The essence of insurance is an economic relationship that provides people, organizations or their interests with protection from various kinds of dangers. The types of insurance are different, but there is a traditional approach to its functions.
Risk function
This function is a reflection of the essence of insurance, since the very form, the content of insurance, are designed to provide insurance protection against various kinds of risks - random events, the likelihood of which forms an economic benefit. The absence of insurance, accidental risks eliminates the need for insurance. The competence of the risk function includes the redistribution of monetary resources between all participants in the insurance process, which is secured by the corresponding insurance contract. Upon expiration of the contract, in case of non-occurrence of the insurance risk situation, the monetary contributions to the policyholder are not refunded.
Investment function
This function is to finance the economy from insurance reserves - the funds of the insurance company, where the insured's cash contributions accumulated in case of damage compensation are stored. This is a type of temporary investment, when funds are invested in securities, real estate and other areas, but upon the occurrence of an insured event, they are paid to the policyholder. Since the second half of the 20th century, the income of insurance companies from investments has often exceeded the income generated from their insurance activities.
Warning function
It's easier to warn you a hundred times than to pay two hundred times. This is a brief description of the preventive function. Until 2004, the insurance tariff included the payment of RPM - a reserve of preventive measures. The amount formed in this way was used to finance measures to prevent the occurrence of insurance risks. In 2004, a government decree banned the inclusion of RPM in the insurance rate, but did not deprive insurers of the opportunity to conduct preventive activities. Only now they form the fund of preventive measures from their own profits.
Savings or savings function
The name changes depending on the type of insurance provided. For example, life insurance is a savings-accumulative process, when a certain percentage is charged on the funds invested by the insured, and the amount periodically grows. That is, in the event of an insured event, the insured person, in addition to the funds invested by him, also receives interest income on them, the total amount of which is stipulated in the insurance contract.
Savings insurance does not in any way enrich its clients. In fact, they only get what they actually insured. For example, survival insurance protects a family's achieved wealth. Even if the value of the insured object has increased over time, the policyholder still receives only the amount at which the object was valued at the time of insurance.
