Question

Which of the following is the best description of what insurance is? (Many
times companies also communicate the same to the person interested in getting an insurance policy)
1) Insurance = Collective bearing of risk
2) Insurance = Paying for other's mistake
3) Insurance = Taking from 'A' to pay 'B'
4) Insurance = Paying for something which will never happen
5) All of these

Answer 1

"The most common definition of the insurance is;

Insurance = Collective bearing of risk

The distribution of the individual levels of risk tolerance affects the groups’ attitude towards the risk.

In the model with the efficient risk sharing and the agents as an increase in the level of risk tolerance of one or both the agents.

"