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Insurance
A formal social device used to reduce risks by transferring the risks of several individuals to a single entity, or an insurer, for a consideration or premium.
Law of Large Numbers
Insurance is based on this theory, the theory that actual results obtained will approach the projected probable results as the number of risks or exposure increases.
Indemnity
This is the underlying principle of insurance; the concept of restoring someone to the same financial position they were in before a loss occurred.
Risk
The probability or uncertainty that a loss will occur. Risk may be financial or non-financial; it may be speculative or pure.
- Pure risks Situations that involve only the chance of loss or no loss. [Property ownership]
- Speculative risks Situations where there is a chance for either a loss or a gain. [Gambling]
 e.g. Property Ownership |
 e.g. Gambling |