Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of a guaranteed small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance. The insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
Commercially insurable risks typically share seven common characteristics.[1]
1. A large number of homogeneous exposure units.
2. Definite Loss.
3. Accidental Loss.
4. Large Loss.
5. Affordable Premium.
6. Calculable Loss.
7. Limited risk of catastrophically large losses.
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