Functions of Insurance Flashcards
1
Q
What are the three main Functions of Insurance?
A
RISK TRANSFER, EQUITABLE PREMIUMS, COMMON POOL
2
Q
Explain the Sound Risk Transfer
A
The insured pays a sum of premium to the insurance company and transfers the responsibilities of carrying the risk of loss or damage to the insurer.
3
Q
Explain the Creation of the Common Pool
A
An insurance company sets itself up to operate the pool. It takes contributions, in the form of insurance premiums from many insureds, and pays for a few losses.
4
Q
Explain the Equitable Premiums
A
Each insured who contributes to the pool has to be equal to the risk brought to the pool. To elaborate, the cost of the premium must justify the level of risk that is presented to the insurer.
