The function of insurance is to provide protection against various forms of risk. There are two different forms of risk. The first is pure risk, in which there is no possibility of financial gain, only the potential for financial loss. An example of a pure risk is the risk of an accident that results in the total loss of an individual’s automobile. The second is speculative risk, which poses the possibility of both financial gain and financial loss. An investment in the stock market is an example of speculative risk. This entry discusses the nature and function of insurance and considers three common forms of insurance and certain ethical issues that emerge in the structuring and administration of these products.

Insurance is a technique for dealing ...

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