MATH 573 Study Guide - Final Guide: Insurable Interest, Life Insurance, Adverse Selection
Document Summary
Insurance is a device that pools exposures to loss of individuals into a group. Uses funds paid by members of the group to pay for losses as they occur. Group is engaged or involved in a loss or risk sharing arrangement. Buying insurance doesn"t make you a better driver, but it absorbs the financial loss. Trade an unknown/uncertain loss without insurance for a known/certain loss with insurance (premium) Premium can be viewed as a known loss (probability = 1) Individual risk still exists. (you could still get into accidents it just means you know you will be taken care of) Example: pay premium for insurance, in case car accident happens. Risk transfer from the insured to the insurer. Transfer the financial responsibility for payment of a loss to the insurer. Obtain accurate group predictions over the years of offering insurance gain information.
