What are the Needs of Investment? (3 reasons)

What are the Needs of Investment? (3 reasons)

1. Payment of Claims :

The first and most important obligation of the insurer is to pay the amount of claims whenever they arise. For this, insurer is getting a substantial amount in form of premiums and has to preserve them for payment later on. To keep such amounts idle will be a failure on the part of the insurer who is expected to invest them on behalf of the policy-holders.

2. To Avoid Financial Deficit :

If funds are not invested, the total income of the insurer will fall short of its requirements for meeting us commitments because a particular rate of interest on its investments has been assumed while calculating the rate of premium.

Again, if funds are not invested and interest not earned, it would be an under-estimation of its future liability which may prove disastrous at the time of higher mortality.

3. National Interest :

A huge fund of the society is taken by the insurers in form of premiums. Therefore, it is essential for the insurers to invest the funds for the economic development of the nation.