Indemnification: Basic Insurance Definitions

Indemnity and Other Insurance Basic Concepts Defined

  • Indemnification - This is the concept of restoring individuals to the same financial position they were at before a loss occurred. Indemnification is the central idea behind the concept of insurance.
  • Insurer - Another name for an insurance company.
  • Applicant - The individual who applies for insurance.
  • Insured - An individual who is insured or has insurance taken out on or for them for a specific interest.
  • Named Insured - The person(s) listed as an insured in the Declarations page.
  • First Named Insured - The first insured listed and the person to whom the insurer sends correspondence such as renewal notices, policy changes.
    • Any member of the insured household who is a relative or is under 21 years of age.
    • A child or parent living with the insured is included, regardless of age.
    • Other members of the insured household who are under 21 years of age.
  • Additional Insured - an individual or entity who, other than the named insured, qualifies as an insured under the policy. This is especially the case if there is a specific interest involved, such as a mortgage or a business arrangement.
  • Policyowner - The person who:
    • applies for a policy
    • takes responsibility for premium payment
    • has the right to cash values, dividends, and policy proceeds
    • has the ability to change beneficiaries and other policy particulars.

Insurable Risk

Risk - Risk is the probability or uncertainty that a loss will occur. It may be financial or non-financial; it may be speculative or pure. In insurance, the greater the risk, or chance for loss, the greater will be the premium charged to cover it.

  • Pure Risk: A risk involving the probability or possibility of loss with no chance for gain. An example would be a homeowner who wants to guard against a possible house fire. Pure risks are generally insurable.
  • Speculative Risk: A risk for which it is uncertain whether the final outcome will be a gain or a loss. Gambling is a speculative risk. Speculative risks are generally not insurable.

Elements of Insurable Risks - To be considered insurable, a risk must be:

  • due to chance
  • measurable/predictable
  • based on a large enough pool that the law of large numbers allows for the accurate prediction of los
  • selected from a diverse, randomly selected pool of insurable risks. Insurance deals with financial and pure risks. Speculative risks are generally not insurable.

Becoming Licensed

Individuals considering becoming licensed to provide insurance should look into one of our many insurance licensing courses.

Get Licensed:

Get Continuing Education:

What Your Colleagues Are Saying

“Thanks to your program and lots of studying I passed my Life & Health exams. Tell everyone to follow the instructions & study like your company advises. It sure seems to work.”

Steven S.

“Your Exam Advantage questions are really good preparation…You really helped me know what I was going to be up against.”

M. Bischoff

“Using your company has been a wonderful experience. Working with Exam Advantage has been one of the least stressful parts of my entire job! Thank you!”


“I want to thank you for your tips. I did exactly as you advised with the reading of the manual, online study & breaks, and no worrying I passed the test! Thank you!”

Pamela W.

Your program really helped me focus on the material that had been difficult for me. I passed this time! Thank you!

L. De La Vega