Additional Resources

  1. The Economic Theory Of Insurance []
  2. Adverse Selection, Risk Aversion And Insurance Markets []
  3. Behavioral Economics And Insurance []
  4. The Welfare Economics Of Health Insurance []
  5. Econport []
  6. Equilibrium In Competitive Insurance Markets: An Essay On The ... []


Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.


Insurance in the terms of finance represents a contract that promises an individual or an organization to provide monetary benefits in case of a particular loss as explained in the insurance contract. The insurance company who is responsible for paying for the loss of its clients creates smart pools of clients, where it becomes affordable to make payments for some of the insured entities.

Insurance policies are designed to protect against the loss of financial assets, and things that hold important value. These policies also allow other people to be safe against the damage caused by the insured person, and company in most cases. There are many types of insurances that are applied to different types of financial assets that people usually have.

Types of Insurance

There are many insurance policies, and anyone can buy these policies according to a particular need. The element of insurance is applied on different industries and insurance is common to get for vehicles, health needs, homes as well as there are policies that allow people to safeguard themselves against particular risk elements.

Businesses usually employ insurance policies that possibly cover the adverse conditions that may appear during the activities of these business companies. A restaurant needs insurance protection against fires, and cooking hazards, such as getting burned from using a fryer. Auto insurance similarly deals with risks that are attached to driving, such as having an accident, and requiring medical treatment. An accident also requires a sum, which is used for repairing the car, so this insurance policy will contain, and cover all such conditions.

Medical malpractice insurances are quite common in the United States, and they insure doctors against the involuntary mistakes that they might make during medical procedures, which are often difficult and filled with chances of failure. There are also exceptional insurance cases, such as kidnapping insurance is common when going to dangerous parts of the world.

Important terms

Insurer refers to the company that provides the deal of the assurance. This company is responsible for the transaction of money and issues the promissory note to cover a certain loss.

The policyholder or the insured person is the one buying the insurance. The person or the company pays for insurance a specific amount, and in turn secures a much larger sum in the case of a particular event, which is mentioned in the insurance policy.

The insurance policy serves as the instrument, which contains all the details of the monetary transfers that are required between the two parties. The payment charged by the insurer is termed as the premium. The value of the premium is often based on the amount of risk that a certain business or industry presents, and is based on the accidents that have happened in the past.

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