What is Insurance?

The first thing which comes to our mind when we even start thinking of Insurance as a subject is what really is Insurance all about? Is it something related to security or is it some fixed scheme by some commercial organization? What is it? Lets start our journey of Insurance:

Insurance in its basic form is defined as “ A contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event."

So as we can see there are two parties involved: Insured and the Insurer. They are trying to reach an agreement by virtue of which the Insurer promises to protect the Insured in case of an occurence of certain event. This even is what in Insurance terminology is called Risk.

Insurance is basically a protection against a financial loss which can arise on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. By paying a very small sum of money a person can safeguard himself and his family financially from an unfortunate event.

For Example if a person buys a Life Insurance Policy by paying a premium to the Insurance company , the family members of insured person receive a fixed compensation in case of any unfortunate event like death.

There are different kinds of Insurance Products available such as Life Insurance , Vehicle Insurance, Home Insurance, Travel Insurance, Health or Mediclaim Insurance etc.

In my next series we will explore some other aspects of Insurance which we as common people should be aware of.