The functions of insurance can be divided into two parts:
- Provides protection: it provides protection from the probable chances of loss. The insurance cannot check the time of an uncertainty but can surely provide for losses at the time of uncertainty.
- To provide certainty: insurance ensures the payment of uncertainty. Though, the uncertainty of loss can be reduced by better planning and administration, insurance relieves the person from such rigid and difficult job. Uncertainty can be of time or amount. Insurance charges premium and in return assures certainty towards all the probable losses.
- Risk sharing: risk is uncertain so is the amount of loss arising from it; however it is shared amongst the persons who are exposed to risk. The share is obtained from each and every insured person in the form of premium.
- It provides capital: the insurance invests and provides capital with the accumulated profits, with which the business, industry or an individual is benefited.
- Prevention of loss: the insurance company joins hands with an institution preventing losses of the society that result into lesser payments which eventually leads to more savings and therefore the premium is reduced.
- It improves efficiency: the insurance improves the efficiency of an individual as it eliminates the worries and fear. By doing that an individual can work better and achieve better.
- It helps economic progress: in case of huge losses due to a disaster, capital is immensely required by the masses to progress economically. Insurance protects the masses from such damage, destruction and death.