Insurance
November 8th, 2010
In law and economics, insurance is a form of threat management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the danger of a loss, from one entity to another, in exchange for payment. An insurer is a corporation selling the insurance; an insured or policyholder is the individual or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Threat 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 inside the form of payment to the insurer in exchange for the insurer’s promise to compensate (indemnify) the insured inside case of a large, possibly devastating loss. The insured receives a contract called the insurance policy which details the conditions and circumstances under which the insured will probably be compensated.
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