How does insurance work?

How does insurance work?How do insurance companies gain profit? What is principle involved?

Answer #1

Hi,

Insurance of itself does not work to protect you against the risk happening, it covers the consequences of the happening. At its best, insurance can be a “win-win” situation both for the user and the provider.

For the customer, insurance is something you buy hoping you never have to use. You purchase it to protect yourself from unexpected losses you can’t afford: The accident you hope you never get into, the fire you pray never destroys your home, the hailstorm you know sooner or later may batter your roof, or the lawsuit that threatens to wipe out all your savings.

Where the customer really wins is in the ‘peace of mind’ the premium buys. If the worst should happen, insurance works to provide financial recovery.

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