Monday, 3 October 2016

Saving, Insurance and All About their Business

Saving and Insurance are two major economic activities just like capital formation and other activities. These two are becoming a part of the daily lives of our modern economy. People have somewhat become conscious of the insecurity of their lives and began to realise the necessity to secure their future by saving a little bit from their present consumption habits and also by adopting to insurance policies.


Need for Saving
If people go on consuming and spending all their income, and producers go on producing and thereby utilising all the resources of the economy, a day will come when there will be nothing more left to produce or to consume. So, people should curtail their consumption and spending habits and save some money and resources for future, and emergency needs.

Meaning and Definition of Saving
Saving is that portion of income or the excess value of the resource that has been left unused or unspent in a given period of time.

Saving is different from 'savings'. Saving is an economic activity whereas 'savings' is an accounting term. Savings is only a part of the total act of Saving.

In Keynesian economics, Saving has been defined as the excess of the amount or value left out of the available resources after consumption.

The total saving of an economy can be considered as the total income or value of the resources less the total expenditure or value of the resources consumed of that economy in a given period.

Suppose if a person 'X' gets an income of Rs.6,00,000 during a year and spends a total of Rs.5,00,000 during that period, then, the balance amount of Rs.1,00,000 is his Saving during that year.

So, when we add all the amounts of such Saving created by each and every member of that economy, it is the total Saving of that economy.

Saving not only constitutes the money saved, but it also includes the value of all the resources saved.

How to Save?
You can start it with a very simple method. Try to be conscious of saving at every step. You can save even a few coins or rupees from your purchases and collect that money at a safe place. You can experience the wonderful results of it. After a month, you may find out that you saved as much as Rs.500 or even Rs.5,000 depending upon saving habits and income. Now, you can deposit the money in a Bank. Maintain this practice continuously and make it a habit. This is the most simple thing to do if you are conscious of it.

Besides above, you can save amounts in lump sums at periodical intervals, whenever you receive some extra incomes such as Overtime payment or Bonus, etc. Invest some ample sum out of it in FD's or other Investment schemes.

Similarly, Producers and Manufacturers can also save much of their resources utilised by following some economic ways of production through different ratios of inputs or by implementing techniques like the location of wastages and leakages and managing labour efficiency, etc.

Benefits of Saving to the Economy
Whenever people save some amount of their income, they generally deposit the amount in Banks or invest in Investments like FDs, Stocks or Debentures, etc.

Bank deposits lead to the availability of ample funds with Banks. As they are not going to be immediately withdrawn by all of them at  the same time, Banks are naturally left with idle funds for a certain period. So, they can utilise these funds by lending to some of the needy customers who are willing to take loans to meet some of their urgent requirements and who will return the money along with some interest at a later time, either in instalments or in one lump sum.

In that way, Banks earn some income from those idle funds and they are able to pay some interest income to their depositors in return of their keeping funds in their bank.

So, you can see that the money saved by people not only creates increased income to the customers in way of interest, but they also help other people in meeting their urgent and unforeseen expenses because of this saving habit of people.

Besides this, the money saved and deposited in Banks or invested in Shares, Debentures or in Government Bonds, helps the businessmen and industries to further augment their production and add to the growth of the economy. The money saved results in increased produce and in increased capital formation. The money invested in Government Bonds helps governments to utilise the money for public welfare programmes like constructing roads and dams, irrigation canals, parks, schools and for many other purposes like providing subsidised schemes, midday meals to school children, etc. which all result in the welfare of public and the growth of the economy as a whole.


Importance of Insurance
Life is always uncertain. It is more like that in this present-day world. People often get sick due to the polluted water, air and atmosphere that are causing or spreading so many viral infections. Even the habits of people are deteriorating their health and resulting in premature deaths. Natural calamities, accidents, thefts and burglaries all cause loss to property. So, everything needs to be protected with a suitable insurance cover. Insurance provides a great relief to people as it reimburses them an ample portion of the losses suffered by them.

Meaning and Definition of Insurance
Insurance is a healthy tool available for the security of the people. It is a kind of an assurance from an undertaker to provide some compensation for a certain loss suffered by the victim like death, accident, fire, etc. in consideration for a nominal premium paid by him at the time of purchasing that assurance.

Insurance can be defined as "an arrangement or contract whereby a party or company facilitates its customers by providing financial compensation for the loss or damage incurred by them". It is generally represented by a policy guaranteeing to indemnify the loss in consideration for the onetime premium or periodical premiums paid by the victim.

Insurance Business and Income to Insurance Companies
An insurer takes the risk of taking the responsibility of reimbursing to the insured person a certain amount of loss on the occurrence of a certain loss or damage as covered in the agreement.

As a return for these services provided by them, they collect some monthly or other periodical insurance premiums from their customers towards their charges. Since people are always insecure of their lives, properties, and health, they look to these insurance coverages as their refuge. So, many people opt to purchase these insurance policies. As a result, insurance business generates a large pool of funds to the insurance company from which they have to reimburse only a certain amount of loss or damage that takes placing during a certain period. So, they can invest most of the money collected in some profit yielding investments or in real estate businesses and thus, earn comparatively good profits from their insurance business.

By managing the risk in an intelligent and smart way and by evaluating the weak points minutely in all respects, the insurance companies can make ample profits and minimise their incumbent reimbursement occasions.

Different Types of Insurance
There are many types of insurance policies to cover different types of losses.

a) Life Insurance
The life of a person is insured under this cover. Insurance companies examine the individual's health history and decide the claim amount to be covered for reimbursement under the policy. Normally, younger people can opt for higher covers with lesser premiums whereas older people are covered only for lesser cover amounts, that too at higher monthly premiums. This is because older people's life expectancy cannot be guaranteed so accurately and it is risky for the insurance companies to undertake their covers.

b) Health Insurance 
Health insurance policies undertake the job of covering hospitalisation and medical expenses. These policies also require some premium amounts to be paid periodically for covering the expenses. The health of the person concerned is examined in all respects before deciding the amount to be reimbursed. You can renew policies even yearly also. Most of the MNC's provide their employees with this Health Insurance cover nowadays. The medical expenses are reimbursed by insurance companies after scrutinising the bills and expenses. Some expenses are not reimbursed during the process as they are deemed as unnecessary by them.

c) Personal Accident Insurance
Personal accident insurance covers injury or death due to accidents. It undertakes only accident cases. The sum assured is generally limited to 5 or 6 years income of the person from his job earnings. It does not take into account other incomes of the person. If the insured is met with death or some serious irrecoverable loss of limbs, they will reimburse the whole sum assured. Otherwise, only a part of the sum assured is paid according to their own standards of calculation. The insured needs to pay some premium amount to activate the policy.

d) Auto Insurance
Auto insurance covers the damages incurred by vehicles due to accidents or other calamities. The insurance amount is calculated based on the value of the vehicle according to its ageing factor also. A new vehicle can be insured for its whole cost with higher premium payment. Old vehicles are insured for their residual value only with lower premium payments.

5) Other Insurance Policies
There are many other insurance options available for every kind of damages or losses suffered by people. Some of them are Fire Insurance, Theft or Burglary Insurance, Marine Insurance (for losses suffered during shipwrecks, etc.), Fidelity Insurance (losses due to dishonesty, etc.during employment), Travel Insurance, Credit Insurance (loss due to bad debts), Crop Insurance (for farmers due to natural calamities), Workmen Compensation Insurance (loss incurred during employment due to negligence of employer resulting in accidents).

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