Question

If you understand the principles of insurance, you will understand why it probably makes sense to purchase insurance to guard against large losses, like the destruction of a home you own, but probably does not make sense to purchase insurance to guard against small losses, like the failure of a TV you buy. Explain.

Answer 1

According to the principles of Insurance, we try to secure that asset, like House,Car and other such valuable asset against any uncertainity that might happen- by paying a certain cost called premium. Assets of less value like TV do not require huge amount of an Investment and hence if we lose such assets or face destruction of such assets, we do not incur a very high cost. But assets are house and car are much more valuable and need a lot of savings to buy these. If we lose a House, it will certainly dig a hole in our pockets. It is also not easy to buy house and other valuable assets again and again unlike we can buy TV and other invaluable assets.

Hence, people usually do not need a guard against losses of such assets- that too after paying premiums regularly.