ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -As outlined above, purchasing insurance is a common method of transferring risk. When an individual or entity is purchasing insurance, they are shifting financial risks to the insurance company. Insurance companies typically charge a fee – an insurance premium – for accepting such risks.

Detailed explanation-2: -Risk shifting transfers risk or liability from one party to another. Risk shifting is common in the financial world, where certain parties are willing to take on others’ risk for a fee. Insurance, for instance, transfers the risk of a loss from the policyholder to the insurer.

Detailed explanation-3: -Insurance risk is the threat of a future financial loss that an insurer is willing to share with an individual or entity facing that threat.

Detailed explanation-4: -Insurance shifts the risk of incurring significant financial losses to an insurance company, and protects the business owner against financial risks. In some cases, through subrogation, insurance companies reimburse the policyholder and then pursue legal action against the party at fault to cover any financial burden.

Detailed explanation-5: -They do not provide security to wealth.