Insurance is a form of protection against the risk of a contingent, uncertain loss. Insurance can be defined as transfer of risk of loss from one person to another in exchange for payment. An insurer is the company selling insurance and the insured or the policy holder is a person buying the insurance. The amount paid by the insured to the insuer is called a premium.

Risks which can be insured have the following common characteristics;

  1. Large number of similar exposure units
  2. Definite loss
  3. Accidental loss
  4. Large loss
  5. Affordable premium
  6. Calculable loss
  7. Limited risk of catastrophically large losses