Insurance is defined as a cooperative tool used to allocate losses caused by a particular risk to many people who bear the risk and agree to protect themselves from the risk. Risk is the uncertainty of financial loss. It should not be confused with the chance of loss, which is the number of possible losses in a given number of risks. Do not confuse it with a hazard defined as a cause of loss or a hazard that may increase the chance of loss. Finally, risk must not be confused with loss itself, which is the unintentional decrease or disappearance of value caused by accidents. As long as there is uncertainty about possible losses, there are risks.
Each risk involves one loss or another. The function of insurance is to spread the loss to a large number of people who agree to cooperate with each other when the loss occurs. Risks cannot be avoided, but losses due to a certain risk can be allocated to the agreed personnel. They were agreed to share the loss because they did not know the opportunity, time, and amount of loss to a person. Any of them may suffer a loss at a given risk, and therefore, other agreed-upon will share the loss. The greater the number of these people, the easier the loss distribution process. In fact, the loss is shared by them, which is an insurance premium calculated based on the probability of loss. In the past, human contributions were made at the time of loss. Insurance is also defined as a social tool used to accumulate funds to make up for the uncertain loss caused by certain risks to the insured.
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