Insurance is a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium. A contract providing protection against a possible eventuality. This contract provides that the insurance company will cover some portion of a policyholder’s loss if the policyholder meets certain conditions stipulated in the insurance contract. The policyholder pays a premium to obtain insurance coverage. If the policyholder experiences a loss, such as a car accident or a house fire, the policyholder files a claim for reimbursement with the insurance company. The policyholder will pay a deductible to cover part of the loss, and the insurance company will pay the rest. For example, suppose you have a homeowner’s insurance policy. You pay $1,000 per year in premiums for a policy with a face value of $200,000, which is what the insurance company estimates it would cost to completely rebuild your house in the event of a total loss. One day, a huge wildfire envelopes your neighborhood and your house burns to the ground. You file a claim for $200,000 with your insurance company. The company approves the claim. You pay your $1,000 deductible, and the insurance company covers the remaining $199,000 of your loss. You then take that money and use it to hire contractors to rebuild your house.
There are many different types of insurance: house insurance, car insurance, health insurance, life insurance, and travel insurance, to name a basic few.