Insurance in terms of law and economics is a form of risk management primarily used to hedge against losses contingent. The narrow insurance is a system for financial loss by channeling lower risk of loss from a person or entity to another .Insurance Act No.2 of 1992 on insurance companies
This an agreement between two or more parties, by which the insurer is binding to the insured, by accepting the insurance premium, to provide reimbursement to the insured for loss, damage or loss of expected benefits or legal liability to third parties that may be suffered by the insured, arising from an event that is uncertain, or provide a payment based on death or life of an insured person.

Agency risk that channel called "the insured", and the agency receiving the risk is called "insurer". The agreement between the two bodies is called the policy: this is a legal contract that explains each of the terms and conditions protected. Costs paid by "insured" to "insurer" for the risks assumed called "premium". This is usually determined by the "insurer" for funds that can be claimed in the future, administrative costs, and profits.For example, a couple bought a house for $100000. Knowing that lost their homes will bring them to financial ruin, they took the insurance protection in the form of home ownership policy. The policy will pay for replacement or repair their homes in case of disaster. Their insurance company regarding a premium of $1000 per year. Risk losing their homes have been channeled from the homeowner to the insurance company.