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It protects your assets.

If you never get in an accident, or hurt anyone else, it INCREASES your financial loss, simply because you paid monthly to protect yourself from something you never did.

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Q: How does insurance reduce the risk of financial loss?
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Related questions

What is the purpose of insurance?

An insurance policy is a contract of Indemnity. It is a means of transferring risk of financial loss and or financial liability to another party, Namely the insurance company.


What is risk in insurance?

Insurance is defined as financial restitution in the case of an accident or claim to put you back in the same financial position you were in before the accident. insurance risks are things like where you live .. and how old you are, or things like if you have a burgalar alarm.. or if you have a flood every year.. that's a bit insurance risk...


What risk management strategies does progressive insurance company employs to protect against financial loss?

They dont. They have crappy risk department


How do mutual funds reduce the risk of loss?

Mutual fund do not reduce the risk of loss.


How can a company experience risk?

Risk is, by definition, the likelihood or non-likelihood of a financial loss occuring. The financial loss can be in terms of the loss of money, damage to property, or any other occurrence that has a financial impact upon the business. Insuring is the process of transferring the risk of loss from the entity that bears the risk to an insurer. The insurer agrees to assume the risk in return for a premium. The terms and extent of the transfer of risk is set forth in the insurance contract.


What is the actual meaning of insurance?

The term insurance means the transfer of risk from one person to another, usually a company specializing in the insurance industry. You can transfer any type of risk be it the risk of wrecking your automobile, the risk of dying, the risk of a storm damaging your home. The type of risk dealt with in insurance is always the risk of financial loss.


Concept of hedging?

The concept of hedging is to reduce the risk of financial loss. Hedging originated out of the 19th century commodity markets. A hedge can include stocks, exchange-traded funds, insurance, forward contracts, swaps, and options.


What is credit enhancement?

A method to reduce credit risk by requiring collateral, letters of credit, mortgage insurance, corporate guarantees, or other agreements to provide an entity with some assurance that it will be recompensed to some degree in the event of a financial loss.


What are the functions of insurance companies?

What an insurance company does is to take the risk of loss and by spreading the risk they limit the exposure and therefore reduce the cost. By taking the risk of loss from lots of people they use the law of large numbers and reduce the cost to individuals. By insuring lots of people and taking premiums from many they are able to pay any claims to a few. This is how insurance companies are able to spread the risk. This spreading of the risk works basically the same for all types of insurance and all type of loss. In life insurance for example the companies use actuarial tables to calculate the risk of loss (chance of dying) and therefore come up with the premiums.


Why should you buy medical insurance?

You purchase insurance in order to transfer risk of liability from one party to another. In the case of buying medical insurance, you are purchasing the insurance in order to transfer the risk of you or a family member from getting ill and the financial cost involved with this risk. In exchange for a specified amount of premium the insurance company agrees to accept a certain amount of the risk of the financial loss involved in getting ill and the cost of treatment and medication involved.


What is the need of insurance?

To transfer your risk of loss to another party - the insurance company. The premium you pay the insurer is the cost of transfering that risk of loss.


What is the function of the financial sector?

the functions of the financial sector are to reduce risk in economic life by providing insurance protection, to assist the government in stabilising the economy , to create mechanisms for payments for goods and services