How Insurance Companies Benefit Society ?
Insurance companies benefit society by accepting certain risks that individuals are not willing to bear. In most of the cases, the risk transferred cannot be easily diversified by the individual. For example, many people buy life insurance to protect the livelihood of their families in case they die unexpectedly.
People transfer the financial risk associated with dying to insurance companies; they also transfer other non-deversifiable risks. Among the most important are the risk of a major health problem and the risk of fire or flood in the home. But why are insurance companies willing to take other people's risks in exchange of small premiums? The answer is the concepts of the portfolio or they pooling many different and unrelated policies, insurance companies are able to generate profits while retaining their overall risk at very reasonable levels.
Insurance benefits society in the several important ways. First, it reduces fear and worry because if a loss occurs, the insurer provides a payment to mitigate the loss. Insurance also provides and incentive for loss control because insurance premiums are determined by the chance of loss, and loss control reduces the chance of loss. Insurance helps facilitate credit by protecting collateral pledged to secure loans. This benefits is especially important in commerce because it helps facilitate the shipment of raw materials and finished goods. Finally, the insurance industry plays an important role in capital formation. Insurance companies collect small amounts money from man insurance purchasers. They pool these funds and then make large blocks of funds available in the capital markets !!!!!
Insurance companies benefit society by accepting certain risks that individuals are not willing to bear. In most of the cases, the risk transferred cannot be easily diversified by the individual. For example, many people buy life insurance to protect the livelihood of their families in case they die unexpectedly.
People transfer the financial risk associated with dying to insurance companies; they also transfer other non-deversifiable risks. Among the most important are the risk of a major health problem and the risk of fire or flood in the home. But why are insurance companies willing to take other people's risks in exchange of small premiums? The answer is the concepts of the portfolio or they pooling many different and unrelated policies, insurance companies are able to generate profits while retaining their overall risk at very reasonable levels.
Insurance benefits society in the several important ways. First, it reduces fear and worry because if a loss occurs, the insurer provides a payment to mitigate the loss. Insurance also provides and incentive for loss control because insurance premiums are determined by the chance of loss, and loss control reduces the chance of loss. Insurance helps facilitate credit by protecting collateral pledged to secure loans. This benefits is especially important in commerce because it helps facilitate the shipment of raw materials and finished goods. Finally, the insurance industry plays an important role in capital formation. Insurance companies collect small amounts money from man insurance purchasers. They pool these funds and then make large blocks of funds available in the capital markets !!!!!
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