Burden of Risk on Society
The presence of risk results in certain undesirable social and economic effects. Risk entails three major burdens on society:
The size of an emergency fund must be increased.
Society is deprived of certain goods and services.
Worry and fear are present.
Larger Emergency Fund
It is prudent to set aside funds for an emergency. However, in the absence of insurance, individuals and business firms would have to increase substantially the size of their emergency fund to pay for unexpected losses. For example, assume you have purchased a $300,000 home and want to accumulate a fund for repairs if the home is damaged by fire, hail, windstorm, or some other peril. Without insurance, you would have to save at least $50,000 annually ...
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