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Chapter 14.1 - Insurance Basics Part 2
Some policies will not insure particularly valuable items that are easily lost or stolen, like a diamond ring, for example.
In order to have this covered, you must purchase a rider, which is added onto your policy.
Shared Risk
What does this mean?
Insurance works by transferring funds from a large group to the relatively few who suffer losses.
Insurance companies act at the intermediary for transferring these funds.
This is the concept of shared risk.
To determine something's value to be insured, it must first be appraised.
Appraisal: An expert's determination of the value of the piece of property.
Premiums and Statistics
Insurance companies use statistics to predict how many losses are likely to occur within a large group of people.
They also use statistics to tell them how they are likely to pay for a given accident.
These statistics are what set the premiums (monthly payments).
What Insurance Protects
Insurance is designed to bring you back to where you were before a financial loss, not for you to profit from it.
Insurable interest - Something of value that, if lost, would cause you financial harm.