Insurance

The act of protecting yourself against the financial impact of risk. Traditionally, insurance was developed to cover fire, the sinking or seizure of a ship, or the death of the family breadwinner. Insurance companies attempted to calculate the likelihood of such risks occurring and protected themselves by diversification. In the modern era, insurance is also widely used to protect, or hedge, against risks such as changes in market prices or interest rates. Sometimes the other side of the risk is assumed by speculators hoping to make a profit.