After you complete the worksheet, write no more than one page that addresses the following questions. Answer Key Exercises 1. Insurance provides protection against possible financial loss. An insurance company is a risk-sharing organization that agrees to assume financial responsibility for losses that may result from an insured risk. The most common risks are classified as personal risk, property risk, and liability risks.
Risk management is an organized strategy for protecting and conserving assets and people.
Four methods of managing risks are risk avoidance, risk reduction, risk assumption, and risk shifting. Each method has merits, but the most common and most effective method of dealing with risk is to shift, or transfer, it to an insurance company. The three principles include human mortality, probability, and the law of large numbers. The law of large numbers is often referred to as the law of averages or the law of probability. Weigh the yearly cost of insurance premiums against the cost your family will face if your regular income stops.