Insurance is a complex financial instrument that serves as a safeguard against various risks and uncertainties. It is essentially a contract, known as a policy, between an individual or entity (the insured) and an insurance company (the insurer). Under this contract, the insured pays a sum of money, referred to as a premium, and in return, the insurer provides financial protection or reimbursement against losses from specific contingencies or perils

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The core purpose of insurance is to pool the risks of its clients, making payments more affordable for the insured. This pooling of risks allows for the distribution of losses incurred by a few over the entire group, thereby reducing the financial impact on any single individual.