Insurance is basically a provision for protection against loss or harm. An insurance company offers such protection for a payment (or premium). It is also the amount the insurance company agrees to pay when an unfortunate event occurs. An insurance policy is a written agreement between an insurance company or and an individual organization that requires insurance. The insurance policy sets out the terms and conditions and specifies the risks that will be compensated for. The insurance company or provider is also called the insurer. The person or organization protected by the insurance is called the insured.

Definition
The Wordsmyth English Dictionary-Thesaurus defines insurance as, "A guarantee of
protection against certain misfortunes that is provided by a company in return for a payment of a fee."

History
The practice of insuring can be traced back to ancient Babylonia. The merchants paid a sum of money (including interest) only after the goods arrived safely. With the growth of trade, the practice of insuring became a necessity. Before companies were established, many individuals signed the document and wrote the amount they contributed.

Reasons/Importance
Risk is an inevitable part of everyday life. Nobody can say beforehand when an undesirable event may occur or how grave the damage may be. Investing in insurance is said to be less risky. This is because an underlying principle of insurance is the 'law of large numbers'. The law states that the ability to predict losses improves with larger groups. Insurance is widely available and affordable. It is also a significant economic force in industrialized countries.

Types of Insurance
There are so many types of insurances. But they all fall into one of the four groups given below:

• Property
• Casualty
• Life Insurance and Annuities
• Health

Each of the above is briefly explained below. Insurance purchased by individuals are called personal lines coverage and the insurance purchased by businesses as commercial coverage.

Types of Insurers and How Insurance Is Sold
Stock Companies, Mutual Companies, Private Insurers and Government Insurers are the primary players in the insurance industry. Insurance agents and agencies primarily sell insurance.

Insurance agents represent insurance companies and must pass an examination to obtain a state license. They may be direct writers or captive (exclusive) agents. They are hired by a particular company and are offered salary or commission or sometimes, both.

Independent agents represent more than one company and work on a commission or a fee basis. They own a right to their accounts, policy records and renewals.

Brokers represent policyholders and not insurance companies. Brokers are independent contractors who examine the insurance needs of their clients and then shop around for the best coverages. They work for commission and must also pass an examination to obtain a state license.

When there is no market through the agent or broker, the insurance is placed through a licensed surplus lines broker. This is called Excess and Surplus Lines.