The importance of insurance to a businessman can be understood from the following points.
1. Security and Safety: It gives a sense of security and safety to the businessman. It enables him to receive compensation against actual loss. He can concentrate on his business with a secure feeling that in case of losses arising from insurable risk, his losses will be compensated.
2. Distribution of risk: Risk in insurance is spread over a number of people rather being concentrated on a single individual.
3. Normal expected profit: An insured trader can enjoy normal margin of profit all the time. He is protected from unexpected losses because of insurance.
4. Easy to get loans: A trader can get bank loans easily if his stock or property is insured, as insurance provides a sense of security to the lenders.
5. Advantages of Specialization: Businessmen can concentrate on their business activities without spending more time on safeguarding their property. The insurance companies, on the other hand, can provide specialized insurance services.
6. Development of Social Sectors: Insurance funds are available for economic development particularly for the development of social sectors. Especially for a developing country like India, insurance funds are an important source for investing in infrastructure projects (roads, power, water supply, telecom etc).
7. Social cooperation: The burden of loss is shouldered by so many persons. Thus, insurance provides a form of social cooperation.