# insurance

## Definitions

### Accounting

• noun an agreement that in return for regular payments called ‘premiums’, a company will pay compensation for loss, damage, injury or death

### Construction

• A contract, typically referred to as an insurance policy, in which the insurer, in return for the premium stated in the policy, agrees to pay the insured up to the limits specified in the policy for losses or damages incurred by the insured.

### Economics

• noun an agreement that in return for regular small payments, a company will pay compensation for loss, damage, injury or death

### Health Economics

• (written as Insurance)

Health insurance consists of a contract between the client and the insurer to the effect that in the event of specified events occurring the insurer will pay certain sums of money either to the insured person or (the usual case) to the health service agency. By pooling risks the insurer is able to select premiums that actuarially (after allowances for other expenses, etc.) make it worthwhile for the purchaser. For the insured person, the advantage of insurance is that the probability of a large financial loss through lost earnings or expenses of medical care is exchanged for the certainty of smaller loss (the payment of a premium). The standard expected utility explanation for why people insures is as follows.

The figure shows how utility varies with income. Diminishing mar- ginal utility of income is assumed. When income is \$30 000, utility is 0 a, when income is \$5000, utility is 0 b. Suppose that an uninsured individual would have to pay out \$25 000 if they fell ill. Let the probability that this will occur be taken as 0.4. The expected value of income is therefore 0.4 \$5000 + 0.6 \$30 000 = \$20 000. The expected utility of this expected income is 0 c (0.4 0 b + 0.6 0 a), assuming that the utility function stays where it is in sickness or in health. Now, however, suppose that insurance can be bought at an actuarially fair premium of \$10 000. Paying this sum (for certain) leaves an income of \$20 000, whose (certain) utility is 0 d. Since 0 d > 0 c, plainly the expected utility maximizing individual will prefer 0 d, the insurance choice. Such an individual will also still choose to insure even when the premium is actuarially unfair, so long as it is not too unfair.

### Information & Library Science

• noun an agreement to pay a company fixed sums of money so that if damage or injury occurs, costs will be paid by the company

### Real Estate

• noun an arrangement by which a company gives customers financial protection against loss or harm such as theft of or damage to property, in return for payment
• noun the sum of money that an insurance company pays or agrees to pay if a specific undesirable event occurs
• noun the payment made to obtain insurance
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