What is insurance?

Insurance is a risk management and mitigation relationship between an insurer and the insured party.Â

What is the Insurer – Insured Relationship?

The primary participants and characteristics of the relationship are as follows:

Insured – The insured allocates the contingent risk of loss in a particular situation to an insurer.

Insurer – The insurer is a business entity that agrees to bear the burden of potential losses and to indemnify the insured from a degree of personal loss. Indemnify generally means to hold a person harmless by paying any costs or expenses incurred.

Premiums – The insurer receives some form of compensation for assuming the insured partys risk, known as a premium. The insurer assesses the extent or severity of the contingent risk through a process or system known as actuarial science. The premium that the insurer charges to the insured is documented through a contract known as an insurance policy.

Coverage & Policy Limits – An insurance policy contract is the legal document evidencing each partys right and obligations in the insurance relationship. It will cover or establish terms of indemnification of an insured for losses suffered as a result of a specific occurrence. It will identify specific limits on the amount of indemnification payable upon the occurrence of a specific risk.

Insurance policies are a specific type of contract with unique attributes.