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Question: Which of the following is a suitable definition of "Insurance"?

Options:

  1. A credit card available to protect you in the event of a rainy day
  2. A financial arrangement whereby an individual pays a small certain payment in exchange for being indemnified against large uncertain losses
  3. A financial arrangement that redistributes the costs of expected losses amongst the owners of an insurance company
  4. An investment contract designed to allow the insured to earn a fair rate of return on investment commensurate with risk
  5. A contractual agreement in which the insurer agrees to pay the insured only if the insured requests the money

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2. A financial arrangement whereby an individual pays a small certain payment in exchange for being indemnified against large uncertain losses

A suitable definition of Insurance is, "Insurance is a financial arrangement whereby an individual pays a small certain payment in exchange for being indemnified against large uncertain losses".

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