The risk factor and cheap car insurance | Tulsa Auto Insurance
Life in general is a risk, driving a car is definitely a risk there are over 100 million cars on the roads of America at any given time and one way of managing the risk of driving a car is by transferring that risk with a cheap Tulsa Auto Insurance policy. The company writing the cheap Tulsa Auto Insurance policy for a small premium will assume the risk transferring the risk from you to them in case of an accident. Therefore you can control the risk by purchasing a cheap Tulsa Auto Insurance policy. Of course you could avoid the risk by not owning a car therefore you would not need to purchase a cheap Tulsa Auto Insurance policy. In this matter you are managing the risk by transferring it to the cheap car insurance company for a small premium or you could avoid the risk by not owning an automobile.
This is basically how cheap Tulsa Auto Insurance works. People simply play cheap Tulsa Auto Insurance companies a premium thus transferring the risk and the responsibility for paying for any losses that may occur to the company in exchange for the premium the cheap car insurance company accumulate these premiums to provide the funds to pay for the losses this means even though people don’t pay each other directly, they still share in the cost of each other’s losses.
So a formal definition of insurance would be a contract for transferring risk from a person, business or an organization to an insurance company that agrees in exchange for a premium to pay for losses through the accumulation of these premiums.
How the law of large numbers work in developing insurance contracts for cheap Tulsa Auto Insurance companies.
Basically, we are a pretty safe group of people. Everyone does not have accidents all the time. For this reason, by predicting the numbers of losses that will occur, a cheap Tulsa Auto Insurance company can provide large amounts of insurance for relatively small amount of money. To help them predict their losses accurately so they can’t charge the proper premiums needed to accumulate adequate funds, the insurance companies rely on the law of large numbers. The law of large numbers says that the more examples used to develop any statistic, the more reliable that statistics will be.
For example 4/5 houses have defective wiring. Determined is 15 homes were checked.
Three out of four automobiles will suffer some form of tire damage each year. 5 million auto owners were surveyed. As you can see the law of large numbers tell us that the tire statistics will be a much more accurate sampling than the wiring statistics as to what will happen in the future because the tire statistics is based on many more examples.
Elements of insurability
pure risk or speculated risk.
Theoretically anyone could purchase insurance to cover almost any risk, there are certain rules that establish a practical bases regarding who can be insured and for what.
For instance, cheap Tulsa Auto Insurance cannot be used to handle speculated risk speculated risk or risk in which there exist both the possibility of gain and a possibility of a loss. Example a poker game is a good example of a speculated risk. Insurance can be used to manage only pure risk, which involve only the possibility of a loss. A person can buy a cheap car insurance policy to protect them against loss of an automobile theft that would be a pure risk but not to protect against the loss if the price of a stock goes down that’s a speculated risk.
Insurable interest.
A basic rule concerning who can be insured states that you can benefit from insurance, you must have a chance of a financial loss are a financial interest in the property. This is called an insurable interest. You have an insurable interest in your automobile but not your neighbor’s automobile.
Elements of insurable risk. There are additional rules that govern what risks are considered suitable subjects for cheap car insurance risks that do not meet these criteria are probably better handled using an alternative method of risk management.
The loss must be definite as to time and place and difficult to counterfeit are to falsify death is probably the best example of a definite loss.
The risk must be unexpected and in fact, as we mentioned earlier if the results are expected, it does not qualify as a risk a risk of a train wreck could be insured whereas a risk that your suitcase will eventually wear out is not really a risk at all therefore is not insurable.
The cost of insurance must be affordable to the insured. That’s why you Bob purchase cheap car insurance if the risk is so severe that it requires an insurance company to charge a prohibitive high premium to accumulate enough money to pay the losses, it is not an insurable risk. Even if the person purchasing the insurance could afford to pay it, the cost should only be a fraction of the value of the item itself.
There must be a large number of persons with a similar potential loss available for the insurance so that the overall losses become predictable. The law of large numbers applies here. To accumulate adequate funds to pay the losses the cheap car insurance company must be able to predict losses. Accurate predictions are possible only when there are sufficient numbers of potential insureds with a similar chance of loss. The loss must all happen to a large number of the insureds at the same time. Although insurance companies do want to ensure a large number of persons, if a great number of these insureds were to suffer a loss at the same time, it would be catastrophic for the insurance company.
For instance, suppose an insurance company were to ensure every home in a single town. A rapidly spreading fire could destroy the entire town. So instead of ensuring every person in a single town a company will want to ensure several people in many towns. This is known as spread the risk. The greater the spread of the risk, the less likely there will be a catastrophic loss for the insurance company.
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