Tuesday, 18 November 2014
DEFINITION
of 'Insurance'
A contract (policy) in which an
individual or entity receives financial protection or reimbursement against
losses from an insurance company. The company pools clients' risks to make
payments more affordable for the insured.
Insurance
is the equitable transfer of the risk of a loss, from one entity to another in
exchange for payment. It is a form of risk management primarily used to hedge
against the risk of a contingent, uncertain loss. An insurer, or insurance carrier,
is a company selling the insurance; the insured, or policyholder, is the person
or entity buying the insurance policy. The amount of money to be charged for a
certain amount of insurance coverage is called the premium. Risk management,
the practice of appraising and controlling risk, has evolved as a discrete
field of study and practice.
The transaction involves the
insured assuming a guaranteed and known relatively small loss in the form of
payment to the insurer in exchange for the insurer's promise to compensate
(idemnify) the insured in the case of a
financial (personal) loss. The insured receives a contract, called the insurance
policy, which details the conditions and circumstances under which the insured
will be financially compensated.
INVESTOPEDIA
EXPLAINS 'Insurance'
When shopping around for an
insurance policy, look for the best priced package that is right for you -
prices can vary from one insurance company to the next. And make sure you know
what you want. Some individuals, for example, prefer 24-hour claims service or
face-to-face contact with an insurance representative. Also consider the claims
settlement process, the amount of the deductible and the extent of the
replacement coverage. Insurance companies and the policies they offer are not
all the same, so think about more than just the price.
