Insurance is defined as a social device providing financial compensation for the benefits of misfortune, the payments being made from the accumulated contributions of all parties participating in the scheme. It is a form of contract under which one party (insurer or insurance company) agrees in return of consideration (insurance premium) to pay an agreed sum of money to another party (insured) to make good for a loss, damage or injury to something of value, in which the insured has financial interest, as a result of some uncertain event. Insurance is a device by which a loss likely to be caused by an uncertain event is spread over a large number of persons who are exposed to it and who voluntarily join to insure themselves against such an event. The agency which helps in entering into this arrangement is known as insurer or insurance company. The person who gets his property or life insured is known as insured. The agreement or contract, which is put into writing, is known as a policy. The consideration in return of which the insurer undertakes to make good the loss or give a certain amount in case of life insurance is known as premium.
Insurance methods have existed from thousands of years in one or the other forms. Modern and systematic insurance methods came into existence later on but before that according to anthropological data thousands of years ago when the primitive people became socialized, they started hunting together in groups in order to ensure the safety of individuals and after killing the prey the flesh was distributed among all the members of the group, without taking into consideration that which person had actually captured and killed the prey. And with this the idea of insurance came into existence. Insurance can be broadly categorized as life insurance, health insurance, casualty insurance, property insurance, liability insurance, credit insurance and miscellaneous insurance such as financial loss insurance, locked funds etc. The contracts of insurance are based on certain fundamental principles. These are: (1) utmost good faith, (2) insurable interest, (3) indemnity, (4) subrogation, (5) proximate cause, and (6) migration of loss.
Insurance is also referred as risk management. As we all know, that business means risks and uncertainties. Every business enterprise is exposed to large number of risks and uncertain events to its premises, plant and machinery, raw materials, finished stocks and other things. Goods may be damaged or lost in the process of transportation, and may be destroyed due to fire or flood while in shortage. Some risks can be avoided by timely precautions, but some are unavoidable and are beyond the control. Despite utmost care, accidents, thefts and fire cannot be prevented totally.