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Understanding InsuranceInsurance can be defined in many different ways, from many different points of view. For example, from an economic viewpoint, insurance is a system for reducing financial risk by transferring it from a policy owner to an insurer. The social aspect of insurance involves the collective bearing of losses through contributions by all members of a group to pay for losses suffered by a few group members. From a business viewpoint, insurance achieves the sharing of risk by transferring risks from individuals and businesses to financial institutions specializing in risk. The insurer is not in fact paying for the loss. The insurer writes the claim check, but is actually transferring funds from individuals who as part of a pool, paid premiums that created the fund from which the claims are paid. Lastly, from a legal standpoint, an insurance contract or the policy, transfers a risk, for a premium or consideration, from one party to another party. The party bearing the risk is known as the 'insurer' or 'assurer' and the party whose risk is covered is known as the 'insured' or 'assured'. |
