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 become somewhat aware of the insecurity of their lives and have begun to realize the need to secure their future by saving a little from their current consumption habits and by adopting insurance policies.

Saving

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 resources 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. 

So, saving is an economic term that points to the "total pool of savings" accumulated during a period of study.

• 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 by that economy in a given period.

Suppose a person 'X' received an income of Rs.6,00,000 during a year and spent a total of Rs.5,00,000 during that period; then, the balance of Rs.1,00,000 is his savings during that year.

So, when we add all the amounts of similar savings 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 also includes the value of all the resources saved.

How to Save?

You can start 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 in a safe place. 

You will experience the wonderful results of that habit. After a month, you may find that you have saved as much as Rs.500 or even Rs.5,000 depending upon your 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 simplest thing to do if you are conscious of it.

Besides the above, you can save lump sums at periodic intervals, whenever you receive some extra income such as Overtime payments or Bonus, etc. 

Invest the saved amount in FD's or other Investment schemes.

Similarly, Producers and Manufacturers can also save much of their resources utilised by following some simple economic methods of production. 

• Experiment with different ingredient ratios in production to minimize input quantities and costs.
• Implement techniques such as identifying waste during material handling and/or leaks, and managing labor efficiency, etc.

The above are some ideas for saving resources.

Benefits of Saving to the Economy

Whenever people save some amount of their income, they generally deposit it in Banks or invest in some 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 needy customers who are willing to take loans to meet their urgent requirements and then return the money along with some interest at a later time, either in instalments or in one lump sum.

In that way, Banks earn income from idle funds, and thereby, they can pay some "interest income" to their depositors in return for keeping funds in the bank.

• So, you can see that the money saved by people not only creates extra income for themselves as well as for banks, in the form of interest, but it also helps other people meet 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 government bonds helps businesses and industries further augment their production and add to the growth of the economy. 

• The money saved results in increased production 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 the public and the growth of the economy as a whole.

Insurance

Importance of Insurance
Life is always uncertain. It is more so in this present-day world. People often get sick due to polluted water, air, and atmosphere that are causing or spreading so many viral infections. 

Impoverished roads and surging vehicular traffic are also a cause for concern, as they can result in accidents. Even the habits of people are deteriorating their health and resulting in premature deaths.

 

Natural calamities, accidents, thefts, and burglaries all cause huge loss to property. 

So, everything needs to be protected with a suitable insurance cover. Insurance provides 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 helpful tool available for the security of the people. It is a kind of assurance from an undertaker to provide compensation for a certain loss suffered by the victim, like death, accident, fire, etc., in consideration of 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 that guarantees to indemnify against loss in consideration of a one-time or periodic premium paid by the victim.

Insurance Business and Income to Insurance Companies

An insurer bears the risk and assumes the responsibility of reimbursing the insured person a certain percentage or amount of loss, in the event of loss or damage as covered in the agreement.

As a return for their services, they collect monthly or periodic insurance premiums from their customers as their charges. 

Since people are always insecure about their lives, properties, and health, they look to these insurance coverages as their refuge. 

Many people opt to purchase these insurance policies. As a result, the insurance business generates a large pool of funds for the insurance company, from which reimbursements are made to customers who incur losses.

But the actual losses incurred by customers may not occur during the same period. Furthermore, not all customers suffer losses in reality. Only a portion of them will claim reimbursements at any given period. 

So, the companies can invest most of the money collected in profit-yielding investments or in real estate businesses and thus earn good profits from their insurance business.

The premiums are calculated to include all expenses of the company so that they can withstand any claims of huge losses and still sustain their 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 Policies

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 determine the amount to be reimbursed under the policy. Normally, younger people can opt for higher coverage with lower premiums, whereas older people are covered only for lower amounts, and even then at higher monthly premiums. This is because older people's life expectancy cannot be predicted as accurately, and it is riskier for insurance companies to underwrite their policies.

b) Health Insurance 
Health insurance policies cover hospitalization and medical expenses. 

These policies also require periodic premium payments to cover these expenses. The policies are issued annually.

The health of the person concerned is thoroughly examined before determining the amount to be reimbursed. You can renew policies annually. Most MNCs provide their employees with this health insurance coverage nowadays. Medical expenses are reimbursed by insurance companies after verifying the bills and expenses. Some expenses are not reimbursed during the process because they are deemed unnecessary by the insurers.

c) Personal Accident Insurance
Personal accident policies cover injury or death resulting from accidents. They cover only accident-related cases. 

The sum assured is generally limited to 5 or 6 years of the person's job earnings. It does not take into account other income. If the insured dies or suffers a serious, irrecoverable loss of limbs, the insurer will reimburse the full sum assured. Otherwise, only a portion of the sum assured is paid based on its norms. The insured needs to pay a premium 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 a 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 almost all kinds 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).