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What Is Insurance?
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Insurance is a contract, represented by a policy, in which an
individual or entity receives financial protection or reimbursement
against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.
Understanding How Insurance Works
There is a multitude of different types of insurance policies
available, and virtually any individual or business can find an
insurance company willing to insure them—for a price. The most common
types of personal insurance policies are auto, health, homeowners, and
life. Most individuals in the United States have at least one of these
types of insurance, and car insurance is required by law.
Businesses require special types of insurance policies that insure
against specific types of risks faced by a particular business. For
example, a fast food restaurant needs a policy that covers damage or
injury that occurs as a result of cooking with a deep fryer. An auto
dealer is not subject to this type of risk but does require coverage for
damage or injury that could occur during test drives.
There are also insurance policies available for very specific needs,
such as kidnap and ransom (K&R), medical malpractice, and
professional liability insurance, also known as errors and omissions insurance.
Insurance policies are used to hedge
against the risk of financial losses, both big and small, that may
result from damage to the insured or her property, or from liability for
damage or injury caused to a third party.
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