Insurance is related to risk management and is defined as the equitable risk of loss, from one entity to another on the way of payment exchange. It can also be defined as a form of risk management used to hedge against the risk of the contingent, uncertain loss.
Usually only financial risks are insurable. A company selling the insurance is called as an insurance carrier, or an insurer. From the other side, a person or entity buying the insurance policy is named as the insured, or policyholder. The insurance transaction obliges the insured to assume a guaranteed and established small financial loss in form of payment to the insurer for the insurer's ability to compensate the insured in the case of financial loss. The insured person or entity receives a contract signed by both sides, which is named as insurance policy. The insurance policy describes in detailed conditions and circumstances deciding about the fact that the insured person or policy will be financially compensated.
types of insurance
It is commonly known that any risk should be potentially insured. However, the following types of insurance are commonly practiced:
- Vehicle insurance including property coverage for damage the car.
- Health and dental insurance covering the cost of medical treatment or dental costs.
- Accident, sickness and unemployment insurance.
- Life insurance assuring monetary benefit to family or pointed beneficiary of insured, including burial and funeral expenses.
- Property insurance providing protection against risk of property loss, such as fire, flood, home damage, travel accidents etc.
Usually insurance companies are divided into two general groups:
- Life insurance companies dealing with life insurance, annuity insurance and pension insurance.
- Non-life and property insurance companies comprising other fields of insurance.
- Rothschild, M., & Stiglitz, J. (1976). Equilibrium in competitive insurance markets: An essay on the economics of imperfect information (p. 355-375). Springer Netherlands.
Author: Julia Pasierbiewicz