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Insurance is essential

Insurance is the transfer of risk from one party to another party, in this instance, an insurance company, in exchange for payment. This is a form of risk management against costly unforeseen events.

An insurance company sells insurance in the form of policies to the insured or policyholder. Payment by the insured to the insurer is called the premium.

The insurer and the insured complete a transaction where the insurer guarantees the insured compensation in the event of damage or loss to the property of the insured. The transaction is completed by mutual agreement and results in a contractual agreement between the two parties. This contract is the policy and details the circumstances under which the insured will be reimbursed by the insurer regarding loss or damage.

The insurer pools funds from a great number of insurers and uses the funds paid by the insured as premiums, to compensate a party as per agreement when loss or damage has occurred.