Insurance is a system of spreading loss of one into the shoulder of many –
Insurance has evolved as a process of safeguarding the interest of people from loss and uncertainty. It may be described as a social device to reduce or eliminate the risk of loss to life and property. Thus insurance is a cooperative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to insure themselves against the risk.
Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount of money to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. The function of insurance is to spread the loss over a large number of persons who are agreed to cooperate with each other at the time of loss. The insurance guarantees the payment of loss and thus protects the assured from sufferings. Insurance involves sharing of risk which implies that insurance spreads the financial losses of insured members over the entire community by compensating the fateful few from the funds built up from the involvement of all members.
Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses. Exceptions include Lloyd’s of London, which is famous for insuring the life or health of actors, sports figures, and other famous individuals. However, all exposures will have particular differences, which may cad to different premium rates.