What is Insurance?
The most common method of providing for financial protection from potentially catastrophic losses is the purchase of insurance. Insurance allows a person, business, or organization to pay a relatively small fixed amount to an insurer in exchange for the promise that, in the event of a covered loss, the insurer will pay for losses up to the coverage limits of the policy. An insurance policy is a legal contract. In exchange for your payment of premium and fulfillment of your obligations under the conditions of the contract, the insurer promises to perform certain actions described in the contract.
Insurance companies have discovered that although individual losses are hard to predict, the total losses of a large number of people are predictable. Insurance premiums are developed by estimating losses that are expected to happen in the future for a group of people. Companies pool your premiums with premiums from other policyholders to pay claims.