(Consider This) Which of the following statements about insurance and risk is true?
A) Insurance inhibits economic growth and investment by discouraging risk-taking.
B) Insurance transfers risk from those with a high tolerance for risk to those with a low tolerance for risk.
C) Insurance companies always earn profits because insurance premiums always exceed the payout for insured events.
D) Insurance transfers risk from those with a low tolerance for risk to those with a higher tolerance for risk.

Question

Quizplus · Accepted Answer

The purpose of insurance is to transfer risk from those who cannot afford it to those who can. Insurance companies use their expertise in assessing and managing risk to provide a service that helps individuals and businesses minimize their exposure to financial loss. By pooling together the premiums of many policyholders, insurers are able to spread the risk across a larger group and provide affordable coverage to those who might not otherwise be able to afford it. Therefore, insurance transfers risk from those with a low tolerance for risk to those with a higher tolerance for risk.

(Consider This) Which of the Following Statements About Insurance and Risk