The insurance abolishes or limits the burden of certain types of random events. These events can be negative: damage to health or destruction of property. They can also be positive: the birth of a child – but it is associated with increased financial needs. For one person, the financial costs of such events can be very severe. Thanks to the insurance company, which collects premiums from many people and pays compensation only to those affected by the damage, sme insurance packages the costs are spread. The insurance company undertakes to provide certain benefits in the event of a given fortuitous event, and the policyholder (the other party to the contract) undertakes to pay the premium. The insured is a person whose property, life, or health is the subject of insurance. The notion of the beneficiary, i.e., the person designated by the insured to collect the insurance benefit after his death, also plays an important role in insurance.
Insurance has three basic functions: protective, preventive, and financial.
The protective function is related to providing the insured with protection in the event of certain events. Protection usually has a financial dimension because the benefits paid by the insurance company are to meet the suddenly increased needs or to compensate for unexpected damages. In practice, insurance services also provide problem-solving in an organizational way, such as accommodation or a replacement car. This means that even before the occurrence of the insured event, the insured has a sense of security because, for a low price in relation to possible losses, he gets rid of the need for financial and psychological preparation for the consequences of what may occur.