Insurance

What Does Insurance Mean?

Insurance is a financial arrangement in which one party pays another to protect against a specific type of loss. Insurance companies collect monthly payments, known as premiums, from a large group of customers. They use statistical analysis to estimate potential losses and set premium rates to remain profitable and cover any claims. When an insured party experiences a loss, the insurance company uses the funds collected from its customers to cover it.

Insuranceopedia Explains Insurance

There is a wide range of insurance policies, including health, life, car, homeowner, and disability insurance. Each type uses the same insurance structure to cover different risks.

For insurance to be viable for a particular risk, certain conditions must be met. First, a large number of people must be willing to purchase insurance to spread the risk. Second, the potential losses must be significant; otherwise, people would have little incentive to buy insurance. Third, these losses should be infrequent; if not, providing coverage would be too costly. Finally, the insurance company must be able to assess the risk of the loss accurately. Any insurance market must meet these conditions.