Definition: Insurance or pay out of pocket Insurance, in the context of insurance laws and regulations, refers to a financial arrangement made between an individual or entity (the insured) and another party (the insurer) that provides financial protection against financial loss or damage. Under most insurance laws, the purpose of insurance is to provide financial protection against potential losses or risks related to the coverage limits of the policy. The amount covered under the insurance policy is generally based on the extent of the loss or damage the insured has incurred. In an example, if you are purchasing a home and want to buy comprehensive insurance for your property, your insurer will purchase this coverage to protect against potential losses due to theft, fire, or other incidents that may affect your home. This type of insurance is often called "pay out of pocket" because the cost of purchasing this policy does not need to be paid upfront. In summary, insurance is a financial protection mechanism provided by an insurer in exchange for risk sharing. It provides financial protection against potential losses related to covered risks.
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