Question

Which of the following statements about insurance and risk is true?

a) Insurance eliminates all forms of risk
b) Insurance is a guarantee against losses
c) Insurance always leads to financial gain
d) Insurance helps mitigate financial risk

Answer 1

Insurance is a method that households and firms use to prevent any single event from having a significant detrimental financial effect. Members of the group who suffer specified bad experiences receive payments.

Step-by-step explanation:

Insurance is a method that households and firms use to prevent any single event from having a significant detrimental financial effect. Generally, households or firms with insurance make regular payments, called premiums. The insurance company prices these premiums based on the probability of certain events occurring among a pool of people. Members of the group who then suffer a specified bad experience receive payments from this pool of money.