Insurance

Insurance is a contractual agreement where an individual or entity (the insured) transfers the risk of potential financial loss to another entity (the insurer). In exchange for regular payments (premiums), the insurer agrees to compensate the insured for specified losses or damages as outlined in the insurance policy.

Risk Transfer: The core concept is shifting the burden of potential financial loss from the insured to the insurer. Contractual Agreement (Policy): A legally binding contract that specifies the terms and conditions of coverage, including what losses are covered, the amount of coverage, and the duration of the agreement. Premium: The payment made by the insured to the insurer for the insurance coverage. Compensation (Claim): The payment made by the insurer to the insured when a covered loss occurs. Pooling of Risk: Insurers collect premiums from a large group of individuals or entities, creating a pool of funds that can be used to pay claims.