In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.
An insurer is a company selling the insurance; an insured, or policyholder, is the person or entity buying the insurance policy.
The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss.
The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.
source: http://en.wikipedia.org/wiki/Insurance
