In law and economics, 'insurance' is a form of risk management primarily used to
hedge against the risk of a contingent, uncertain loss. Insurance is defined as
the equitable transfer of the risk of a loss, from one entity to another, in
exchange for payment. An 'insurer' is a company selling the insurance; an
'insured' or 'policyholder' is the person or entity buying the insurance policy.
The ' insurance rate' is a factor used to determine the amount to be charged for
a certain amount of insurance coverage, called the 'premium'. Risk management,
the practice of appraising and controlling risk, has evolved as a discrete field
of study and practice. The transaction involves the insured assuming a guaranteed and known relatively
small loss in the form of payment to the insurer in exchange for the insurer's
promise to compensate (indemnify) the insured in the case of a large, possibly
devastating loss. The insured receives a contract called the insurance policy
which details the conditions and circumstances under which the insured will be
compensated.
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