5 5 Insurance The idea of insurance is that we all face risks that are unlikely but carry high cost Think of a fire or flood

Question

5 5 Insurance The idea of insurance is that we all face risks that are unlikely but carry high cost Think of a fire or flood destroying your apartment Insur ance spreads the risk we all pay a small amount and the insurance policy pays a large amount to those few of us whose apartments are damaged An insurance company looks at the records for millions of apartment owners and sees that the mean loss from apartment damage in a year is 130 per person Most of us have no loss but a few lose most of their possessions The 130 is the average loss The company plans to sell renter s insurance for 130 plus enough to cover its costs and profit Explain clearly why it would be unwise to sell only 10 policies Then explain why selling thousands of such policies is a safe business

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