Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
An entity which provides insurance is known as an insurer, insurance company, or insurance carrier. A person or entity who buys insurance is known as an insured or policyholder. The insurance 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 event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and must involve something in which the insured has an insurable interest established by ownership, possession, or preexisting relationship.
The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. The amount of money charged by the insurer to the insured for the coverage set forth in the insurance policy is called the premium. If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster.
The meaning of insurance: Insurance is a policy from a large financial institution that offers a person, company, or other entity reimbursement or financial protection against possible future losses or damages.
The meaning of insurance is important to understand for anybody that is considering buying an insurance policy or simply understanding the basics of finance. Insurance is a hedging instrument used as a precautionary measure against future contingent losses. This instrument is used for managing the possible risks of the future.
Insurance is bought in order to hedge the possible risks of the future which may or may not take place. This is a mode of financially insuring that if such a incident happens then the loss does not affect the present well-being of the person or the property insured. Thus, through insurance, a person buys security and protection.
A simple example will make the meaning of insurance easy to understand. A biker is always subjected to the risk of head injury. But it is not certain that the accident causing him the head injury would definitely occur. Still, people riding bikes cover their heads with helmets. This helmet in such cases acts as insurance by protecting him/her from any possible danger. The price paid was the possible inconvenience or act of wearing the helmet; this ie equivalent to the insurance premiums paid.
Though loss of life or injuries incurred cannot be measured in financial terms, insurance attempts to quantify such losses financially. Insurance can be defined as the process of reimbursing or protecting a person from contingent risk of losses through financial means, in return for relatively small, regular payments to the insuring body or insurance company.
Insurance can range from life to medical to general (residential, commercial property, natural incidents, burglary, etc).
✓ Life Insurance
It insures the life of the person buying the Life Insurance Certificate. Once a Life Insurance is sold by a company then the company remains legally entitled to make payment to the beneficiary after the death of the policy holder.
✓ Medical Insurance
This is also known as mediclaim. Here, the policy holder is entitled to receive the amount spent for his health purposes from the insurance company.
✓ General Insurance
This insurance type involves insuring the risks associated with the general life such as automobiles, business related, natural incidents, commercial and residential properties, etc.