Definition of insurance

Insurance is a means of risk management by which an individual or entity shifts the risk of potential loss or damage to another party (the insurer) in exchange for a charge known as premium.

The party whose risk is transferred is called “Insured” and who undertakes the risk is called “Insurer”. The insurer is generally an organization or insurance company.

Insurance is a contract. When an individual or entity seeks for protection against a risk and insurer agrees to undertake the risk in return for a premium, they enter into a formal contract.

Though it is a contract, actually the basis of insurance is co-operation. In reality, the number of individuals or entities exposed to a risk is huge and who get insured, but only a few of them might actually suffer the loss during a certain period and get compensation. Here the insurer plays a role of intermediary to allocate the actual loss suffered by a few among all the insured parties.

Now, there are many types of insurance is in practice. They are broadly categorized in the Personal insurance policy and Commercial insurance policy.

Some popular types of Personal insurance policies are:
  • Auto insurance
  • Home insurance
  • Health insurance
  • Life insurance
  • Travel insurance
  • Contents insurance
  • Income Protection insurance etc.

Most individuals in the United States take coverage of at least one of the above policies.

Some popular Commercial insurance policies are:
  • Marine insurance
  • Fire insurance
  • Property insurance
  • Business Insurance
  • Liability insurance
  • Workers Compensation insurance etc.

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