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Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of potential financial loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium and duty of care.

Principles of insurance

From the point of view of the insurance company there are four general criteria for deciding whether to insure events or not. carinsuranceguide101com. 1. there must be a larger number of similar objects so the financial outcome of insuring the pool of exposures is predictable. Therefore they can calculate a "fair" premium. 2. the losses have to be accidental and unintentional from the point of view of the insured. Car Insurance, Home Insurance, Travel Insurance, Life Insurance UK. 3. the losses must be measurable, identifiable in location, time, and be definate. They also want the losses to cause economic hardship. That is, so the insured has an incentive to protect and preserve the property to minimize the probabilty that the losses occur. 4. Cheapest Car Insurance Information. the loss potential to the insurer must be non-catastropic. It cannot put the insurance company in financial jeopardy.

Losses must be uncertain.

The rate and distribution of losses must be predictable: To set premiums (prices) insurers must be able to estimate them accurately. This is done using the Law of Large Numbers which states that: The larger the number of homogenous exposures considered, the more closely the losses reported will equal the underlying probability of loss. Before we begin to offer you additional knowledge on this topic within this cheapest aig car insurance text, wait a minute to think about what you previously know. If the coverage is unique, the insured will pay a correspondingly higher premium. Lloyd's of London often accepts unique coverages. (e. g.