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 evade 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 the insured in the case of a financial personal loss. The insured receives a compensation fee, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.
Insurance involves pooling funds from many insured entities to pay for the losses that some may deserved. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the recurrence of the event . In order to be an insurable risk, the risk insured against must meet certain features.
Insurance as a financial intermediary is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses.
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