PRM - What Is Insurance? Lesson

What is Insurance

According to Investopedia, insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium. This means that individuals pay a monthly fee to an insurance company to protect themselves against significant loss. The insurance lessens or eliminates what they may have to pay based on the potential for risk.

Exploring Risk

There are many risks associated with daily living. Those risks can include sickness, injury, disability, death, damage of property, or loss of property. Identifying potential risk is only half the challenge. The other half involves eliminating and avoiding financial hardship associated with it by purchasing an insurance policy. Many times, if individuals do not have insurance, it can cause a great financial strain. There are 4 options for risk that people have. Review the object below to see what the options are, how they are defined, and an example of each.

Risk Options Interactive

 

Risk Elimination Interactive

Review the object below for examples that will give you a better understanding of how important it is to have insurance. You will also need to determine whether or not an insurance policy would eliminate the risk of significant economic loss.

By choosing to purchase an insurance policy instead of paying for losses out of pocket, each individual above has transferred most of the risk from themselves to the insurance company. Now if something happens, the insurer, or insurance company, will pay a portion of or all of the expenses related to what happened instead of the insured, or individual, paying thousands of dollars out of pocket.

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