What is insurance:

 An arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

Insurance is a contract between two parties in which insurance company (one party) promises with that in case of any financial or life loss due to any reason, company will compensate the loss. The insured has to pay premium to insurance company in exchange for shifting of risk.

Business is not free from risk of loss. So insurance is one of the devices by which risk may be reduced. Human life is exposed to many risks, which may result in heavy financial losses. Insurance is one of the devices by which risks may be reduced or eliminated and exchange for premium.