss prevention. For this purpose, the Loss Prevention Association was established in India.


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