how does insurance work
2006-09-19 18:50:37 · 8 answers · asked by edwinmak133 2 in Business & Finance ➔ Insurance
There are all kinds of insurances, but basically you pay an amount of many every month or every year and in case something bad happen you cash the amount of money the insurance company evaluates you can get. From one time of insurance to the other, things can get pretty complicated. I suggest you take a look from time to time to http://www.insurancedictionary.org to clearify your doubts.
2006-09-19 23:01:48 · answer #1 · answered by linioara_criss 1 · 0⤊ 0⤋
Here's an example. You have 100 people, they all have a house worth $100,000. They decide they want to spread the fire risk around. They know that for every 100 houses, one will have a fire and burn down.
They all put in $1,000. Sure enough, Joe Smith's house burns down. The $100,000 in the pot goes to rebuild his home.
Real insurance is a bit more complicated, as the money collected ALSO has to pay for the insurance company expenses - rent, utilities, salaries, etc; and the insurance companies are allowed to invest the premiums collected, so they make money that way, too. For a while in the 90's, the insurance companies were making more money in the stock market than on the premiums, so they were selling insurance for LESS than the cost to pay claims - the stock market made up the difference - and that's why we saw the huge jump in premiums the past 5 years.
2006-09-20 09:21:28 · answer #2 · answered by Anonymous 7 · 1⤊ 0⤋
Insurance is put in place for something that has a risk. For example your health can be at risk so you purchase health insurance and the same can happen for your life. Sorry to be a little gruesome. However, if you are talking about what you can purchase insurance for you must talk about two different types of risk. One type of risk is speculative risk that you have no chance to gain on. That is what you can insure. If you bought a $18,000 car and you drove it off the lot and someone hit it and totaled it you could never expect an insurance company to pay over $18,000 for the car. For example you can't insure something like gambling where you can gain and lose money.
2006-09-20 14:42:26 · answer #3 · answered by Marianne 2 · 0⤊ 0⤋
Insurance is basically built upon the concept of risk pooling. For example, out of every 6000 people who cross the road, 1 will be banged by a car and die. 1 out of 6000. It could be me, you or anybody right? So everybody pays a little bit of money to the insurance company who holds the money for the time being. Once the event happens, the company pays out the money. For a little bit of money, you and your family gets back a lot more money than what you originally put it, it's well worth it.
2006-09-20 23:46:13 · answer #4 · answered by floozy_niki 6 · 0⤊ 0⤋
You have a small chance of an accident, but if you have one it could be very expensive.
The insurance company finds many people similar to you, and charges each of you a premium. The company hopes it collected enough money to pay for the few of you who have the accidents.
2006-09-20 07:50:50 · answer #5 · answered by fcas80 7 · 1⤊ 0⤋
You make a contarct with an isurance company that they pay for your certain damages if you pay them a monthly fee. Usually you pay much more than necessary, but it's compulsory.
And be careful what sort of contract you make. They don't pay for every damage. You need to make it exact, like car, house, health, catastrophe... etc.
2006-09-20 02:24:21 · answer #6 · answered by Anonymous · 0⤊ 1⤋
Everybody pays for the one who got accident
2006-09-20 07:15:06 · answer #7 · answered by Anonymous · 0⤊ 0⤋
u pay and pay and pay and hardly ever use it, but have to have it.
2006-09-20 01:52:46 · answer #8 · answered by Me 2 · 0⤊ 1⤋