General Defination of Insurance

Insurance is the transfer of the risk of a loss, from one entity or organization to another in exchange for payment. It is a process of managing the risk primarily used for being secured against the risk of any uncertain loss that may occur in the upcoming future. Generally, an insurer is a company acting as a cooperative device that spread the loss by selling the insurance; the insured is the person or entity buying the Insurance document i.e. insurance policy. The amount of money charged for a certain amount of insurance coverage is called the premium. However, insurance bears the risk till the coverage period only after receiving the premium amount.

The 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 case of a financial (personal) loss. The insured receives a contract document, called the insurance policy, where details and the conditions and circumstances under which the insured will be financially compensated mentioned.