By the law of large numbers , the total of the premiums collected can be made to equal at least the total compensation paid out. Life assurance consists in provision for compensation against an inevitable occurrence, that of death, and in this respect differs from other insurance, which offers compensation against an eventuality that may or may not occur. Life assurance thus relies heavily on actuaries' computation of mortality . Deaths from accident and other non-natural causes of course occur, but this category constitutes so small a fraction of all deaths, and also can be so reduced by exclusion of people engaged in hazardous activities, that calculation of appropriate premiums by actuarial methods can be most precise. Central to the financing of insurance is the investment of the fund generated by premiums.
Insurance companies constitute one of the biggest portfolio holders on the stock exchange .
The practice of general insurance dates back to earliest times. Life assurance did not take on its modern proportions until the theory of probability had been developed and combined with the principle of compound interest, in the early 18th century. General insurance contracts or policies are normally for a risk of a specified monetary value and for a specified period of time. The Penguin International Dictionary of Finance 3. The Penguin International Dictionary of Finance 4.