To explain in layman terms, insurance is a mechanism that enables to preserve the economic value associated with the possessions owned by an individual or an organization. Every business organization maintains a record of the items that are used in the production of various goods and services and replaces the same from time to time in accordance with the value to depreciation. This is a gradual process and is done over a period of time depending upon the rate of growth of the organization. But what can be done when there is sudden loss of these items, which are valuable for the company to run successfully? This is where the need of insurance arises.

The very reason to get these assets insured is to safeguard the interests of the company is case of unforeseen calamities. The calamities include all the possibilities (perils) like floods, earthquakes, fire etc. that "may" cause sudden and unexpected losses. Insurance can only be reimbursed in case of one of the above said instances actually happening.

The term insurance is no longer restricted to materialistic items. It now includes items that are intangible in nature. Instances such as sudden and steep drop in the share prices, fall in exchange rates etc. are included in it. The losses from these can amount to amounts that cannot be borne by an individual or an organization leading to them filing for bankruptcy.

Economically, a human life is source of income generation. Hence, a human life can also be insured. Cases like untimely death or contracting an incurable disease leading to the stoppage of income generation are insured. In some cases, specific parts of the human anatomy can be insured, e.g. the fingers of a pianist or the voice of a singer.

The mechanism of insurance works on the principle of the insuring company sharing in the losses incurred in lieu of regular or one time payments made by the organization getting insured. It is from this collected revenue that the insurance company pays for the losses encountered. The manner in which this deal regulated has to be determined at the time of signing the offer documents.

It should be kept in mind that insurance reimburses the losses encountered and not protect the insured property. The risk of losing these assets remains the same during the whole procedure. Perils can occur anytime without warning and better safely management is the only way to avoid it. The alternate solution is to secure ourselves from the losses and that is exactly what an insurance policy provides. Insurance aims at supporting the victim by providing monetary compensation (not always 100%) thereby enabling him / her to start afresh.

Everyone runs the risk of encountering situations which can make sustenance of the expenses unbearable. It is due to the fear of these risks that insurance policies are so popular. The sting felt is always less if the burden is shared by more than one individual. The only condition that is included in any insurance policy offer is that the damage caused should not be intentional in nature on behalf of the beneficiary. The definition if perils are taken very seriously.