What are the objectives of insurance?

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    Insurance a risk transfer mechanism that facilitates transfer of financial consequences from an individual/institution to the insurer. Insurance provides protection to those exposed to risks. One of the objectives of insurance is to pool the risk of a sufficiently large number of policyholders. By collecting premiums from many individuals or organizations, insurers can pay out relatively few claims each year while collecting premiums from the majority of policyholders who don’t file claims over that same period. A second key objective of insurance is to compensate policyholders following predetermined catastrophic events. For example, auto insurance policyholders are reimbursed for part or all of the damages sustained by their vehicle in a collision.A third objective of insurance is to satisfy policyholders that insurers are financially stable and solvent. This is important because if any policyholders weren’t compensated for eligible losses it would undermine society’s confidence in the system


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