Insurance is a contractual arrangement where an individual or entity pays a premium to an insurance company in exchange for financial protection or compensation against specified risks. In simpler terms, it's a way of transferring the risk of potential loss from one party to another in exchange for payment.
An example of insurance is car insurance. When a person purchases car insurance, they pay a premium to the insurance company. In return, the insurance company agrees to provide financial protection in case the insured vehicle is involved in an accident, stolen, or damaged due to other covered events. If such an event occurs, the insurance company will compensate the policyholder for the loss or repair costs, up to the limits outlined in the policy.
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