Characteristics: Affordable Premium

If the likelihood of the event to be insured is so high, or the cost of said event so large, that the resulting premium fee is large relative to the amount of protection offered, then it is highly unlikely that the insurance policy will be purchased at all, even if it is on offer.

As the accounting profession formally recognizes in accounting standards, a premium must not be too large that there cannot reasonably be a chance of a significant loss to the insurer.

In the case that there is no such chance of loss, the transaction may then have the form of insurance, but not the substance.

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