What is Insurance?

Legal Definition
Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

An entity which provides insurance is known as an insurer, insurance company, or insurance carrier. A person or entity who buys insurance is known as an insured or policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and must involve something in which the insured has an insurable interest established by ownership, possession, or preexisting relationship.

The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. The amount of money charged by the insurer to the insured for the coverage set forth in the insurance policy is called the premium. If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster.
-- Wikipedia
Legal Definition
A contract in which one party agrees to indemnify another against a predefined category of risks in exchange for a premium. Depending on the contract, the insurer may promise to financially protect the insured from the loss, damage, or liability stemming from some event. An insurance contract will almost always limit the amount of monetary protection possible.
Overview
In the absence of insurance, three possible individuals bear the burden of an economic loss; the individual suffering the loss; the individual causing the loss via negligence or unlawful conduct; or lastly, a particular party who has been allocated the burden by the legislature, such as employers under Workmen's Compensation statutes.

While types of insurance vary widely, their primary goal is to allocate the risks of a loss from the individual to a great number of people. Each individual pays a "premium" into a pool, from which losses are paid out. Regardless of whether the particular individual suffers the loss or not the premium is not returnable. Thus, when a building burns down, the loss is spread to the people contributing to the pool. In general, insurance companies are the safekeepers of the premiums. Because of its importance in maintaining economic stability, the government and the courts use a heavy hand in ensuring these companies are regulated and fair to the consumer.

Up until 1944, insurance was not considered "commerce" and not subject to federal regulation. But in United States v. South-Eastern Underwriters Association, the Supreme Court held that Congress could regulate insurance transactions that were truly interstate. Congress then enacted the McCarran-Ferguson Act (15 U.S.C. § 1011) which provided that the laws of the several states should control the insurance business, but that the Sherman Act, the Clayton Act, and the Federal Trade Commission Act were applicable to the insurance business to the extent that it was unregulated by state law.

The McCarran-Ferguson Act, broadly speaking, gives states the power to regulate the insurance industry. While state insurance statutes override most federal laws, some portions of federal law (like federal tax laws) are always commanding. Therefore, when researching whether a particular law governs, a good rule of thumb is to ask whether the inquiry is related to the "business of insurance" (where state law governs), or whether it is related to peripherals of the industry (labor, tax law, securities - where federal law governs).
Legal Definition
Contracts. It is defined to be a contract of indemnity from loss or damage arising upon an uncertain event. 1 Marsh. Ins. 104. It is more fully defined to be a contract by which one of the parties, called the insurer, binds himself to the other, called the insured, to pay him a sum of money, or otherwise indemnify him in case of the happening of a fortuitous event, provided for in a general or special manner in the contract, in consideration of a premium which the latter pays, or binds himself to pay him. Pardess. part 3, t. 8, n. 588; 1 Bouv. Inst. n. 1174.

2. The instrument by which the contract is made is denominated a policy; the events or causes to be insured against, risks or perils; and the thing insured, the subject or insurable interest.

3. Marine insurance relates to property and risks at sea; insurance of property on shore against fire, is called fire insurance; and the various contracts in such cases, are fire policies. Insurance of the lives of individuals are called insurances on lives. Vide Double Insurance; Re-Insurance.
-- Bouviers Law Dictionary
Legal Definition
A contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils. The party agreeing to make the compensation is usually called the "insurer" or "underwrit er;" the other, the "insured" or "assured;" the agreed consideration, the "premium;" the written contract, a "policy;" the events insured against, "risks" or "perils;" and the subject, right or interest to be protected, the "insurable interest." 1 Phil. Ins. §§ 1-5. Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from an unknown or contingent event. Civil Code, Cal. § 2527; Civil Code Dak. § 1474. See People v. Rose, 174 III. 310, 51 N. E. 246, 44 L. R. A. 124; Barnes v. People 168 III. 425, 48 N. E. 91; Co.m. v. Wetherbee, 105 Mass. 160; State v. Vigilant Ins. Co., 30 Kan. 585, 2 Pac. 840; Com. v. Provident Bicycle Ass'n, 178 Pa. 636, 36 Atl. 197, 36 L. R. A. 589; Co.m. v. Equitable Ben. Ass'n, 137 Pa. 412, 18 Atl. 1112; Tyler v. New Amsterdam F. Ins. Co., 4 Rob. (N. Y.) 155. Classification.
See also
-- Black's Law Dictionary
Legal Definition
A personal contract whereby one who has an interest in that for injury to which he is to be paid, is by the insurer to be indemnified for his loss. See 28 Am. Dec. 154, note.
-- Ballentine's Law Dictionary