Introduction to chapter 7
People do not like risks and unexpected unpleasant events. This is called risk aversion: people are averse to risks and shield themselves against them by taking out insurance. An insurance is an agreement between an insurer and an insured, whereby the insured, on payment of a periodic amount, gets the guarantee that damage to the insured will be reimbursed by the insurer. The amount that the insured pays the insurer periodically is called the insurance premium, or premium for short. Taking out insurance yes or no is a matter of choice. In this process the costs of the insurance are weighed against the financial risk that you run.
Insurance scan be subdivided into private and group insurances. With private insurances you decide yourself whether you will take out insurance and also for what amount. With group insurances the government obliges everyone involved to take part and it is also laid down what benefit or indemnification you get. There are group insurances to cover the financial consequences of sickness, invalidity, old age, and so on.