An act of insuring, or assuring, against potential future losses in exchange for a periodic payment called premium. In other words, one of the parties undertakes to indemnify or guarantee another party against loss by certain specified risks. Insurance works on the basic principle of risk-sharing.
Human beings are exposed to different types of risks such as loss of property by fire, theft, accident, untimely death of the earning persons, professional or business failure etc. Such risks may cause a large scale financial losses. It is not possible to eliminate such risks but can be reduced and or recovered. It is insurance which bears the risks and assures the recovery of the financial losses so caused.