Insurance is a contract, represented by a policy, under which a person or organization obtains financial protection from, or repayment for, losses from, an insurance company. The most significant characteristic of insurance is that it is a legal contract between an insurer and an insured. The insured is insured, and in that contract, the insurance company promises to pay compensation to the insured for losses mentioned in the policy, while the insured promises to pay the fixed rate of premium, which is considered by this contract as the price of the insurer's promise.
The insurer promises to compensate the insured for the loss up to an amount agreed to in the contract. Losses suffered by one or more insured are paid from premium amounts paid to the insurance company by different insured. The amount paid depends on the cost of losses suffered from specific insured's risks, provided that the insurance is available to cover up to this amount.
If an insured does not comply with the terms of the contract, no payment is made, even though an insured peril caused a loss. Insurance contracts are one-sided; the insured performs an act by paying a policy premium, while the insurance company promises to reimburse the insured for any covered losses that might occur. Insurance is a contract whereby an amount of money is paid to the insured in consideration for the risk the insurance company assumes to cover large amounts for any given contingency.
Insurance is a contract by which one party, for compensation called the premium, assumes specific risks of another party and promises to pay him or his designee a specified or determinable amount of money on the specified contingency. Insurance is a kind of contract where a party agrees to pay restitution if another party suffers losses. One party is an insurance company, or an insurer, that agrees to protect and indemnify the other party against losses suffered by them. An insurance contract is said to be an adherence contract, that is, its terms are not negotiated by the parties, but rather the parties must agree on terms prepared by the other.
Insurance contracts are certainly covered under this more restrictive definition; certainly, the insurance and agreement state that the insurer will perform its obligations only once some events have occurred (losses, in other words). Since the life insurance contract is a contract of certainty since the specific contingent events covered are sure to happen, payment is assured. This is, essentially, the part of the contract which is of most importance to the insured, since it is the part of the contract which says she or he has a right to compensation, or, to put it another way, an indemnification, of his or her losses. The deal involves the insured taking on the assurances and knowing comparatively little about losses, in the form of payments to an insurance company, in return for an assurance from the insurance company to compensate (indemnify) the insured if there is a larger, potentially devastating loss.
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