Insurance

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What is insurance?

Insurance is an arrangement where the insured transfers the financial cost of potential future loss to another entity in exchange for financial 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. Individuals and businesses who have insurance are said to be 'covered' against these potential losses.

Insurance companies provide insurance to individuals and businesses. They profit when the total revenue from pooled premiums exceed the total cost of payouts due to 'covered' losses. Insurance companies manage the financial risk of unknown events by combining or pooling risk of a group, so that the overall financial cost of potential losses is lower than the combined premiums received.