Insurance is a way of defending against economic losses. It is a type of risk management, mostly used to hedge against the risk of a loss that is contingent or uncertain. As an insurer, insurance provider, insurance carrier, or underwriter, an organization that provides insurance is recognized. As an insured person or as a policyholder, a person or organization that buys insurance is recognized.
The insurance transaction entails the insured assuming, in the form of payment to the insurer, a guaranteed and known reasonably small loss in return for the insurer's obligation to reimburse the insured in case of a covered loss. The loss may or may not be financial, but it must be financially reducible, and normally includes something in which the insured has an insurable interest generated by ownership, possession, or pre-existing relationship. The insured is awarded a contract, known as an insurance policy, specifying the terms and situations under which the insurer may pay the insured. For the coverage set out in the insurance policy, the amount of money paid by the insurer to the policyholder is called the premium. If the insured suffers a loss that is theoretically protected by the insurance policy, the insured shall file a claim for processing to the insurer by an adjuster of claims. By taking out reinsurance, the insurer can hedge its own risk, whereby another insurance company agrees to bear some of the risks.
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