economics of insurance(1)

We are now in a position to see why insurance. Which appears to be just another from of gambling.actually has exactly opposite effects. For the same reasons that gambling is bad,insurance is economically advantageous. Whereas gambling creates risks,insurance helps to lessen and spread risks.
In buying fire insurance on his house,the owner seems to be betting with the insurance company that his house will burn down.If it dose not-and the odds are heavily in favor of its not burning-the owner forfeits the small premium charge. If it dose burn down,the company must reimburse the owner to the tune of the agreed-upon loss.(For the obvious reason of removing temptation from hard-up home owners who like fire engines and excitement,the face value of the policy tends to be something less than the money value of the property insured.)