Risk and uncertainty are incidental to life. Man may meet an untimely death; he may suffer from accident, destruction of property, fire, sea perils, floods, earthquakes and other natural calamities. Whenever there is uncertainty, there is risk as well as insecurity. It is necessary to provide against such risks to save the people from such sudden setbacks or devastating effects in one’s life. From this emerges the concept of insurance. Insurance does not avert or eliminate loss arising from uncertain events; it only spreads the loss over a larger number of people who insure themselves against the risk. The main principle underlying insurance is the pooling of risks. It is thus a co-operative device to spread the loss caused by a risk over a large number of persons who are also exposed to the same risk and insure themselves against that risk.
There are a number of kinds of insurance, but the following kinds stand out as being of special importance:
(1) Life Insurance
(2) Fire Insurance
(3) Marine Insurance
(4) Motor Insurance
(5) Health and Accident Insurance Policy.
For such contracts of insurance to exist, there is a necessity of at least two parties, one is the insurer and the other is the insured. The person undertaking the risk is called the insurer, assurer or underwriter and the person whose loss is to be made good is called the insured or assured.