Finance Metric - What is Insurance?

What is Insurance?

Insurance is a form of risk management primarily used to hedge against the risk of potential financial loss. It is the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a reasonable fee. An entity seeking to transfer risk becomes the insured party once risk is assumed by an insurer, by means of an insurance policy in the form of a contract.

Insurance Categories:

Auto Insurance
Auto insurance (or car insurance, motor insurance) is insurance consumers can purchase for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of car accidents.

Health Insurance
Health insurance is a type of insurance whereby the insurer pays the medical costs of the insured if the insured becomes sick due to covered causes, or due to accidents. The insurer may be a private organization or a government agency. Market-based health care systems such as that in the United States rely primarily on private health insurance.

Home Insurance
Home insurance, or homeowners insurance, is an insurance policy that combines insurance on the home, its contents, loss of use (additional living expenses) and, often, the other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home. The cost of homeowners insurance scales upward depending on what it would cost to replace the house, and which additional "riders", meaning additional items to be insured, are attached to the policy. The insurance policy itself is a lengthy contract, and names what will and what will not be paid in the case of various events. Typically, claims are not paid due to earthquakes, floods, "Acts of God", or war (whose definition typically includes a nuclear explosion from any source). Special insurance can be purchased for these possibilities.

Life Insurance
Life insurance is a type of insurance. As in all insurance, the insured transfers a risk to the insurer, receiving a policy and paying a premium in exchange. The risk assumed by the insurer is the risk of death of the insured.

Insurance Related Readings:

Types of insurance

Any risk that can be quantified probably has a type of insurance to protect it. Among the different types of insurance are: Automobile insurance, Casualty Insurance, Finanance Loss Insurance.

Types of insurance companies

Insurance companies may be classified as Life insurance companies, who sell life insurance, annuities and pensions products. Non-life or general insurance companies, who sell other types of insurance.

Life insurance and saving

Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against.

Redlining

Redlining is the practice of some insurance companies to deny the issuance of coverage in specific geographic areas, usually due to an increased likelihood of risk; the validity of the assessment may be real or perceived, though it is often attributed to discrimation.

Determination of insurance rate structures

The insurer uses actuarial science to quantify the risk they are willing to assume. Data is generated to approximate future claims, ordinarily with reasonable accuracy.