The insurance mechanism:
A) redistributes the cost of insured losses
B) intends to make profits for social insurance policies
C) only applies to private insurance companies
D) is defined by law

Question

Quizplus · Accepted Answer

The insurance mechanism is designed to redistribute the cost of insured losses among a large pool of policyholders, so that the financial burden of any one loss is spread out and more manageable for everyone. This is the basic principle of how insurance works. B is incorrect, as social insurance policies are typically not intended to make a profit, but rather to provide a safety net for those who are vulnerable or in need. C is incorrect, as the insurance mechanism can apply to both private and public insurance arrangements. D is partly correct, as the insurance mechanism may be defined by law in certain cases, but is not always dependent solely on legal regulation.

The Insurance Mechanism