Insurance, Investments and Retirement Benefit Services

Insurance facilitates smooth running of the financial activities in an economy by guaranteeing of payment in the event of losses. In the process of doing this, insurance results in several economic and social benefits for individuals, families, businesses and other organisations. These include the following:

• Peace of mind.

The basic idea of insurance is that if a loss occurs, the insurer will compensate or indemnify the insured. As a result, when people, families, and businesses pay small premiums and obtain insurance, they have peace of mind knowing that if the covered risk occurs, they will be reimbursed or indemnified. For example, if the business premises catch fire, the investor is so much worried because the insurer will step in to cover the losses. Similarly, in case of a premature death of policyholder in life assurance, the dependants will be guaranteed some income in the future.

• Family and business financial security or protection

Insurance protects individuals, families, and organizations against financial loss. For example, in the event of a policyholder’s untimely death under life assurance, the dependants will be paid a lump sum or an income to compensate for the financial loss caused by the death. When a business suffers a loss, the insurance indemnifies the insured and ensures the business’s continuity. 

• Credit or loan protection

Credit providers, such as hire purchase firms, banks, microfinance institutions, and others, require customers to have credit or loan insurance policies in order to receive the facility. The sum assured provides lenders with financial security in the case of a customer’s premature death or disability. A common example is the acquisition of a house with a mortgage, in which the policyholder can obtain decreasing or endowment life insurance to protect the outstanding loan plus interest in the event of the customer’s death or disability.

• Partnership protection

People can transact business in the form of a partnership, in which their individual shares are held separately. When a partner dies and the partnership is dissolved, the deceased partner’s ownership passes to their dependents, who may not be competent or interested in entering the partnership. As a result of this complication, most partners enter into an arrangement that allows their counterpart(s) to buy their shares after their death. As a result, the partners would purchase a partnership protection insurance policy that would give the surviving partner the funds needed to buy such shares upon the death of the counterpart(s).

• Savings

The premiums paid for certain life insurance plans serve as money saved now for later purpose, such as saving for children’s further education or earning an income in old age. Unlike savings through financial institutions such as banks, savings and credit cooperatives, and others, saves through life insurance instills discipline in saving. How? By ensuring that such funds are not to be withdrawn until they have at least reached surrender value. This means that the policy has been in effect and premiums have been paid for three years.

• Investments

The pool of premiums collected by insurance companies are ideally held to indemnify or compensate the sum covered in the event of a loss. However, the loss is not guaranteed, so insurers can lend a considerable percentage of the premium funds to the government and other capital market players. The policyholders may receive returns on premiums lent.  In this way, insurance creates opportunities for policyholders to invest. 

• Job creation and retention

With insurance protection, investors can be assured in building enterprises that provide jobs for individuals as well as opportunities for customers, suppliers and others. As a result, in the event of a loss, the enterprise is indemnified, ensuring business continuity as well as job security and meeting the needs of consumers, suppliers etc.

• Provision of old age income

Life assurance products notably endowment policies, annuities and pension schemes provide income for people upon retirement. 

• Education for children

Parents can take certain life policies to cover education for their children upon maturity or pre-mature death of the parent(s).

• Reduction and control of losses

The fact that insurers indemnify or compensate for the sum covered in the event of a loss depletes their resources. It is also critical to ensure that indemnification or compensation is not obtained by unethical means.  In this regard, insurers put in place control measures to decrease losses both before they occur (pre-loss control) and after they occur (post-loss control). Pre-loss control measures include insurers using surveyors to advise on how to reduce risk before it is covered, as well as raising awareness among insurance policy applicants and the general public on how to reduce losses. Examples of post-loss control are the use of loss adjusters and others to determine if the claim is payable etc.