Question

When one party agrees to indemnify another for a named loss in return for periodic payments, it is called:

A. A fidelity bond;
B. Insurance;
C. Performance agreement;
D. None of the above.

Answer 1

The arrangement where one party indemnifies another for a loss in return for regular payments is called insurance, where premiums are paid to cover potential financial damages from specific events.

Step-by-step explanation:

When one party agrees to indemnify another for a named loss in return for periodic payments, it is called insurance. This method of protecting a person from financial loss involves policyholders making regular payments to an insurance entity.

In exchange for these payments, known as premiums, the insurance firm compensates a group member who incurs significant financial damage from an event covered by the policy.

This mechanism helps manage risk by spreading the potential financial burden across a risk group.