Y6

How does insurance work?

Question 6 options:

	Households or firms pay a premium, which is based on how the insurance company calculated the probability of a certain event occurring to a pool of people. If that event occurs, insured members who suffered receive money from this pool of money.
	Customers pay premiums to the insurance company based on their honest answers to a series of questions about their health and habits. The company holds that money to pay claims throughout the year. If any customer is found to have lied on their questions, the company charges them a large penalty.
	Customers pay premiums with rates based on their income. The firm holds that money throughout the year and distributes funds according to need at the end of the fiscal year.
	The insurance company collects premiums for all adults based on the probability of each person having a claim of a certain sort during a calendar year. The firm holds that money to pay claims throughout the year. Any money left over goes to the firm as profits.