The various functions of insurance are follows:
(i) Providing certainty: Insurance provides certainty of payment for the risk of loss. There are uncertainties of happenings of time and amount of loss. Insurance removes these uncertainties and the assured receives payment of loss. The insurer charges premium for providing the certainty.
(ii) Protection: The second main function of insurance is to provide protection from probable chances of loss. Insurance cannot stop the happening of a risk or event but can compensate for losses arising out of it.
(iii) Risk sharing: On the happening of-a risk event, the loss is shared by all the persons exposed to it. The share is obtained from every insured member by way of premiums.
(iv) Assist in capital formation: The accumulated funds of the insurer received by way of premium payments made by the insured are invested in various income generating schemes.