What is insurance defined as?

Insurance is defined as a contractual agreement for financial protection. This definition highlights the fundamental purpose of insurance, which is to provide a safety net against potential financial losses that may arise from various risks, such as health issues, accidents, property damage, or liability claims. Essentially, when individuals purchase an insurance policy, they enter into a legal contract with an insurance company. In exchange for regular premium payments, the insurance provider agrees to compensate the policyholder for covered losses or damages as specified in the policy terms.

Understanding insurance in this way emphasizes the security and risk management aspect it offers to individuals and businesses alike, allowing them to handle unforeseen events without jeopardizing their financial stability. This contractual nature underscores the importance of reviewing policy details carefully, including coverage limits, exclusions, and claim procedures.