insurance

The making of a legal and enforceable contract between one party (called the insurer or underwriter) with another (called the insured). In consideration of a sum of money (called the premium) paid by the insured, whereby the insurer agrees to pay an agreed amount of money to the insured or beneficiary if and when the insured suffers some loss described in the insurance contract (which is usually called a policy). In addition, insurance must combine a large number of separate, independent exposure units (insureds) having similar common risks into an interrelated group. It is a social device for reducing risk by combining a sufficient number of exposure units to make the individual losses collectively predictable, and the predictable loss is then shared proportionately by all those in the combination. Thus, the definition implies both that the risk is transferred and that the risk is distributed in that the losses are shared. See Helvering v. LeGierse, 312 U.S. 531 (1941); Rev. Rul. 77–316, 1977–2 C.B. 53.