Insurance - Financial definition
Concise definition of the term insurance
Insurance is a financial product that provides protection against financial losses from specific risks, such as accidents, illness, or property damage. Policyholders pay premiums to an insurance company, which in return promises to cover the costs associated with covered events.
Comprehensive definition of the term insurance
Insurance operates as a risk management tool where individuals or entities transfer the financial burden of potential losses to an insurance provider in exchange for periodic payments called premiums. This contractual agreement, known as an insurance policy, specifies the terms, conditions, and extent of coverage. The insurance industry includes various types of coverage, such as health, life, auto, property, and liability insurance.
For example, health insurance helps cover medical expenses, while property insurance protects against damages to homes or businesses. Market practices involve underwriting, where insurers assess the risk of applicants, and claims processing, where insurers evaluate and pay out claims based on policy agreements. Insurance plays a crucial role in providing financial stability and security, allowing individuals and businesses to manage risks effectively and recover from unforeseen events.