What is Insurance? Meaning and Purpose

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Insurance is a means of safeguard, security, protection from financial loss and It is a form of risk management that mostly used to hedge against the risk of a contingent, uncertain loss. Insurance also is a form of risk management in which the insured transfers the cost of prospective loss to another entity in return for monetary reward known as the premium.

An entity or person which provides insurance is called like insurance company, an insurer, or insurance carrier. A person or entity who buys insurance is known as policyholder or an insured. The insurance transaction involves the insured assuming a guaranteed and known somewhat small loss in the form of payment to the insurer in return for insurer’s promise to payment 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 engage somewhat in which the insured has an insurable interest established by possession, ownership or preexisting relationship.

Insurance allows businesses, individuals and other entities to guard themselves against significant possible losses and financial hardship at a rationally affordable rate. We mention “significant” because if the possible or potential loss is small, then it does not make sense to pay a premium to guard against the loss. Finally, you would not pay a monthly premium to defend against a $50(Fifty Dollar) loss because this would not be considered a financial hardship for most.

Everyone that wants to protect, save from harm themselves or someone else against financial suffering, hardship should consider insurance. This possibly will include: 

  • Protecting family after one’s death from loss of income
  • Protecting against the death of a key employee or person in your business
  • Buying out a partner or co-shareholder after his/her death
  • Protecting yourself against unforeseeable health expenses
  • Protecting your business from business disruption and loss of income
  • Protecting your car against theft or losses incurred because of accidents
  • Protecting your home against theft, fire, flood and other hazards
  • Protecting yourself against lawsuits
  • Ensuring debt repayment after death
  • Covering contingent liabilities
  • Protecting yourself in the event of disability
  • And many more

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