Insurance plays a major role in the modern economy, providing an orderly means for the replacement of property lost or destroyed and for sustaining purchasing power adversely affected by illness, injury, or death. An insurance contract must have an element of contingency that is, the event insured against must be possible but not certain to occur in a given period of time and must be substantially beyond the control of either insured or insurer. In addition, the policyholder must have an insurable interest that is, the policyholder must be one who would suffer a material loss by the happening of the event. Other perils often covered by insurance include burglary and theft, vehicle collision, and dishonesty of employees. Specialized types of insurance cover damage to glass, boilers and machinery, elevators, animals, and other property, as well as losses to property arising from lightning, wind, tornadoes, hail, storms, insects, blight, bombardment, explosion, and water damage.
Many insurance policies are comprehensive that is, they cover a group of related perils.
Types of Insurers A variety of organizations underwrite insurance in the United States, including stock companies, mutual companies, reciprocal exchanges, and Lloyd's organizations. Stock companies are owned by their stockholders, who contribute the capital and surplus by their stock purchases and share in the profits in the form of stock dividends. A reciprocal exchange is a nonprofit arrangement whereby an unincorporated group of individuals subject to a similar peril agree to pay back one another in the event of loss. Under the Lloyd's type of insuring organization, patterned after the celebrated British firm of Lloyd's, a number of individuals each agree to accept a portion of a risk for a specified premium and to share in the profit or loss in proportion to the percentage of the risk assumed. Such insurance guarantees financial protection to an insured party who might be required to pay damages resulting from legally negligent conduct.