Insurance polices are a common form of risk reduction or risk transfer in which a third party assumes some or all of the risks posed by certain dangers. Why would the company be willing to assume these risks? Consider a simplified example in which all 60,000 residents in a particular town pay $100 a month to the insurance company $ ecureSure for medical insurance coverage. The insurance company cannot predict whether a given resident will need hospitalization or how much any individual's care will cost. Suppose, however, it, has-data that on average, 10% of the citizens require care each month, costing an average of $1,100 each. The expected average cost of monthly care will be $ per person. If the insurance company sets the monthly equal to this amount, it would break even (on average). In reallty, the rates that an individual pays each month vary based on a process known as - in which the insureds are divided into four Insurance classes. The dass, which is based on an insured person's , determines the amount he or she pays. Consider the following example: An Insurance Pollcy in Action Steve is a 21-year-old college student who recently fell off a roof at a party and had to be rushed by ambulance to the emergency room at a nearby hospital. Although an MRI revealed that he suffered no internal injuries, and he was released only hours later with mild pain medication, his medical bill for the hospitalization and tests totaled $5,456. Steve is covered under his parents' insurance policy, which has a $400 hospital stay deductible an a coinsurance rate of 20%. His parents can therefore expect a reimbursement from the insurance company of $ - (Note: Round your answer to the nearest dollar.) Complete each statement that follows with the appropriate insurance term: - Steve often engages in dangerous behavior because he knows he is covered by his parents" insurance policy. This is an example of - Steve cannat receive more than $5,456 in relmbursement from his insurance company. This reflects the - Because Steve is young and has no history of medical conditions, he is a part of the class of insured