REVIEW QUESTIONS 1

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1. What is the main reason individuals buy insurance? and peace of

2. How does insurance satisfy the need for peace of mind?

Ans. Insurance provides E P against losses that may be incurred due to chance events that M or occur during the effective time of the contract called a policy.

4. What is the danger if the risk pool is small? A S .

5. Would insuring one's car be a Pure or a Speculative Risk? Risk .

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Answers

1. What is the main reason individuals buy insurance?

Ans. Individuals buy insurance to give them security/ peace of mind

2. How does insurance satisfy the need for peace of mind?

Ans. Insurance provides Economic Protection against losses that may be incurred due to chance events that may or may not occur during the effective time of the contract called a policy.

3. Basic principles of insurance include

Ans. Spreading or pooling of risks (loss sharing) , and The law of large numbers.

4. What is the danger if the risk pool is small?

Ans. Adverse Selection. The law of large numbers does not work with a small number of risk takers.

5. Would insuring one's car be a Pure or a Speculative risk ?

Ans. Pure

 

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