Chapter 2 Insurance and Risk

“Insurance: An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.”

Ambrose Bierce

Learning Objectives

After studying this chapter, you should be able to

  • Explain the basic characteristics of insurance.

  • Explain the law of large numbers.

  • Describe the characteristics of an ideally insurable risk from the viewpoint of a private insurer.

  • Identify the major insurable and uninsurable risks in our society.

  • Describe the major types of insurance.

  • Explain the social benefits and social costs of insurance.

Michael, age 25, graduated from a large eastern university with an accounting degree and accepted a job with a national accounting ...

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