Insurance, as described in law and economics, is a form of risk management tool primarily used to hedge the insuree against the risk of any contingent loss. In theory, Insurance is defined as the transfer of the risk of a potential contingent loss, from one body to another, for a sum of money termed as premium. Insurer, in economics, refers to the company that insures for the risk involved and thus, sells insurance.

Premium is the amount which the insurance company (known as the insurer) charges for a certain amount of insurance coverage (known as the Sum Assured).