Sharing Economic Losses Through InsuranceEach minute of the day or night, everyone faces a

Sharing Economic Losses Through Insurance

Each minute of the day or night, everyone faces a possible financial loss. A home may be destroyed by fire, damaged by lightning, or leveled by a tornado(龙卷风). Personal belongings may be stolen. A car may be damaged in an accident, or it may cause injury to people and property. Income may be lost as the result of the death, disability, or unemployment of a family wage earner. The chance that a loss of this kind may occur is called an economic risk.

Savings provide one way to take care of financial losses. But savings are not the answer to large losses. The best way to guard against large financial losses is through insurance.

Insurance Is a Plan for Sharing Risks and Losses

Ted Mather and four of his friends have a rock group called Quint. Each member of the group owns a valuable instrument. Ted's bass alone cost $900. If an instrument was stolen or damaged, it would be a serious financial loss for its owner.

Suppose, however, that the members of the group agree to share any losses that occur. For example, if Ted's bass is stolen, each member of the group would contribute $180 to replace it. In other words, they would share the loss. This is the principle of insurance. Persons facing the same risk share the losses that occur among them.

From an insurance standpoint, however, an informal agreement like that made by Quint would not provide much protection. Why？ The reason is that all the instruments might be stolen or damaged at the same time. The group rehearses in the Mathers' garage and sometimes leaves their instruments there between rehearsals. They also travel together in a van when they perform. Suppose that a thief broke into the garage and stoic all the instruments. What if the garage caught fire？ What if all instruments were damaged in an accident on the way to or from a concert？ Each member of the group would have to pay one-fifth of the total loss. For some members, this might be more than the amount of their own actual loss.

The purpose of insurance is to provide protection against financial loss at a reasonable cost. This is possible only when the cost of insurance is shared by many people who face a similar risk. But not all of them are likely to have actual losses at the same time.

You Buy Insurance from Insurance Companies

Almost 4,800 companies in the United States are in the business of providing insurance protection. These businesses are called insurance companies. Because 57% percent of the insurance companies operate on a big scale, they provide a way for large numbers of people to share their losses.

When you buy insurance, you enter into a written agreement with the insurance company. This agreement is called a policy. The person who buys insurance is the policyholder. According to the agreement, the insurance company promises to pay the policyholder if certain types of losses occur. The policy states exactly what losses the company will pay for. For this protection, the policyholder makes regular payments to the insurance company. Each payment is called a premium(保险费). The premiums paid by all policyholders are used to pay those who have losses. In this way, a loss that might result in great financial hardship for one person or household is shared by many people. Because only a portion of those insured will actually have losses, premiums are small compared to the amount of protection provided.

Many Kinds of Risks Can Be Insured

Insurance can provide protection against almost any kind of loss. Singers may insure their voices. Photographers may insure their negatives(底片). The owner of a home freezer may in sure against food loss in case of power failure. A business owner can insure his or her place of business. A business owner can also insure against a loss of profits during a shutdown following a fire or damaging accident

A．Y

B．N

C．NG