What individuals do is to purchase insurance so as to transfer their risk of loss to a larger group. Insurance is a policy in which an insurer agrees to compensate another against losses from specific loss, illness, death, or damage in return for the settlement of a particular premium.
It is also an economic tool particularly designed to decrease the financial effect of unpredictable circumstances and create financial safety. It functions on the rule of huge figures where subscriptions by several in the mode of premium pay for the damages of few.
When paying a premium for guiding against a particular kind of loss, you will be secured for a certain amount of money that you will get if faced with that loss. In addition, insurance policies are made use of to guide against the danger of economic losses, both huge and small, that may happen from harm to the insured or her belongings, or from responsibility for loss or harm made happen to a third party.
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