Insurance is a policy from a large financial institution that offers a person, company, or other entity reimbursement or financial protection against possible future losses or damages.
The meaning of insurance is important to understand for anybody that is considering buying an insurance policy or simply understanding the basics of finance. Insurance is a hedging instrument used as a precautionary measure against future contingent losses. This instrument is used for managing the possible risks of the future.
Insurance is bought in order to hedge the possible risks of the future which may or may not take place. This is a mode of financially insuring that if such a incident happens then the loss does not affect the present well-being of the person or the property insured.Thus, through insurance, a person buys security and protection.
A simple example will make the meaning of insurance easy to understand. A biker is always subjected to the risk of head injury. But it is not certain that the accident causing him the head injury would definitely occur. Still, people riding bikes cover their heads with helmets. This helmet in such cases acts as insurance by protecting him/her from any possible danger. The price paid was the possible inconvenience or act of wearing the helmet; this ie equivalent to the insurance premiums paid.
Though loss of life or injuries incurred cannot be measured in financial terms, insurance attempts to quantify such losses financially.
Insurance can be defined as the process of reimbursing or protecting a person from contingent risk of losses through financial means, in return for relatively small, regular payments to the insuring body or insurance company.