In most countries, life and non-life insurers are subject to different regulations, tax and accounting rules. The main reason for the distinction between the two types of company is that life business is very long term in nature – coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers shorter periods, such as one year.

Companies may sell both life and non life insurance, in which case they are sometimes known as composite insurance companies.

Insurance companies are also often classified as either mutual or stock companies. This is more of a traditional distinction as true mutual companies are becoming rare. Mutual companies are owned by the policyholders, while stockholders, (who may or may not own policies) own stock insurance companies.

This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death. Wealthy individuals buy life insurance policies as a means for avoiding income taxes and estate taxes.
If the tax benefit exceeds the fees charged by the insurance company for maintaining the policy, then the policy serves as a life insurance tax shelter . There is much controversy surrounding this practice, and the financial industry is deeply divided about whether or not these practices work as advertised.
Insurance policies can be complex and some policyholders may not understand all the fees included in a policy. As a result, people could buy policies at unfavorable terms. In response to these issues, governments often make detailed regulations that set down minimum standards for policies and govern how they may be advertised and sold.

Property Insurance
provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as Fire Insurance, Flood Insurance, Earthquake Insurance , Home Insurance or Boiler Insurance .

Casualty Insurance
insures against accidents, not necessarily tied to any specific piece of property.
Liability insurance covers legal claims against the insured. For example, a doctor may purchase insurance to cover any legal claims against him if he were to make a mistake in treating a patient.

Financial Loss Insurance
protects individuals and companies against various financial risks. For example, a business might purchase cover to protect it from loss of sales if a fire in a factory prevented it from carrying out its business for a time. Insurance might also cover failure of a creditor to pay money it owes to the insured. Fidelity bonds and surety bonds are included in this category.

Title Insurance
provides a guarantee on research done on public records affecting title to real property , usually in conjunction with a search done at the time of a real estate transaction, such as a sale, or a mortgage .
Health Insurance covers medical bills incurred because of sickness or accidents.

Life Insurance provides a benefit to a decedent’s family or other designated beneficiary, usually to make up for their loss of his or her income .

Annuities provide a stream of payments and are generally classified as insurance because they are issued by Insurance Companies and regulated as insurance. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the opposite of life insurance.

Credit Insurance pays some or all of a loan back when certain things happen to the borrower like unemployment, disability, or death.

Terrorism Insurance
Political Risk Insurance can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions will result in a loss
A single policy may cover risks in one or more of the above categories. For example, car insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from say, causing an accident). A homeowner’s insurance policy in the US typically includes property insurance covering damage to the home and the owner’s belongings, liability insurance covering certain legal claims against the owner, and even a small amount of health insurance for medical expenses of guests who are injured on the owner’s property.
Potential sources of risk that may give rise to claims are known as perils. Examples of perils might be fire, theft, earthquake, hurricane and many other potential risks. An insurance policy will set out in details which perils are covered by the policy and which are not.

In one classic example of insurance, a ship-owner insures a ship 7and receives payment if the ship is damaged or destroyed. This example is one of the earliest uses and developments of concepts like insurance. Interestingly, ships are now more often insured through risk pooling and spreading organizations such as Lloyd’s of London because the loss of a large ship going down is too great for one insurer to accept.

In the case of annuities , such as a pension , similar concepts apply, but in some sense in the reverse. When applied to annuities, the terms risk and loss are somewhat different from traditional insurance as they concern the chances of living beyond life expectancy and the need for income during the period between annuitization and death.

Insurance attempts to quantify risk by pooling together a large number of risks. This makes use of the law of large numbers . As applied to insurance, this means that the greater the number of similar risks, the greater accuracy with which insurers can estimate the overall risk.
For example, many individual people purchase health insurance policies and they each pay a small monthly or yearly premium to an insurance company. When a policyholder gets ill, the insurance company provides money to cover medical treatment. For some individuals the insurance benefits may total far more money than they have ever paid into the insurance policy. Others may never make a claim. When averaged out over all of the people buying policies, value of the claims even out. Insurance companies set their premiums based on their calculated payouts. They plan to take in more money (in premiums and in profit from the float, see below) than they pay out in the end to cover expenses. For-profit insurance companies set their rates to make a profit rather than to break even.
Insurance companies also earn investment profits, because they have the use of the premium money from the time they receive it until the time they need it to pay claims. This money is called the float. When the investments of float are successful, they may earn large profits, even if the insurance company pays out in claims every penny received as premiums. In fact, most insurance companies pay out more money than they receive in premiums. The excess amount that they pay to policyholders is the cost of float. An insurance company will profit if they invest the money at a greater return than their cost of float.

An insurance contract or policy will set out in detail the exact circumstances under which a benefit payment will be made and the amount of the premiums.