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Should a firm insure itself against all of the insurable risks it faces? Explain.

Should a firm insure itself against all of the insurable risks it faces? Explain.

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Answer #1

Insuring will protect the firm from risk of losses. The firm needs to first assess and list down the amount of losses it can face from various types of risks. Thereafter the amount of premiums that have to be paid for insuring itself against these risks have to be estimated. This will allow the firm to compare the losses with the benefits.

If The firm insures itself against all possible losses, it will end up losing a large portion of its net income to premiums.Hence the firm must select only the largest risks and the ones which are most probable for insurance purposes.

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