Which of the following is not a function of an insurance company?

Answer Details

Insurance companies perform several important functions in the economy, but collecting deposits from the public for investment is not one of them. This is a function of banks, not insurance companies.

The core functions of an insurance company include:

• Risk pooling and indemnification - collecting premiums from many policyholders and compensating those who suffer covered losses.
• Encouragement of savings habits through life assurance - life insurance policies serve as a form of saving, since the policyholder pays regular premiums and receives a lump sum at maturity or upon death.
• Mobilization of funds through premiums collected - the premiums received from policyholders form a large pool of funds that insurance companies invest in various assets.
• Granting of loans on a long-term basis for investment - insurance companies use their accumulated premium funds to provide long-term loans to individuals, businesses, and governments.

The key distinction is that insurance companies receive premiums (payments for risk coverage), while banks receive deposits (money entrusted for safekeeping and interest). Collecting deposits from the public is a banking function regulated under banking laws, not an insurance function.