What is insurance and risk.

What is Insurance? 

Insurance is a Risk-transfer mechanism that ensures full or partial financial compensation for the loss or damage caused by event(s). Under an insurance contract, a party (the insurer) indemnifies the other party (the insured) against a specified amount of loss, occurring from specified event within a policy period, provided a fee called premium is paid. In general insurance, compensation is normally proportionate to the loss incurred, whereas in life insurance usually a fixed sum is paid. Some types of insurance (Auto, home) are an essential component of risk management, and are mandatory in several country.

This system that enables a person, family or business to transfer the costs of losses to an insurance company. The insurance company , in turn, pays for covered losses and, in effect, distributes the costs of losses amongst all insured’s. Thus insurance is a system of both transferring and sharing the costs of losses.

This is contract of two partied the insured and the insurer.

What is Risk?

·       Risk is the uncertainty about the future.

·       Possibility of a loss.

If there is no possibility of loss, then there is no risk. Likewise, if loss is a certainty, then again, there is no risk.

Types of Risks

·       Pure Risk 

·       Speculative Risk