Fundamentals Of General Insurance Insurance companies are business houses. The product they sell is financial protection. To succeed and survive, they must cover their costs, which include payments to cover the losses of policyholders, as well as sales and administrative expenses, taxes and dividends. Insurance companies have two sources of income for covering these costs: premium and investment income. The premium are collected on a regular basis and invested in Government Bonds, Gift stocks, mutual funds, real estates and other conservative avenues. However, investment income depends on market conditions, interest rates, economy etc and varies from year to year. Because of the uncertainty associated with the investment income, insurance companies must generate enough income form premium to cover the bulk of their expenses.

The primary function of insurance is to provide protection against financial losses caused by unforeseen events. This protection is available to individuals, businessmen and large companies alike.

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