Definition of Insurance

  • 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.
  • coverage by contract in which one party agrees to indemnify or reimburse another for loss that occurs under the terms of the contract.
  • the contract itself, set forth in a written or printed agreement or policy.
  • the amount for which anything is insured.
  • an insurance premium.
  • any means of guaranteeing against loss or harm

    • Insurance 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 applicants.

    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 institutional investors.