General Knowledge



Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

An entity which provides insurance is known as an insurer, insurance company, or insurance carrier. A person or entity who buys insurance is known as an insured or policyholder. 

The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in the event of a covered loss.

The loss may or may not be financial, but it must be reducible to financial terms, and must involve something in which the insured has an insurable interest  established by ownership, possession, or pre-existing  relationship.


  • Insurance involves  pooling  funds  from  many  insured  entities (known as exposures) to  pay  for the  losses  that  some  may  incur.
  • The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring.
  • In order to be an insurable risk, the risk insured against must meet certain characteristics.
  • Insurance as a financial  intermediary  is a commercial enterprise  and a major part of  the financial services industry, but individual  entities  can  also self-insure  through  saving  money for possible future  losses.


Risk which can be insured by private companies typically shares seven common characteristics

  • Large number of similar exposure units
  • Definite loss
  • Accidental loss
  • Large loss
  • Affordable premium
  • Calculable loss
  • Limited risk of catastrophically large losses

Methods of insurance

In accordance with study books of The Chartered Insurance Institute, there are the following types of insurance:

  1. Co-insurance – risks shared between insurers
  2. Dual insurance – risks having two or more policies with same coverage (Both the individual policies would not pay separately- a concept named contribution, and would contribute together to make up the policyholder's losses. However, in case of contingency insurances like Life insurance, dual payment is allowed)
  3. Self-insurance – situations where risk is not transferred to insurance companies and solely retained by the entities or individuals themselves
  4. Reinsurance – situations when Insurer passes some part of or all risks to another Insurer called Reinsurer


Insurers  will often use insurance  agents to initially market or underwrite their customers.  

Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies.

The existence and success of companies using insurance agents is likely due to improved and personalized service. Companies also use Broking firms, Banks and other corporate entities (like Self Help Groups, Microfinance Institutions, NGOs etc.) to market their products.