LIMITATIONS OF INSURANCE
In spite of number of advantages of insurance, it has certain limitations. On account of such limitations, the benefits of insurance could not be availed in full. These limitations are :
1. All the risk cannot be insured : All the risk cannot be insured; only pure risks can be insured, and speculative risks re not insurable.
2. Insurable interest (financial interest) on the subject matter : Insurance is possible only when the insured has insurable interest in the subject matter of insurance either at the time of insurance or at the time of loss, or at both the times; in the absence of which the contract of insurance becomes void.
3. Impossibility of measurement of real loss : In case the loss arisen from the happening of the event cannot be valued in terms of money, such risks are not insurable.
4. Not possible to insure the risk covered by a single individual or a small group: Insurance against the risk of a single individual or a small group of persons are not advisable since it is not practicable due to higher cost involved.
5. Higher premium rates : Another important limitation is that the premium rates are higher in our country and as such, certain category of people cannot avail the advantage of insurance. The main reason for the higher rate of premiums is the higher operating cost.
6. Moral hazards : It becomes difficult to control moral hazards in insurance. There are certain people who misutilize the insurance plans for their self-interest by claiming false claims from insurance companies.
7. Certain rights cannot be insured by private insurers : The private insurers are not permitted to insure certain specified types of risks like unemployment insurance, bankruptcy of banks insurance, etc.
8. Unattractive investment : Insurance is not a profitable investment. Its main object is to provide security against risks. Insurance business cannot be a source to acquire profits.
9. In certain cases cooperation of government is necessary : Certain specified risks can be insured with cooperation of the government only; such as unemployment insurance, insolvency of banks, food insurance, etc.
10. All the pure risks are not insured : All the pure risks are not insured by the insurer. Even if does with higher rate of premium only. For example, insurer does not take any interest to accept a proposal of a person whose heart surgery has gone through.
In spite of number of advantages of insurance, it has certain limitations. On account of such limitations, the benefits of insurance could not be availed in full. These limitations are :
1. All the risk cannot be insured : All the risk cannot be insured; only pure risks can be insured, and speculative risks re not insurable.
2. Insurable interest (financial interest) on the subject matter : Insurance is possible only when the insured has insurable interest in the subject matter of insurance either at the time of insurance or at the time of loss, or at both the times; in the absence of which the contract of insurance becomes void.
3. Impossibility of measurement of real loss : In case the loss arisen from the happening of the event cannot be valued in terms of money, such risks are not insurable.
4. Not possible to insure the risk covered by a single individual or a small group: Insurance against the risk of a single individual or a small group of persons are not advisable since it is not practicable due to higher cost involved.
5. Higher premium rates : Another important limitation is that the premium rates are higher in our country and as such, certain category of people cannot avail the advantage of insurance. The main reason for the higher rate of premiums is the higher operating cost.
6. Moral hazards : It becomes difficult to control moral hazards in insurance. There are certain people who misutilize the insurance plans for their self-interest by claiming false claims from insurance companies.
7. Certain rights cannot be insured by private insurers : The private insurers are not permitted to insure certain specified types of risks like unemployment insurance, bankruptcy of banks insurance, etc.
8. Unattractive investment : Insurance is not a profitable investment. Its main object is to provide security against risks. Insurance business cannot be a source to acquire profits.
9. In certain cases cooperation of government is necessary : Certain specified risks can be insured with cooperation of the government only; such as unemployment insurance, insolvency of banks, food insurance, etc.
10. All the pure risks are not insured : All the pure risks are not insured by the insurer. Even if does with higher rate of premium only. For example, insurer does not take any interest to accept a proposal of a person whose heart surgery has gone through.
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