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Definition of Insurance

Insurance Defined

What is Insurance? - Insurance is a contractual coverage binding the insurer to indemnify the insured against a specified loss in return for money (known as premiums). It is designed to protect the financial well-being of an individual, company, or other entity against unexpected loss. In exchange for the premium payments from the insured, the insurer agrees to pay the policyholder in case of the occurrence of a specific event (a loss). In most instances, the insured pays for part of the loss (the policy deductible), and the insurer pays the rest.

It is designed to protect the financial well-being of an individual, company, or other entity against unexpected loss.

Insurance is based on the Law of Large Numbers. The bigger the observed sample, the more accurate the predicted results. Life insurance allows an individual to transfer his or her financial risk of premature death in a defined amount to an insurance company. It is the scientifically calculated pooling growth and distribution of money to satisfy two objectives:

    • Paying benefits to survivors of someone who dies while covered
    • Providing distribution of benefits by lump sum or with guaranteed lifetime payments

Insurance Definition Summary

Insurance is a kind of risk management in the form of indemnification provided in order to help mitigate potential losses from specific but unforeseen events.

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