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Definition of Insurance
A contractual arrangement that indemnifies someone against loss, damage, or liability by transferring risk to an insurer.
Benefit to Society
Insurance distributes financial risks across many policyholders, preventing significant distress for any single entity.
Elements of an Insurance Policy
Includes information about involved parties, description of the insured property, insurable interest, coverage details, policy period, and premium rates.
Property Insurance
Protects against losses from fire, lightning, windstorm, and earthquakes for property and money.
Marine Insurance
Protects vessels, aircraft, cars, goods, freights, accounts, documents, and money from loss.
Surety Insurance
Guarantees the performance and behavior of hired contracts.
Disability Insurance
Provides financial assistance if an insured is disabled or killed due to an accident or sickness.
Liability Insurance
Helps insured parties pay for third-party bodily injuries or property damages.
Indemnity
Restores an individual to the financial position they were in before a loss without exceeding actual loss.
Risk
The chance of loss for any insured property or item; can be pure or speculative.
Pure Risk
Uncertainty about whether a loss will occur without predictability.
Speculative Risk
More predictable risk involving possible loss or gain, such as in gambling or business ventures.
Physical Hazard
Created by the condition, occupancy, or use of the property.
Moral Hazard
Fraudulent actions by the insured, such as staging accidents.
Morale Hazard
Carelessness or indifference towards preventing loss.
Occurrence
Gradual or cumulative damage not tied to a specific event.
Accident
A sudden, unforeseen, and unintentional event identifiable in time and place.
Insurable Interest
A condition where loss causes financial loss to the insured, must exist at the time of loss.
Risk Avoidance
Choosing not to engage in activities that pose risks.
Risk Transfer
Shifting the financial burden of potential losses to another party through insurance.
Mutual Insurance Companies
Owned by policyholders who share in the profits and losses.
Stock Insurance Companies
Owned by shareholders who may not necessarily be policyholders.
Reciprocal Insurance Exchanges
Subscribers exchange policies to share risks through an Attorney-in-Fact.
Fraternal Organizations
Benefit societies offering insurance on a non-profit basis based on common ties.
