Definition of Insurance
1. the act, system,
or business of insuring property, life, one's person, etc., against loss
or harm arising in specified contingencies, as fire, accident, death,
disablement, or the like, in consideration of a payment proportionate to
the risk involved.
2. coverage by contract in which one party agrees to indemnify or
reimburse another for loss that occurs under the terms of the contract.
3. the contract itself, set forth in a written or printed
agreement or policy.
4. the amount for which anything is insured.
5. an insurance premium.
6. any means of guaranteeing against loss or harm
or Assurance, device for indemnifying or
guaranteeing an individual against loss.
Reimbursement is made from
a fund to which many individuals exposed to the same risk have
contributed certain specified amounts, called premiums.
Payment for an individual
loss, divided among many, does not fall heavily upon the actual loser.
The essence of the contract of insurance, called a policy, is mutuality.
The major operations of an
insurance company are underwriting, the determination of which risks the
insurer can take on; and rate making, the decisions regarding necessary
prices for such risks.
The underwriter is
responsible for guarding against adverse selection, wherein there is
excessive coverage of high risk candidates in proportion to the coverage
of low risk candidates. In preventing adverse selection, the underwriter
must consider physical, psychological, and moral hazards in relation to
Physical hazards include
those dangers which surround the individual or property, jeopardizing
the well-being of the insured.
The amount of the premium
is determined by the operation of the law of averages as calculated by
actuaries. By investing premium payments in a wide range of
revenue-producing projects, insurance companies have become major
suppliers of capital, and they rank among the nation's largest
Short Term Insurance