What Is Insurance? A Simple but Complete Explanation
Insurance is a financial agreement between an individual or business and an insurance company, where the insurer agrees to provide financial protection against specific risks in exchange for regular payments known as premiums. The main purpose of insurance is to reduce financial uncertainty and protect people from significant losses caused by unexpected events such as accidents, illness, property damage, or death.
At its core, insurance works by spreading risk across many people. Policyholders contribute small amounts of money into a collective pool, and when one of them experiences a covered loss, compensation is paid from that pool. This system allows individuals to avoid bearing the full financial burden of major expenses on their own.
Insurance plays a critical role in modern society by providing stability, encouraging investment, and supporting economic growth. Without insurance, many individuals and businesses would face severe financial hardship when unexpected events occur.