Abstract
Insurance works by determining and spreading risk. The amount of the premium is determined by an actuary who calculates the likelihood that an event will occur, and then the premium is set to adequately cover this possibility and provide a reasonable profit margin for the insurance company. Sometimes this is a fairly easy task, such as determining the life insurance premium on a group of 45-year-old, nonsmoking, welleducated, ideal weight, normotensive men or women. Sometimes the insurance companies do not adequately handicap risk, as Warren Buffett admits following the terrorist attacks of September 11, 2001. When risk has been handicapped many people then pay a premium, such as 100 homeowners, to fund the large payout when one home burns.
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© 2006 Humana Press Inc., Totowa, NJ
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(2006). Insurance. In: The Physician’s Guide to Investing. Humana Press. https://doi.org/10.1007/978-1-59259-953-0_15
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DOI: https://doi.org/10.1007/978-1-59259-953-0_15
Publisher Name: Humana Press
Print ISBN: 978-1-58829-723-5
Online ISBN: 978-1-59259-953-0
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