Functions Of Insurance

Resumen

Ask most people what insurance does and they will say it pays out when something goes wrong. True, but that is only the surface. Underneath sits a quiet machine that turns thousands of small, uncertain premiums into a fund large enough to rebuild a burnt shop, and then puts the waiting money to work building roads, factories and homes. Insurance both protects the individual and grows the whole economy, and the syllabus asks you to see both halves at once.

This lesson separates what insurance is built to do, its primary functions, from the wider benefits it happens to deliver, its secondary functions. You will see how the common pool works, why a single premium can stand in for a huge loss, how insurers become one of the largest investors in the country, and how the trade earns foreign exchange that counts among a nation's invisible earnings. By the end you will be able to place any function in the right family and back it with a Nigerian example.

Objetivos

  1. State the primary function of insurance and explain how risk pooling achieves it
  2. Describe the secondary functions of insurance, including capital formation and loss prevention
  3. Explain how insurance supports international trade and the invisible earnings of a country
  4. Distinguish the primary from the secondary functions using practical examples

Nota de la lección

A young tailor in Kaduna insures his workshop, pays a premium of a few thousand naira, and thinks of it as money gone. Months later a fire guts the row of shops beside his, and their uninsured owners are ruined, while he reopens within weeks on the insurer's cheque. The premium was not money gone. It bought him a share of a common pool into which many traders pay and out of which the unlucky few are paid. Understanding the functions of insurance means understanding both what that pool does for the tailor and what the same pooled money does for Nigeria as a whole.

Evaluación de la lección

Felicitaciones por completar la lección del Functions Of Insurance. Ahora que has explorado el conceptos e ideas clave, es hora de poner a prueba tus conocimientos. Esta sección ofrece una variedad de prácticas Preguntas diseñadas para reforzar su comprensión y ayudarle a evaluar su comprensión del material.

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Utiliza esta sección de evaluación como una oportunidad para reforzar tu comprensión del tema e identificar cualquier área en la que puedas necesitar un estudio adicional. No te desanimes por los desafíos que encuentres; en su lugar, míralos como oportunidades para el crecimiento y la mejora.

  1. Which of the following is a PRIMARY function of insurance? A. Loss prevention B. Capital formation C. Risk transfer D. Provision of credit Answer: C
  2. The pooling of losses in insurance depends chiefly on the: A. Law of diminishing returns B. Law of large numbers C. Principle of subrogation D. Law of demand and supply Answer: B
  3. A mutual pool of 400 traders expects total annual fire losses of 4,800,000 naira, to be shared equally. What pure premium must each trader pay? A. 4,800 naira B. 12,000 naira C. 1,200 naira D. 48,000 naira Answer: B
  4. Which of the following is a SECONDARY function of insurance? A. Risk transfer B. Charging an equitable premium C. Creation of a common pool D. Loss prevention Answer: D
  5. Insurance adds to a country's invisible earnings mainly by: A. Paying claims to local policyholders B. Accepting risks from foreign clients and earning premiums abroad C. Collecting value added tax for the government D. Selling shares on the stock exchange Answer: B

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