Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment.
An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount of money to be charged for a certain amount of insurance coverage is 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.
While most people think of insurance as a consumer product, businesses also need insurance for a variety of reasons, but mostly to protect their assets in the event of lawsuits, disasters, thefts, and so on. Thus insurance can be divided into two primary types: individual or personal policies and commercial or business policies. Once this categorization has occurred, they can be divided further into four additional types of insurance: