insurance basics

Theoretical Insurance Basics 2

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Theoretical Insurance Basics 2

insurance basics

Demand theory is one of the world’s currently most prevalent theories of insurance. It defines insurance as random for one person, but sharing the risk in a collective ant time, satisfaction of a measured future demand.

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The future demand satisfaction must be based on the collectivity principles. A large number of the same risk-exposed entities come together in an insurance group, whose purpose – meeting collective, of a certain events for one member of a group emerged demands. This principle of insurance expresses the idea of ​​mutual assistance that may be described in the saying “one for all and all for one.”

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A member of insurance group, who haven‘t experienced financial, certain events conditioned costs, compensate a share of financial costs experienced by other member of the group, at the same time being aware that in case of the accident he will also receive the insurance group‘s support. In large companies there are quite often many similar kinds of subjects exposed to the same risk. The need for security above mentioned companies try to meet by a self-insurance way.

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Let‘s say that a company has a car of a few hundred cars, which are decided not to insure, hoping that that only one of them every year gets into an accident. The repair costs in such case would be much lower than the payment to the insurance company for all insured vehicles. However, self-insurance is not an insurance activity, as it contradicts the principle of collectivism. In the case of self-insurance the entity is not a member of insurance group and all alone has to assume all risk of possible material losses.

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