Insurance is a contract between an individual or entity (the policyholder) and an insurance company. The policyholder pays a premium, which is a specified amount of money, in exchange for the promise that the insurance company will provide financial compensation in the event of specified losses or damages. The insurance company pools the premiums it receives from policyholders and uses that money to pay out claims when they arise.
Insurance can provide protection against a variety of risks, including property damage, liability claims, loss of income due to disability or illness, and death. Types of insurance include health insurance, life insurance, auto insurance, homeowners insurance, and business insurance.
Insurance companies use various actuarial and statistical methods to assess risk and determine premiums for policyholders. Premiums are typically based on factors such as the probability of a loss occurring, the severity of potential losses, and the amount of coverage requested by the policyholder. Insurance policies often have deductibles, which are amounts the policyholder must pay out-of-pocket before the insurance coverage kicks in.
Insurance is an important tool for managing risk and protecting assets. However, it's important for policyholders to carefully consider their insurance needs and select policies that provide appropriate coverage at a reasonable cost.