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Total damage  =  (60 × $100) + (30 × $1,000) + (10 × $15,000)  =  $600 + $30,000 + $150,000  =  $186,000

If each of the 100 drivers pays a premium of $1,860 each year, the insurance company will collect the $186,000 that is needed to cover the costs of the accidents that occur.

Since insurance companies have such a large number of clients, they are able to negotiate with providers of health care and other services for lower rates than the individual would be able to get, thus increasing the benefit to consumers of becoming insured and saving the insurance company itself money when it pays out claims.

Insurance companies receive income, as shown in [link] , from insurance premiums and investment income. Investment income is derived from investing the funds that insurance companies received in the past but did not pay out as insurance claims in prior years. The insurance company receives a rate of return from investing these funds or reserves. The investments are typically made in fairly safe, liquid (easy to convert into cash) investments, as the insurance companies needs to be able to readily access these funds when a major disaster strikes.

An insurance company: what comes in, what goes out

The illustration shows that premiums from customers and investment income goes to insurance companies, and insurance companies then produce payments to customers, expenses, profits or losses.
Money flows into an insurance company through premiums and investments and out through the payment of claims and operating expenses.

Government and social insurance

Federal and state governments run a number of insurance programs. Some of the programs look much like private insurance , in the sense that the members of a group makes steady payments into a fund, and those in the group who suffer an adverse experience receive payments. Other programs protect against risk, but without an explicit fund being set up. Following are some examples.

  • Unemployment insurance : Employers in every state pay a small amount for unemployment insurance, which goes into a fund that is used to pay benefits to workers for a period of time, usually six months, after they lose their jobs.
  • Pension insurance : Employers that offer pensions to their retired employees are required by law to pay a small fraction of what they are setting aside for pensions to the Pension Benefit Guarantee Corporation, which is used to pay at least some pension benefits to workers if a company goes bankrupt and cannot pay the pensions it has promised.
  • Deposit insurance : Banks are required by law to pay a small fraction of their deposits to the Federal Deposit Insurance Corporation, which goes into a fund that is used to pay depositors the value of their bank deposits up to $250,000 (the amount was raised from $100,000 to $250,000 in 2008) if the bank should go bankrupt.
  • Workman’s compensation insurance : Employers are required by law to pay a small percentage of the salaries that they pay into funds, typically run at the state level, that are used to pay benefits to workers who suffer an injury on the job.
  • Retirement insurance : All workers pay a percentage of their income into Social Security and into Medicare, which then provides income and health care benefits to the elderly. Social Security and Medicare are not literally “insurance” in the sense that those currently contributing to the fund are not eligible for benefits. They function like insurance, however, in the sense that regular payments are made into the programs today in exchange for benefits to be received in the case of a later event—either becoming old or becoming sick when old. Such programs are sometimes called “social insurance.”

