Life & Health Insurance Practice Exam

The aim of risk pooling in insurance practices is to transfer risk from the individual to a group. This concept is fundamental to how insurance works, as it involves gathering many individuals' risks together. By pooling risks, insurance companies can predict losses based on overall group statistics rather than each individual’s likelihood of experiencing a loss.

When individuals join an insurance plan, their risks are combined, allowing the insurer to better manage and predict potential claims. This collective approach helps to stabilize insurable risks, as not all members of the group will experience a loss at the same time. Consequently, the financial impact of claims is spread across all members, making it more manageable and affordable for each individual through shared responsibility. This system enables the insurance model to provide coverage for losses that, for an individual, could be financially devastating.

The other options are either misunderstandings of the function of risk pooling or reflect goals that do not align with its primary intent. For instance, increasing premiums would not be a direct aim of risk pooling; instead, pooling is likely to help keep premiums more stable. Minimizing claims is not the focus either, as insurance is designed to respond when unexpected events occur, backing the concept that claims will happen but are distributed among many. Lastly, reducing the number