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Unit-29: Insurance Choice and Risk

market in a portfolio. This is the reason to use Beta by economists. If Beta of a share is lower than 1 then Notes
it will decrease the risk of risk portfolio even these Beta share are individually risky. But if it collects
with other shares then portfolio will lessen the risks. So it should give preference from Beta shares by
risk averse investor.
Thus, in stock market equilibrium, low Beta shares should be available in low return and high value.
On the other hand, high Beta share increases the risk of portfolio and can buy when it has high average
return rate for lower price and to compensate of high risk.

29.4 Summary

• The work of insurance company is to fill the loss due to any accident. It decreases the loss by taking
a small amount as premium amount and that for accident, which policy covers; it delivers to pay a
big amount to his customer. Since more people are risk averse, they even ready to pay premium in
odds situation. Thus, the insurance companies are also risk averse. They also want to get profit like
firms. To get rid from risk and to get profit, they use risk pooling and risk spreading concept.

29.5 Keywords

• Return: Return
• Portfolio: Bag of keeping paper
• Distribution: Distribute

29.6 Review Questions

1. What do you mean by insurance? Explain it.
2. Write comments on gambling.
3. Explain the Asset Portfolio Selection.

Answers: Self Assessment
1. Two Options 2. Risk 3. Premium 4. (a)
5. (b) 6. (c) 7. (a) 8. False
9. True 10. True

29.7 Further Readings

1. Microeconomics— Robert S. Predik, Daniel L. Rubenfield and Prem L. Mehta, Pearson
Education, 2009, PBK, 7th Edition.
2. Microeconomics— David Basenco and Ronald Brutigame, Wiley India, 2011, PBK, 4th
Edition.
3. Microeconomics—Shipra Mukhopadhyay, Annie Books, 2011.

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