Role of Insurance in the Development of the Economy

Role of Insurance in the Development of the Economy

Savings mobilised through insurance are invested within the country as per IRDA Regulations and a large part of these investments are made in the socially oriented schemes and the infrastructure development of the Nation.  Every rupee invested in life insurance contributes in several ways to the development of the economy.

  1. The main benefits of insurance are that it relieves the individuals from the worry and anxiety they may have about their family to meet the cost of certain events, such as the marriage of the children, the premature death of the main income provider or maintaining a regular income in their retirement. When an individual is free from these worries, he can perform better in his job, which helps the economy.
  2. Insurance mobilizes long-term savings of people. The insurer invests these funds in various business enterprises, government bonds, and loans to public and private sector projects including infrastructure and socially oriented projects.  Thus the insurance premium provides the much needed funds for the development of the nation’s economy and infrastructure.
  3. Insurance savings act as an anti-inflationary force in the nation’s financial structure. Inflation happens when prices of goods go up. One of the causes is when a lot of buying takes place, due to the spending of a major portion of income by people.  Savings through insurance reduce the purchasing power of the people and they have less money to spend.
  4. Business Trade and Industry benefit through insurance. Without insurance trade and commerce will find it difficult to face the major impact of perils like fire, flood, earthquake etc.  Insurance also helps the financiers against loss or damage to property caused due to insured perils.
  5. Life Insurance Funds are required to be invested as per IRDA (Investment) Regulations. Accordingly minimum 50% of the funds have to be invested in Central Government, State Government Securities & Government Securities.  In addition minimum, 15% of the funds have to be invested in infrastructure and social sector which includes housing, power, water supply, drainage, road transport, telecom, roads, bridges, highways, railways, ports etc. The insurer has the discretion to invest the balance 35% of the funds in the industrial sector, private sector, etc., by way of loans, debentures, bonds, shares within certain prudential norms.
  6. Economic conditions of the family where the bread winner dies is adversely affected, pushing it down in the society without Life Insurance. Life Insurance in this sense serves a social purpose and reduces social cost.
  7. Insurance is a social security tool. Any progressive state is expected to take care of the wellbeing of its people. The economic needs of the people will include food, clothing, housing, education, medical care and security in the event of unemployment, sickness etc.   This has been recognised by the United Nations Declaration of Human Rights and Article41 of the Indian Constitution.

Within the financial resources, the Governments have extended the concept of social security to the masses.  In India also, the Government took a conscious decision to extend the concept of social security especially to the weaker sections of the society through a variety of social security schemes.  Group Insurance as a social security tool is being recognised across the globe.

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