What Is Insurance?
Insurance is a form of risk management in which the insured transfers the cost of
potential loss to another entity in exchange for monetary compensation known as
the premium. Insurance allows individuals, businesses and other entities
to protect themselves against significant potential losses and financial hardship
at a reasonably affordable rate.
Insurance is appropriate when you want to protect against a significant monetary
loss. Take life insurance as an example. If the primary breadwinner in the family,
the loss of income that the family would experience as a result of premature death
is considered a significant loss and hardship that one should protect them against.
It would be very difficult for the family to replace his/her income, so the monthly
premiums ensure that if the breadwinner die’s, his/her income will be replaced by
the insured amount. The same principle applies to many other forms of insurance.
If the potential loss will have a detrimental effect on the person or entity, insurance