Insurance is a contract for equitable transfer of risk, or in simple terms - insurance is a financial solution to cover risk of loss that could happen in future. Hence, the primary intention for any insurable interest is to meet any contingencies for the future uncertainty.

Insurance is a contract between the two primary entities, the Insurer & Insured, where the Insurer promises an agreed monetary benefit [or alike] to the Beneficiary, upon the trigger of any covered event as listed in the original contract.

The Insurer is a financial institution, called Insurance Company, that offers Insurance Cover or Insurance Policy, to whoever likes to have [a person or a thinginsured for a particular term or for its entire life-time to protect it from loss[es] in the future with respect to his/her/it's value.

When such insurable-interest is requested by a seeker, the insurer offers the best contract from its inventory [as applicable] to cover the risk in the future, for a fraction of its value called as 'premium'. Upon acceptance of the selected contract's terms and conditions by the seeker, as applicable to cover the 'risk[s]' involved, after the premium is paid - the policy is then 'put in force' to cover the insured risks.


As in any contract, Insurance policy also has its terms and conditions, on which the contract will be executed. With reference to the value of the insured entity, a contract fee, called as Insurance Premium will be collected from the insured. The insurance premium will be a very small fraction, when compared to the insured value. The contract or policy document also mentions under which conditions and circumstances the insured could be able to claim the covered value, upon trigger of any of the subsequent risks as mentioned in the original document.

Insurer in order to cover the risk on its behalf, pools-in the funds collected as premium, in order to make pay-outs for those who claim loss insured entities. If the claim is genuine, the insurer is bound to pay the contractual equity to the claimant / beneficiary.

Ever since the advent of the most risky word, 'fraud', is in existence as in any financial or other beneficial transaction, the insurance industry too had its share in the early days. Fortunately, the modern industry has some managed to overcome this issues by installing a third party or constitutional governing body, who regulate the insurance industrial machinery to best keep the interests of the contracts, along with both the parties. There are a few intermediary servicing authorities, who regulate the process of the contract throughout its tenure.
The following authoritative/corrective entities keeps a tab in the process and ensure the functionality of any insurable-interest matter, in the chronological order.
  1. Actuary - is the one, who keeps a tab on the premium rates for any insurance policy and is a third party authority.
  2. Underwriter - is the one, who scrutinizes a fresh / new contract application before the policy is executed to cover the risks. They are mostly an appointee of the insurance company.
  3. Ombudsman - is the one, who oversees any default in claim-related queries and advises a fair settlement according to the contract, to which the insurer has to abide and act accordingly if the insured agrees with the settlement advised by the ombudsman. It is a third party authority.

A brief History

Looking deep into the historical records, the insurance as a risk-management provision dates back as early as 2000.BC or even 3000 BC, which worked as a distributed-risk amongst the Chinese & Babylonian traders[1]. However the modern day's concept of Insurance came into existence in about 3 centuries ago, in the late 17th century in England, in the infamous Great Fire of London.

In India, the existence of insurance is depicted in many historical writings such as Arthashastra, Dharmashastra & Manusmrithi - where pooling of resources was constituted, to be distributed in case of contingencies, such as famine, fire, flood, epidemics, etc. Marine & carrier, trade and loans too were mentioned in the manuscript. In the current form, the insurance industry in India took to a foot-hold in the year 1818, as the Oriental Life Insurance Company.

Here in India, IRDA is the official autonomous apex statutory body, constituted by the Government of India, to regulate, govern and develop the Insurance industry. The primary goal of the body is to protect the interests of policyholders and to regulate and develop the insurance industry in India.

The IRDA Act, 1999 was passed in the Parliament of India with reference to the Malhotra Committee report [1994], which recommended in establishing an independent regulatory authority for the insurance sector in India. IRDA came into existence in April of 2000, as a statutory body.

The IRDA Act, 1999 also allowed private players to enter the insurance sector in India, also introduced the foreign entities with a maximum equity holding of 26 percent along with any domestic private insurance company holding the remaining 74 percent, to operate in India. This churned a foray of new insurance companies offering a wide choice of insurance products to the insurance seekers, to choose their best suited insurance products from any of them.

Reliance ADAG tied up with Nippon of Japan, and Tata Sons tied up with AIG, etc, to a total of 24 players in the Life Insurance sector alone.

Types of Insurance

There are two fundamental types of insurance,
  1. Life Cover Insurance
  2. Non-life Cover Insurance.
1. Life Cover Insurance, or simply Life Insurance is an insurance contract[s] which is designed to meet the insurable interests of human life. Life Insurance has various sub-categories, which cover different types of risks that any person would need in his life-time. To know more about Life Insurance, click here.

2. Non-life Cover Insurance, or widely known as General Insurance is an insurance contract[s] that are designed to meet insurable interests other than human life. It is one of the most vast insurance sub-categories, that covers all the worldly materials which are insured to cover its respective contingencies that could occur in its life-time. To know more about General Insurance, click here.