Chapter 1. Principles of Insurance

Terms you'll need to understand:

  • Risk

  • Peril

  • Hazard

  • Insurance

Concepts you'll need to master:

  • Methods of managing risk

  • Law of large numbers

  • Insurable interest

  • Speculative risk

  • Pure risk

  • Insurable risk

Most people have a general understanding of the concept of insurance. Many of us have life insurance, automobile insurance, and homeowners insurance. We know that it is something we have to pay for—those annoying periodic payments known as “premiums.” Yet it is something we rely on and depend on—we expect it to provide compensation for injuries or damages when a loss (such as a fire or automobile accident) occurs. Many people might not understand that the insurance business is based on a number of sound principles that not only ...

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