Question

A company paid $50,000 to its insurance company for fire insurance coverage over the next year. What is the amount paid by the company for insurance coverage?

Answer 1

The company paid $50,000 for fire insurance coverage for the next year. Insurance premiums are collected from many to cover the losses that only a few might incur during the policy period.

Step-by-step explanation:

The amount paid by the company for fire insurance coverage over the next year is $50,000. Insurance operates on the principle of risk pooling where many insured entities, such as companies, pay premiums to protect against potential losses.

In the case of automobile insurance, for example, if each of the 100 drivers pays a $1,860 premium annually, the total amount collected by the insurance company will be $186,000.

This amount is needed to cover the costs of the accidents. Insurance premiums are typically set based on the expected costs of claims, administrative expenses, and profit margin for the insurance company.