The Meaning of Insurance

The Meaning of Insurance

In law and economics insurance is a form of risk management primarily used toprotectagainst the risk of a contingent loss uncertain. Insurance is defined as theequitable transfer of the risk of a loss, from one entity to another, in exchange forpayment. The insurer is a company selling insurance, the insured or policyholderis the person or entity purchasing the insurance policy. The insurance rate is afactor used to determine theamount to be received by a certain amount ofinsurance coverage, called the premium.Risk management, the practice of riskassessment and control has been developed asa discrete field of study andpractice.
The transaction is that the insured assumes a guaranteed and relatively small lossknown as payment to the insurer in exchange for the promise of the insurertocompensate (indemnify) the insured in the event of a financial (personal) loss.The insured receives a contract, called the insurance policy, which details theconditions andcircumstances in which the insured will be compensatedfinancially.

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