How Insurance Work

Posted by It's My LIFE on Thursday, November 25, 2010

Insurances work by having many persons share the cost pf risk from certain dangers. The many Individuals are represented by the insurance company, wich is a sort of middleman handling yhe money charging a fee for its services. an Agreement Betwen an insurance company and an individual taking out insurance is called an insuranced policy.
Insurance can work only when the possible losses to be insured can be measured. mathematicians have develoved what they  call the laws of probability. These laws are based on what is called the law of large numbers. If we toss a coin only a few times , we may always ged heads, or tails. But if we tos a coin many times, we are almost certain to get a fairly even distribution of heads and tails This same law of probability  may be applied to insurance. fr instance, if only a few homeowners band together for fire insurance protection., a run of bad luck could mean that all the homes would have fire losses. But if thousand oof persons from different parts of the country, with differents types of houses, are considered together, then the laws probability indicate that only a certain number will have fire losses in any one year. 

In all kinds of insurance, a number of persons agree that each shall pay money to the insurance company at regular times. These payments are called premiums. Insurance company mathematicians, called actuaries, figure out the premium rates, or how much must be paid for a certain amount of insurance coverage.
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