Questions & Answers

Enumerate emotional intelligence to a manager
Chinonso Reply
What about Sydney Alexander's Absorption approach in international trade?
Vibhas Reply
I need help in inflation graphs
Brandon Reply
Select inflation type, Demand pull, cost pull or anticipation 1- Select the set of data you intend on graphing i.e inflation rate of 2017, location (particular country) 2 - Select the type of measurement tool that best allows you to input the inflation data, Consumer price index is the most accurate
Jama
this is to make sure you have all the correct information, Also use should know 1- Cost pull is Aggregate Demand and Aggregate Supply AD - AS graphed 2- Demans pull is Aggregate Supply and Aggregate Demand AS - AD graphed
Jama
what is production
Imoro Reply
what is a monopolistic competition?
moniman Reply
Enumerate emotional intelligence to a manager
Chinonso
Enumerate emotional intelligence to a manager
Chinonso
who is barter
Tening Reply
exchange goods each other
Seven
what is economic
Bah
is the use of scares resources to satisfy our unlimited needs and wants
Desiderius
how many kinds of utility functions?
Sadaf
What is partnership?
Jackson
the legal association of two or more people as co-owners of a business for profit.
harmony
Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each firm in the cartel produces a near-identical product like OPEC and petroleum? What if each firm produces a somewhat different product?
James Reply
no
Sadaf
what is supply
Mizta Reply
what is opportunity cost
Mizta
The opportunity gained interms of opportunity lost is known as opportunity cost Or The second best alternative use of resources
Mir
forgone alternative: like forgoing Something our of two to buy one
Tam-Waribo
what is macro economic s
Addo Reply
macroeconomics is the study of economic as a whole level.
Gafar
meaning of positive science
Sumit Reply
positive science it is focused on facts and cause and effect and behavioural relationship and include developmental testing in economic theoreis.
Gafar
what is inflation
Sama Reply
inflation is the general price increase of goods and services in an economy.
tesfie
Inflation is the persistent rise in the general price level
T-Max
inflation is characterized by increase in the general price of goods and services. when there is too much money in circulation. increase in demand of goods pursuing fewer goods. when purchasing power of money decreases .
Ejikeme
inflation is the persistent rise general price level
Habeeb
inflation is the persistent increase in price
Machall
hi
Rafiu
yes
boston
hi
Ayaan
how are you
Ayaan
increase in the general level of price...
sade
what is deflation
Sele
is the gradual decrease of currency exchange in a country.
Gafar
why ecnomics important ? give answer plz
Saifullah
Because is a field of science study that reflects on our day to day activities with human behavior.
ANSU
why economic is a science
Imoro
Economics is referred to as a social science not a pure science. It's regarded as a social science because it makes use of the scientific method to solve problems. The scientific method refers to observation, asking questions, forming hypothesis, experimentation etc
Nkechi
Economics is a social science because it study human behavior how he relates with his daily activities with the available limited resources to satisfy his wants.
Ojo
what are the factors affecting the demand
Mohammed
yeah it uses the scientific method to study human behaviour.
Nkechi
inflation referes to the persistant increase in the general price of goods and services over a given period of time say a year.
Abdul
factors affacting Demand of good and services are 1.price of a commodity in question 2.price of related commodity 3.Income of a consumer 4.Population 5.tast and prefereance 6.Season or weather condition
Abdul
what is difference between perfect and non perfect market.
Saheed
what the difference between Trade off and Opportunity Cost?
Elzevery
answer
Golda
In trade off, you increase the amount of something by decreasing the amount of something else. For example, you use 2 hours to study and 2 hours for leisure. if you increase study hour by 1 more hour, i.e 3 hours, leisure time will decrease by 1 hour, i.e 1 hour.
harmony
In all, you would have traded off 1 hour of leisure time for 3 hours of study time. But in opportunity cost, you let something go in order to obtain something else entirely.
harmony
thanks for your idea
Elzevery
please i want help on thid question given P=$10 And TC=120+4Q2 1.find the profit maximizing level of price and quantity. 2.what will be the total profit?
Shemels
please how is substitutional effect affecting demand
Acha
if a price of a particular commodity is high people demand less ,they rather go for less one
FIDELIS
what is account
Wasif
account is an arrangement between a customer and a bank that allows the customer to play in and take out money (bank account)
Johnny
pay, not play sorry
Johnny
different between demand and quantity demand
Farhan Reply
No difference
MansoorAfghan
demand is the overall demand for it
MansoorAfghan
actually theres no difference
MansoorAfghan
quantity demanded is used in Equilibrium of d and s
MansoorAfghan
for evrything else u use deman
MansoorAfghan
the difference of it is that when demand simply denotes the willingness and a person's ability to purchase. And as against quantity demand represent the amount of an economic good or services desire by a consumer at a fixed price .☺
Gafar
how to calculate inflation
Richard Reply
Explain the factors that have led to high quantity demanded
Ogwang Reply
price of the product increase of price substitute product as people shift to cheap one
Black
what are the methods used by trade union to increase wages of their members?
Black Reply
strike
Pearl
the size of the commodity
Mensah
increase demand of labour decrease supply of labour
Black
I do support your answer Jackel.
keshav
but how do they do it?
Black
by increasing more labour and reduced the suppliers
Mensah
they can not increase labour, they increase demand of labour.
Black
how do they increase demand for labor?
Black
by analyzing the market equilibrium , cost reduction and cost control , savings in time .
yash
decreasing supply of labour are achieved through training and certification that require for you to employed, you must have certificate, also trade union encouraged government to restrict migration into the country causing shortage of labour supply. Note that the aim of union is to enhance life
Black
objective of union: better working conditions, liveable wage, protect member from unfair treatment which are done through negotiations betweens representative and management. known as collective bargaining.
Black

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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