Midnite,
Your statement is confusing. An insert effect is always "mixed" with the original signal. It is just NOT mixed (or applied) to other signals. The original signal passes through the effect and back into the signal path AFTER the original signal. This way it ONLY affects (effects) the signal intended.
Your theory is almost correct, but I think the way you stated it will confuse some of the readers. Maybe we're saying the same thing and don't realize it?