Question

In general, offering to sell insurance policies is most effective in situations where there is… Group of answer choices a. a high probability of a small loss. b. a low probability of a small loss. c. a high probability of a large loss. d. a low probability of a large loss.

Answer 1

Whle all the options mentioned above are true in various conditions, in my opinion, option C, high probability of a large loss is one of the most suitable conditions.

The definition of what is a huge loss differs from person to person. For a person who’s only source of income is a roadside stall in a market. Damage to this stall is a great loss, where as for the CEO of a company this may mean nothing. People will buy insurance under situation or for things that have a significant importance and its loss will have a major impact. When there is a high probability of damage to something important people will buy insurance as a cover measure.

The other answers are less ideal because:

a high probability of a small loss. If the loss id small, the individual will prefer to mend the damage rather than paying a continuous premium.

b. a low probability of a small loss. If both the loss and its probability are low, people will not take the insurance.

d. a low probability of a large loss. If the probability is low, chances are that there will be indicators prior to the loss and they can be managed.