Which of the following is a suitable definition of "Insurance"?

Question

Question: Which of the following is a suitable definition of "Insurance"?

Options:

1. A credit card available to protect you in the event of a rainy day
2. A financial arrangement whereby an individual pays a small certain payment in exchange for being indemnified against large uncertain losses
3. A financial arrangement that redistributes the costs of expected losses amongst the owners of an insurance company
4. An investment contract designed to allow the insured to earn a fair rate of return on investment commensurate with risk
5. A contractual agreement in which the insurer agrees to pay the insured only if the insured requests the money

Answer 1

2. A financial arrangement whereby an individual pays a small certain payment in exchange for being indemnified against large uncertain losses

A suitable definition of Insurance is, "Insurance is a financial arrangement whereby an individual pays a small certain payment in exchange for being indemnified against large uncertain losses".