Insurance can be defined under the Insurance Acts of Common Law as:

  • The undertaking of one person to indemnify another person against loss or liability for loss in respect of a certain peril or risk to which the object of insurance might be exposed. Also to pay a sum of money or other thing of value if a certain event occurs.

Insurance is the system by which the possibility of loss is transferred by a person or organization to an insurance company in return for a periodic payment known as the insurance premium. The insurance companies collect these premiums from a large pool of individuals and organizations who are concerned about the possibility of a loss. The premiums collected from the large group pay for the claims of the few that actually occur.

The biggest advantage that insurance gives a person or organization is that it enables the translation of the chance of an unknown, often difficult to predict situation and potentially catastrophic loss into a more manageable payment. These payments can be set up to suit the person or organization. The payment of the insurance premium is the contribution to the large pool of funds.

Insurance companies are rated for their stability by AM Best. If a company destabilizes then the agent or broker will take steps that are necessary regarding the insurance written with that company. Insurance agents and brokers have governing bodies that oversee this type of concern.