A group of farmers agreed that if any farmer suffered a property loss, the loss would be spread over the entire group. In this way, each farmer is responsible for the average loss of the group rather than the actual loss that each farmer sustained. Which characteristic of insurance is embodied in this agreement?

Question

Mollie Frye

Social Studies

21 April, 12:54

A group of farmers agreed that if any farmer suffered a property loss, the loss would be spread over the entire group. In this way, each farmer is responsible for the average loss of the group rather than the actual loss that each farmer sustained. Which characteristic of insurance is embodied in this agreement?

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Answers (1)

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Shania King · Answer 1

Risk Sharing

Explanation:

Insurance is an arrangement in which an organisation or group assures to pay compensation for specified illness, loss / damage, death.

The basic characteristic of Insurance is : A group of people prospective of suffering the loss, pool funds (in form of premium) to get protection from that. So, people share risk by contributing amount = average loss of the group in form of premium. They do so to safeguard them against paying huge lump sum loss amount (which are paid by insurer group for the real sufferers if the incident happens - out of pooled insurance funds).

Group of farmers : agreeing to spread property loss suffered by either one of them, by each one contributing average loss of each farmer - shows the 'Risk Sharing' characteristic of Insurance.