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Question
Choose the correct answer for the following:
Which of the following is not a function of insurance?
Options
Risk sharing
Assist in capital formation
Lending of funds
None of the these
Solution
Insurance is a contractual policy through which an individual gets financial protection by spreading the risks or losses that may be caused by the occurrence of unpredictable events. It gives individuals an assurance that a certain sum of money will be given to them in case of any damage to the insured goods. In return for this assurance, the insured makes a regular payment (monthly, quarterly or yearly) to the insurer, which is termed premium. Thus, insurance helps in pooling financial resources and assists in capital formation. Moreover, Insurance helps in sharing the risks by all the parties exposed to the same risk. Every member contributes their share in the form of premiums.
Insurance does not involve lending of funds; lending is a function of commercial banks.
Hence, the correct answer is Assist in capital formation.
