The insurance contract is the agreement by which one of the parties, the insurer, which is obliged to compensate for harm or to pay a sum of money to the other party, policyholder, the verified the possibility provided for in the contract, in exchange for the payment of a price, known as premium, by the policyholder. The insurance contract you can have the object all kinds of risks if there is insurable interest, except express prohibition in law. The contractor or the policyholder, you can match or not with the
Basic principle of insurance Alfred Manes (in Encyclopedia of the Social Sciences, Vol. 8, 1935, page 95) defines insurance as the elimination of the risk of an individual by contributions from many (” das Wesen der insurance lies in the elimination of the uncertain risk of loss for the individual through the combination of a large number Similarily exposed individuals who each contribute to a common fund of beitraege sufficient to make good the loss caused any one individual . ” ).
The mechanism of the common Tragung of risks forms the basis of the assurance in a group (pool, portfolio). The advantage of this common Tragung is based on mathematically by the law of the big figures of described legitimacy after which with rising number of events of the same kind the actual exit adapts itself to the expected exit (to the middle value of all possible exits); the dispersion (variability) of the exits around the middle value
Example: A house has a value of for example 100,000€. If we suppose, the likelyhood that it burns itself down, there are 0.1% every year. To protect itself against the loss of the house, the house-owner would have to have constantly 100,000€ as a reserve available. This constant holding ready of money causes financing expenses of for example 1%, so 1,000€ per year. With it the individual security of the house against fire every year costs 1,000€, even if the house does not burn itself down (in addition, the average loss from fires still comes at the rate of 100€ per year). If 100,000 house-owners get together, however, and protect themselves together, fires appear in the group almost with certainty, on an average 100 per year with total expenses of 10,000,000€. However, this costs, distributes to all 100,000 house-owners, the single ones the only 100€ of average fire costs. To be armed against by chance many fires, the group must provide capital though still, in addition, however, this amounts with sufficient security, for example, to only 10,000,000€. Even if one subordinates especially high financing expenses, for example, 20%, fallen out on the singles only financing expenses of 20€ for this capital. With it the security in the group would cost every singles to only 120€, instead of (for many years on an average) 1,100€ by individual security. The greater the group is, the less capital is required for the security and the more the price of the assurance approaches to the pure mathematical expectation of the damage of 100€.