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Insurance transfers the financial consequences of specified uncertain losses from a policyholder to an insurer in exchange for a premium.
Insurance is a financial risk protection mechanism in which an insurer agrees to compensate an insured party for specified losses in exchange for a premium. The policyholder transfers the possibility of a large, uncertain loss to the insurer and instead accepts a smaller, predictable payment. Insurance policies define the covered risks, coverage limits, exclusions, conditions, beneficiaries, and procedures for filing claims. Common forms include property, life, health, liability, accident, and business insurance. Insurance protects individuals and organizations through risk pooling: premiums from many policyholders help pay the losses experienced by a smaller number of claimants. For a risk to be generally insurable, it should involve a large number of similar exposure units, a definite and accidental loss, a meaningful but affordable potential loss, a calculable probability and cost, and limited catastrophic exposure. Key principles include indemnity, insurable interest, utmost good faith, contribution, subrogation, proximate cause, and mitigation. Insurers may also use deductibles, exclusions, and reinsurance to manage their own risk.
Insurance transfers the financial consequences of specified uncertain losses from a policyholder to an insurer in exchange for a premium.
Risk pooling allows insurers to collect premiums from many policyholders and use them to compensate the smaller number who experience covered losses.
An insurance policy specifies the parties, premium, coverage period, insured risks, coverage amount, exclusions, and claim conditions.
A deductible or excess is the amount the insured must pay before the insurer contributes to a covered claim.
Insurable risks are generally definite, accidental, financially measurable, meaningful in size, affordable to cover, and not so catastrophic that they could overwhelm the insurer.
Reinsurance enables an insurer to transfer part of its risk to another insurance company, especially when individual risks are unusually large.
An insurance company or underwriter that assumes specified risks and provides compensation for covered losses.
The person or organization that purchases an insurance policy and pays the premium.
The person or entity protected by the insurance policy against covered losses.
A contract that states the coverage, conditions, limits, exclusions, and obligations of the insurer and insured.
The payment made by the policyholder to the insurer for insurance coverage.
A formal request submitted to an insurer for payment or compensation after a covered loss.
The specified amount the insured must pay out of pocket before the insurer pays the remaining covered loss.
The practice of combining premiums from many insured parties to fund claims for those who experience covered losses.
The principle of restoring the insured financially, as far as possible, to the position held before a covered loss.
A legitimate financial or personal stake that gives the insured a potential loss if the insured property, person, or interest is harmed.
Insurance purchased by an insurer from another insurer to transfer part of its assumed risk.
A policy provision identifying losses, events, or activities that are not covered by the insurance.
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