In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of loss, from one entity to another, in exchange for payment. An insurance company is a company that sells insurance; policyholder, insured, or are a person or entity who purchased insurance policies. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called a premium. Risk management, the practice of assessing and controlling risk, has evolved as a discrete field of study and practice.
The transaction involves a relatively small loss the insured assuming a guaranteed and known in the form of insurance payments in exchange for the promise of insurance to compensate (indemnify) the insured in the case of financial loss (private). The insured received a contract, called an insurance policy, the conditions and circumstances in which the insured shall be given to be financially compensated.