Final answer:
Life insurance and health insurance provide financial coverage in different circumstances. Life insurance pays out upon the insured individual's death, while health insurance covers medical care expenses.
Step-by-step explanation:
When discussing life insurance or health insurance policies, it is important to remember that these policies provide financial coverage in specific situations. Life insurance pays a designated amount to the insured individual's family upon their death, while health insurance pays for medical care expenses. For example, if someone has a life insurance policy and passes away, their beneficiaries will receive a payout from the insurance company. Similarly, if someone has health insurance and requires medical treatment, the insurance company will cover the costs of that treatment.
In discussing Life or Health insurance, it's essential to note the information disparity between the buyer and insurer and that premiums must cover claims, expenses, and profits for sustainability.
When discussing Life or Health insurance policies, it is crucial to understand that the purchaser often knows more about their own risks such as family health history or personal driving habits than the insurance company. This information asymmetry can affect the underwriting process. Furthermore, for insurance companies to remain viable, the average payments made by policyholders over time must cover the cost of all claims, the company's operating expenses, and provide for profit margins. This represents the fundamental law of insurance which maintains that despite challenges like investment income, administrative costs, and managing different risk groups, the inflow of premiums must be sufficient to support the outflow of claims and other expenses.