A legally binding contract where the risk of financial loss is transferred in exchange for premiums is called:

An insurance policy is a legally binding contract between the insurer and the insured. In this contract, the insurer agrees to provide financial protection against specific risks in exchange for premiums paid by the policyholder. This agreement outlines the terms, conditions, coverage limits, and the obligations of both parties.

The essence of an insurance policy is the transfer of risk—by entering into this contract, the insured moves the financial burden of certain losses to the insurer, who is then responsible for compensating the insured for covered losses as defined in the policy. This foundational concept is crucial in understanding how insurance functions as a tool for risk management and financial security.

The other options, while related to insurance, do not describe the binding contract itself. The principle of indemnity refers to ensuring that the insured only receives compensation for the actual loss incurred without profiting from the incident. A reserve is a fund set aside by an insurance company to pay future claims and does not represent the contract itself. A claim is a request made by the insured for payment under the terms of the insurance policy after a loss has occurred. Thus, the most accurate descriptor of this contract is an insurance policy.