Question

The major underlying force that motivates individuals to purchase insurance even though insurance premiums exceed expected claim costs is A. profit. C. expected losses. B. risk aversion. D. premium loadings

Answer 1

The underlying concept of insurance is to mitigate the risk of uncertainty.

Any individual opting for an insurance plan will have in mind to deal with the uncertainty of life and to reduce losses caused by uncontrollable circumstances. It is not meant to make profits.

For instance, a life insurance is to provide security to the loved ones of an individual.

Health insurance is for tackling health issues, the expenses of which often end up being sky rocketing.

Marine and transit insurance is to safeguard the goods via transit

So, the major underlying force that motivates individuals to purchase insurance even though insurance premiums exceed expected claim costs would be -

1. Risk Aversion in case of Life Insurance to mitigate the risk of financial security of the family of an individual after his/her death.

2. Second major reason could be to lessen the losses caused by possible damage or loss in case of general insurance.