Insurance and Its Importance

Risks start birth and continue till death. Humans all over their lives face a variety of risks including accident, death, fire, theft, disease, conflict, wars and so on. A single person cannot deal with them all alone, what he can do is shift the risk to a specialized group which can bear the shifted risk at a fee. This shifting of the risk is referred to as insurance, the group assuming or bearing the risk is an insurance company, the person shifting the risk is called the insured, and the fee collected is known as premium.
The basis of insurance lies on law of averages and law of large numbers. According to these laws, thousands or large number of the insured cannot meet disaster or incur damages at a time, only a very few can.As such the amount of premium collected from thousands of the insured is far much larger than amount paid to a few for the insured damages or disaster.
The insurance business involves two parties.

1. The Insurer
2.  The Insured

The agreement between the insured and the insurer about the shifting the risk by the former and the acceptance by the letter is called as insurance and for this agreement the insurer receives premium in lump-sum or in installments. In case of loss the insurer pays up the insured amount.