What is insurance By finschool.5paisa

Meet two friends, Joshua and Damon. One day while playing a game, Joshua gave Damon an offer.

He suggested that he would give Damon Rs.100 on a condition, if he lost his bicycle then he would have to buy him a new one.

Damon agreed on this considering that the risk on this was very low and the probability of Joshua losing his bicycle was extremely little.

LSimilarly, if Damon finds 100 more people who are willing to give Rs.100 to cover their bicycles, then he would be Rs.10,000 richer.

Even if one of the them loses their bicycle and he gets a new bicycle for Rs.1000, he would still have Rs.9000 with him.

This is what Insurance is and an overview of its working. It is an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

Insurance is a financial vehicle that helps spread risk by taking a risk from an individual and spreading that around a community.

With the help of this, the individual is able to go about their life without crumbling from financial crisis.

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