Insulating liquid plays an important role for the life span of the transformer. Petroleum-based mineral oil has become dominant insulating liquid of transformer for more than a century for its excellent dielectric and cooling properties. However, the usage of petroleum-based mineral oil, derived from a nonrenewable energy source, has affected the environment for its nonbiodegradability property. Therefore, researchers direct their attention to renewable and biodegradable alternatives. Palm fatty acid ester, coconut oil, sunflower oil, etc. are considered as alternatives to replace mineral oil as transformer insulation liquid. This paper gives an extensive review of different liquid insulating materials used in a transformer. Characterization of different liquids as an insulating material has been discussed. An attempt has been made to classify different insulating liquids-based on different properties.