Is It Rational To Buy or Sell Insurance?
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Hello...
Do u think it's rational to buy insurance?
I guess people buy insurance to protect themselves for example if an accident happens and u end up in a hospital, then the insurance will cover your bills. In this case you are hedging a risk by buying insurance. But then.......this risk is supposed to be measurable or not measurable? And more importantly, is this risk underestimated or overestimated? How confident are you?
If someone buys insurance, he has to pay the premium. In other words he pay somebody else to carry risk for him. In this transaction one party shifts the risk to another party.
Who sets the price in this transaction? The buyer or seller? The seller, in this case the insurance company, the carrier of risk. He sets the premium price himself and you choose to buy. He agrees to carry risk for you as long as you compensate him in the form of premium.
That means for insurance companies not to go bust, they have to measure the risk like the probability of you getting hit by a car in the next 10 years (or whatever) and then set a higher price for the premium.
And for you not to lose, you have to get hit by a car sooner, in a higher probability than it is covered in the premium calculation.
In this transaction one of the party must be a sucker.
Is it you or the insurance company?
(to be continued) -
Originally posted by Li Ka Shing:Hello...
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And for you not to lose, you have to get hit by a car sooner, in a higher probability than it is covered in the premium calculation.
In this transaction one of the party must be a sucker.
Is it you or the insurance company?
(to be continued)
After paying the premium for how many years, you'll be able to get some of the money back in some policies right? It's a long term investment I guess... If nothing happens to you, you lose a portion of your money. If something happens, you're covered, but I don't think anyone would like to claim that kind of money if possible.