After so much efforts a human being creates something for him / her in the form of various assets which can be used over a period of time. Now what if those assets are destroyed or they get out of service, the benefit which was expected to be driven from the same tends to vanish. Reason for destruction may be fire, flood, earthquakes, break down, riots and stroms etc. All of these events are not in control of human beings they are part of nature. Also, the assets created out by human beings have some value.

They are considered as part of the net worth of an individual. All the above mentioned misfortunes can result into depletion of this net worth or value. So there is a risk involved. Risk is nothing but uncertainty. It is also defined as probability of something unexpected. Then how does insurance comes into picture.

It is the mechanism why which loss suffered from any unseen contingencies (as mentioned above) is compensated by some one. Insurance concept works on the simple logic that persons who are exposed to similar kind of risks come together and pool some part of the money and in the event of loss, the concerned person gets compensated.

It is assumed on the basis of historical data the probability of every one making the loss is not there. When we menton about pooling of money, the group of people contribute small some of money (called as insurance premium) on regular intervals and create an insurance fund. If an individual / entity who is part of the group suffers loss due to any reason, he / she is compensated out of this fund. In other words the risk to which an individual is exposed to gets transferred to the group of the people or the fund.

In the above section we have talked about the loss to physical assets. How about the loss to human life. The concept used is assurance. The difference between insurance and assurance is that insurance is the protection in the form of compensation against the uncertain events like floods, fire and earthquake etc whereas on the other hand assurance is protection against the certain events like death. Death is cetain in this universe. When the earning member dies that it brings lot of hardships to the family. The financial position of the family continues to be weak till the time some alternative source of income is identified. Assurance comes as a helping hand for the same. The family gets the compensation for the loss of the life so that they can sustain the minimum standard of living. So that they can fulfill the basic necessities of the life.

On the basis of above, the insurance business can be divided into life insurance and non life insurance. Any insurance other than life insurance is categorized into non life insurance such as auto insurance, medical insurance, marine insurance etc.

So insurance provides many benefits in the form that firstly it compensates the affected / grieved party and secondly the pooled fund is utilized for the development of economy.