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What Is Risk Pooling In Insurance

What Is Risk Pooling In Insurance

Risk Pooling Definition And Meaning

Risk pooling Life insurance is based on a concept called risk pooling, or a group sharing of losses. People exposed to a risk agree to share losses fairly or on an equitable basis. They transfer the economic risk of loss to an insurance company. Insurance companies collect and pool the premiums of thousands of people, spreading the risk of losses across the entire pool. By carefully calculating the probability of losses that will be sustained by the members of the pool, insurance companies can equitably spread the cost of the losses to all the members.

[Post Image Courtesy of Truengtra_Pae at FreeDigitalPhotos.net]

The risk of loss is transferred from one to many and shared by all insured in the pool.

Example of Risk Pooling

Ten thousand males aged 35 contribute to a life insurance pool. If Twenty-one of them are expected to die this year and each of the 10,000 contributes `210 to fund death benefits (ignoring costs of operation), a death benefit of `100,000 could be paid for each of the 21 expected deaths.

Insurance Law And Practice - ICSI

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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