the highest risk to life is ceasing of life... in other words death. Death itself is not a problem or a risk, but, the consequential fallouts are the problems. such problems are of two types. one emotional and other materialistic. The emotional suffering needs no elaboration. The element of concentration for life insurance is the materialistic suffering or loss suffered by the survivors of the diseased person. By making provision for adequate insurance, we will not be able to stop the occurence of death, but, we can reduced the impact of death on the survivors. This is something like living after death... as the current investment in your life will take care of your family when your nomore there to take care of them.... if you have not yet taken a life insurance policy... think about it again.
How does it operate?
In simpler terms, when you take life insurance.... you are entering into a contract with the insurance company. As every contract has some terms and conditions, here also some terms and conditions exist. you will be agreeing to pay premium and in turn, if anything happens to you, the company promises to pay your family some agreed amount (sum assured).
But is it so simple? The insurance company is taking risk while giving this promise to you. For that reason the insurance company will do risk evaluation and undertaking which is technically called as underwriting. The company seeks some information from you to assess your insurability and for this you would be generally filling some forms. A detailed note on insurance company operations will be in place soon...
Like you there may be millions of people who want to insure themselves with a company and there the insurance company profits come into picture. of all the million people who took policies with an insurance company, only few may die in a given cycle, say , one year and rest survive. the company would have already assessed out of million cases, how many will end up in claims. say they assume to be 10% per year. If the claims are below this, then the company gains and if it is more than this then the company suffers. This is how insurance as a shared risk platform, links many people.
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