What is a major function of insurance?

What is a major function of insurance?

• A. Reduce the cost of losses.
• B. Share the losses of the few among many.
• C. Safeguard the interest of the mortgagees.
• D. Serve as the basis of the existing credit system.

Answer: (B)

The identification of sharing the losses of the few among many as a major function of insurance is grounded in the fundamental principle of risk pooling. Insurance operates on the concept that individuals or entities, who might experience a loss, pay premiums into a collective pool. When a loss occurs to one member of this pool, the funds from this shared resource are used to compensate that individual, thereby distributing the financial impact of risk across a larger group. This method not only helps individuals manage their risks more effectively but also reduces the financial burden on any single policyholder, resulting in a more sustainable approach to risk management. The essence of this function underpins the insurance industry's role in mitigating uncertainty and spreading risk across a broader base.

The identification of sharing the losses of the few among many as a major function of insurance is grounded in the fundamental principle of risk pooling. Insurance operates on the concept that individuals or entities, who might experience a loss, pay premiums into a collective pool. When a loss occurs to one member of this pool, the funds from this shared resource are used to compensate that individual, thereby distributing the financial impact of risk across a larger group. This method not only helps individuals manage their risks more effectively but also reduces the financial burden on any single policyholder, resulting in a more sustainable approach to risk management. The essence of this function underpins the insurance industry's role in mitigating uncertainty and spreading risk across a broader base.