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What is insurance?

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Quick answer

Insurance is a way to protect yourself from big financial losses by paying a small, regular amount (a premium) to a company that agrees to cover you if something bad happens — like an accident, illness, or theft. You pay regular premiums to transfer risk to the insurer.

Key things to understand

  1. You pay regular premiums to transfer risk to the insurer.
  2. If a covered event happens, the insurer pays out (a claim).
  3. It pools many people's premiums to cover the unlucky few.
  4. Types: health, life, car, home, travel, and more.

People also ask

How does insurance work?
Many people pay premiums into a pool; the insurer uses it to pay claims for the few who suffer a covered loss.
What is a premium?
The regular amount you pay to keep an insurance policy active.
What is a deductible?
The amount you pay yourself before the insurer covers the rest of a claim.