Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company.
A pool is created through contributions made by persons seeking to protect themselves from common risk. Premium is collected by insurance companies which also act as trustee to the pool. Any loss to the insured in case of happening of an uncertain event is paid out of this pool.
Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type.
Definition
Insurance is a contract between two parties whereby one party agrees to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance.
History:
In western world the history goes back to Babylonian 'Code of Hammurabi' and first actual insurance contract was signed in Genoa in 1347. In UK the first Life Insurance corporation started in 1688 and in US it was in 1787.
But the Indian history goes back to Manu Smriti, Yajnavalkya Smriti and even Artha Shastra of Koutilya. There was no mention of Insurance but the concept recognised by using terms- " pooling of resources that could be redistributed in times of calamities like flood, fire, epidamics, femine".
