Understanding Insurance Principles

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What is insurance and how does it function to provide financial protection?

Insurance is a contract that provides financial protection against potential future losses in exchange for regular premium payments.

Explain the principle of risk pooling in insurance.

Risk pooling involves combining the risks of multiple individuals to minimize the financial impact on any single member in the event of a loss.

What is the role of premiums in an insurance policy?

Premiums are the regular payments made by policyholders to the insurance company for coverage against specified risks.

How do deductibles affect the cost of insurance?

<p>Deductibles are the amounts policyholders must pay out of pocket before insurance coverage kicks in, often leading to lower premium costs.</p> Signup and view all the answers

Why is it important for individuals to understand their insurance policies?

<p>Understanding insurance policies helps individuals make informed decisions about coverage options and ensures they know their rights and responsibilities.</p> Signup and view all the answers