What is the definition of insurance ?
Insurance helps people and businesses pay for large, unexpected expense. It is a safety net that helps shift the risk of potential financial loss from a person or business to an insurance company.
The basis of insurance is risk pooling.
This is when an insurer pools many small payments from a large number of people or businesses, called premiums. The pooled money is used to pay losses. When a loss occurs that is covered by a loss, such as an accident, a health problem, or property damage, the money in the pool helps pay the loss.
The following four elements help to explain insurance:
What is the definition of insurance ?
Policy: The legal agreement between the insurer and the insured. What is and is not covered under the policy is described in the agreement.
Premium: The regular payment, typically on a monthly, quarterly, or annual basis, that the insured pays for the policy to be in force.
Deductible: The amount the insured must pay out of pocket before the insurer will begin paying the loss.
Coverage limit: The the maximum amount the insurer will pay for a particular loss under a particular policy.
Examples of different types of insurance:
1) Life Insurance: A particular dollar amount is paid to the insured's beneficiaries when they die.
2) Health insurance: This will pay for doctor visits and surgery.
3) Property insurance: This will pay for loss of physical property (like a home or a car) by fire, theft, etc.
4) Liability insurance: This keeps you from having to pay for injury or property damage to another.
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