The ABCs Of Insurance

Insurance is one of life's necessities and probably the least understood financial product.

Insurance reimburses people for covered losses in the event of an unfortunate occurrence such as an illness, accident or death. It is a system that makes the threat of large financial losses less ominous by pooling the risks of many individuals and business entities and reassigning the risk to an insurance company in exchange for a price (known as a premium).

Insurance companies then combine the premiums paid by consumers to form a fund that can be used to pay for covered losses experienced by consumers. This concept is sometimes referred to as a risk-sharing mechanism — a way of making large sums of money available to anyone who contributes to the group fund.

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