Foundations of Insurance: Concepts and Practice

Definition and purpose of insurance

Insurance is a risk-management arrangement in which one party (the insurer) agrees, for a fee (the premium), to compensate another party (the insured) if a specified loss, damage, or injury occurs. The insured receives a contract called an insurance policy that sets the conditions under which compensation will be paid, and the insured must have an insurable interest in what is being protected. Losses covered by insurance must be reducible to financial terms, even if the event itself is not purely financial.

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Key parties: insurer, policyholder, insured

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