INSURANCE

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What Is Insurance?

Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.

Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party.

How Insurance Works

There is a multitude of different types of insurance policies available, and virtually any individual or business can find an insurance company willing to insure them—for a price. The most common types of personal insurance policies are auto, health, homeowners, and life. Most individuals in the United States have at least one of these types of insurance, and car insurance is required by law.

  • Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils.

  • There many types of insurance policies. Life, health, homeowners, and auto are the most common forms of insurance.

  • The core components that make up most insurance policies are the deductible, policy limit, and premium.


Businesses require special types of insurance policies that insure against specific types of risks faced by a particular business. For example, a fast-food restaurant needs a policy that covers damage or injury that occurs as a result of cooking with a deep fryer. An auto dealer is not subject to this type of risk but does require coverage for damage or injury that could occur during test drives.

Life Insurance

Life insurance is a contract that offers financial compensation in case of death or disability.

Health Insurance

This type of general insurance covers the cost of medical care. It pays for or reimburses the amount you pay towards the treatment of any injury or illness.

General Insurance

A general insurance is a contract that offers financial compensation on any loss other than death. It insures everything apart from life.