Insurance is a risk reduction tool used in our private and business lives. It is founded on the basic premise that a large group of individuals will cover a catastrophic event for one of the members sometime in the future. In general, the insurance company uses actuarial science (law of large numbers) to calculate the financial cost of accidents over a given period of time.
Many states require professionally licensed individuals to carry professional liability. The most common type is in medicine for improper practice or conduct by a physician. Other professionals such as lawyers and accountants purchase errors and omissions professional insurance to compensate in case of making a mistake in their practice.