Insurance - A Brief Overview

In law and economics insurance is a form of risk management. Insurance is used to compensate irreparable loss. In economic terminology, insurance is defined as an equitable transfer of the risk of loss. The transfer is done from one entity to other, in exchange for a specific amount, also known as premium.

The entity which takes upon itself, the burden of compensating the loss is called as the insurer or in more precise terms the insurance company. The entity which is likely to suffer from a loss be compensated in case of a loss is called as the insured.

The insurer is usually a company that sells insurance. The amount that is paid as a consideration to cover the likelihood of a loss is known as the premium. The premium differs according to the amount insured and the nature of insurance.

In today's world, risk management has come up as a major activity or field with principles based on practice and research. It is an integral part of Insurance. It is a study which is involved with appraising and managing risk. It applies the rule of Law of Large Numbers. When applied to Risk Management, this rule implies that as the number of exposure units' increase, the actual results are more likely to match the probable, anticipated or forecasted results.