What is Insurance as defined in the material?

• A. A contract by which someone guarantees for a fee to pay someone else for the value of property if it is lost or damaged.
• B. A loan agreement with interest payments over time.
• C. A savings plan with tax advantages.
• D. A government program that provides guaranteed income.

Answer: (A)

Insurance is a contract where the insured pays a premium to the insurer to transfer the risk of loss. In exchange, the insurer agrees to compensate for specified losses to restore the insured to their previous financial position, such as paying for the value of property that is lost or damaged. This idea—risk transfer in exchange for a fee and a promise to pay if a covered loss occurs—matches the description of a contract by which someone guarantees for a fee to pay someone else for the value of property if it is lost or damaged. The other options describe borrowing, saving with tax advantages, or a government-guaranteed income program, which are different concepts and do not capture how insurance works.