Insurance

Insurance is a contract in which an insurer agrees to compensate an insured for losses arising from defined risks in exchange for a premium. The arrangement transfers risk from individuals or organizations to the insurer and pools it across many policyholders, allowing predictable funding of losses.

A policy specifies covered events, exclusions, limits, and conditions. In most policies, the insured must pay a deductible, and the insurer pays benefits up to the policy limit, after which the insured bears the remaining cost. Premiums are determined through underwriting and actuarial analysis.

Common lines of insurance include life, health, property and casualty (including automobile, home, and commercial property), liability, and specialty lines such as marine or cyber insurance.

Underwriting assesses risk and sets premiums based on factors like age, health, location, and prior claims. Policies may include riders or endorsements that modify coverage. Insurers may offer group, individual, or employer-sponsored plans.

When a covered loss occurs, claimants notify the insurer, which evaluates the claim, potentially adjusts it, and pays benefits or services. Settlement may involve repair, replacement, cash indemnity, or reimbursement.

Insurance markets are regulated to protect consumers and ensure solvency. Regulators oversee licensing, reserve requirements, and market conduct. Insurers may also participate in reinsurance to spread risk.

Historically, insurance emerged with marine underwriting in the Middle Ages and evolved into modern life and property coverage through actuarial science and regulated markets. Insurance serves risk management, enabling individuals and businesses to plan with greater financial certainty.