Question

I would like you to reflect on concepts covered in Chapter 9 "The Basic Tools of Finance".

The purpose of this reflection is to demonstrate your ability to link the concepts of how insurance markets work to a "real world"

Your expected response should not be less than 250 words and must include specific concepts covered in the readings from Chapter 9.

Answer 1

The concept of "The Basic Tools of finance" covered 1) Present value : Time value of Money, 2) Managing Risk and 3) Assest Valuation.

Concept of insurance is covered under the Managing Risk.

Insurance means the risk is handle by isnurance company for the value or goods of insurer and in return insurer pay certain sum of money on regular basis to covered the risk that can arise in future due to any uncertainities.

Risk covered by the insurance company may be fully or partially pay off but generally insurance company pays not in worse nor in better position, its on equall basis.

Example of Insurance company : Insurance company take insurance of 100 people in society of USD 10 each (100x10=1000)  but not everyone is going to face the loss, hardly the loss can be 1%, 2% or 5% so the total amount collected from insurance, company will pay the loss only.

1) Insurance can be taken for Highly risky material which has huge amount of value and if any uncertainity happens, material owner will suffer severe loss so this can be covered by the insurance company if insurance is take for the value of goods

Example : House, Car, and Ocean shipment wherein Cargo is taken through water way, having huge volume and value.

2) Insurance for some goods or materials which is not much high in value

Example : Mobile phone, now a days companies are also providing insurance for Mobile, which generally people dont take but some time they do, it just depend on VALUE of goods.