Insurance is about increasing security by transferring risk. It is a core component of financial planning for individuals who want to insure themselves against health problems, damage to valuable possessions, burglary and to provide for dependents in case of injury or death. Corporations have similar needs, insuring against damage to plant and stock, loss of key people or being sued by consumers.
Insurers accept the risk in return for a premium, calculating what level of risk they are prepared to take and their accepted margin of profit. Insurers’ profits can be affected by events such as hurricanes and other natural disasters which increase claims on them.
For example the role of life insurers varies, they can arrange life, accident and disability insurance and increasingly offer retirement products. Life insurance is designed to pay out on death or disability so dependants have some financial security but the types of life insurance vary. Some carry a savings component and there can be tax consequences
Insurance brokers are intermediaries between client and insurer and usually receive a commission from the insurer. Brokers act for the client and because of their knowledge of the differences between products they play a valuable role in finding the policies most suited to their clients’ needs.
Regulation of insurance varies widely between countries and can come under state or national government supervision.