| Life insurance is among the largest and
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| | is not as simple. With situations
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| most important industries in the United
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| | involving loss by fire, windstorm, and
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| States and worldwide for that matter.
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| | other perils, we cannot rely solely on
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| There are five categories when it comes
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| | logic; instead, we have to collect a mass
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| to insurance policies: fire, marine,
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| | of statistical data.
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| casualty, surety, and life. In
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| | For instance, if we are interested in the
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| combination, these five forces control
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| | probability of a loss to our house by
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| billions and billions of dollars in
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| | fire, we would have to collect all the
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| assets and collect more than fifteen
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| | statistics we can find concerning fires.
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| billion dollars per year in premiums. It
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| | We would need to know how many fires
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| is extremely rare to come across a
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| | occurred during a given time and how many
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| business, or even a family home, that
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| | houses were exposed to fire losses during
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| doesn't have some form of protection in
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| | that period. The same principal is used
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| regard to insurance, especially life
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| | in determining the chance of death at any
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| insurance.
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| | given age. If we find out that out of
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| The main purpose of insurance is to
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| | 1,000 persons alive at the age of 75,
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| offset the possibility of loss resulting
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| | only 911 live to reach their
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| from a number of potential tragedies that
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| | seventy-sixth birthday, we can express
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| expose themselves to a person or his/her
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| | the chance of death during the
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| property. When it comes to the question
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| | seventy-fifth year as the fraction 89
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| of what risk entails, it is defined in
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| | 1,000, or 8.9 percent-this percentage can
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| The Dictionary of Insurance Terms,
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| | now be used to determine what type of
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| published by the Chamber of Commerce in
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| | life insurance is necessary.
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| the United States, as "a chance of loss."
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| | Looking at the term "hazard," we are
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| Webster defines risk in the same way.
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| | considering perils, the things that
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| Another term commonly used in insurance
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| | ostensibly cause loss. It is necessary,
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| parlance is "hazard."
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| | however, to go behind the perils to find
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| It would help in the understanding of
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| | the real cause. The fire that breaks out
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| insurance however, if we would
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| | in the garage, for example, is the peril;
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| distinguish between these three terms:
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| | but the pile of oily rags which is left
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| "risk," "chance of loss," and "hazard"
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| | lying around is the cause of the fire and
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| independently of one another.
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| | thus is the real cause of the loss.
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| In the abstract, risk is defined as
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| | Hazard may be defined as a condition that
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| uncertainty, with reference to the
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| | may create or increase the chance of loss
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| uncertainty of financial loss and has
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| | arising from a given peril. Things like
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| little to do with the loss itself. Risk
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| | carelessness, bad highways, and dangerous
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| principally has to do with the
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| | employments are hazards, for they are
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| uncertainty of a loss, with the degree of
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| | conditions that increase chance of loss.
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| risk measured by the probable variation
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| | With these definitions in mind, life
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| of actual experience from expected
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| | insurance provides a mechanism for the
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| experience.
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| | sharing of losses, as well as for
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| Chance of loss is best described as a
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| | performing other important social
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| fraction or percentage. It indicates the
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| | functions. The most important goal is to
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| probable number and severity of losses
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| | prevent the losses before they occur. All
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| out of a given number of exposures. If
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| | in all, it is certainly in one's best
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| you flip a coin, your chance of loss is
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| | interests to understand life insurance
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| ½, or 50 percent. In this case,
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| | basics, investigate the risk of losses,
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| calculating the chance of loss is easy.
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| | and choose wisely amongst the various
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| When it comes to life insurance, the task
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| | types of life insurance.
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