It may feel like you need to study volumes of books to understand insurance, however, the principle of insurance is easy to understand.
When you have something to lose, and you are aware of the fact that you cannot afford to pay for a loss yourself, insurance provides a way for you to protect your investment and assets by paying a small amount of money every month in exchange for the assurance that if something goes wrong, the insurance company will have your back in the form of financial compensation.
Basic Concept of Insurance:
The basic concept of insurance is that a company or insurer offers a guarantee for a certain risk that may or may not occur in exchange for a certain amount of money from people or groups of people.
The company collects small amounts of money from clients and pool that money together to pay for losses. The probability of risk happening is spread out among a bunch of people.
It makes money by figuring out how much money they need to bring in to turn a profit on a given risk with a given probability, that calculation then influences how much each of the insured pays each month.
There are many kinds of companies from automobiles to health, to life, and home. Most companies specialize in offering their own kind of insurance because each company has to develop a complex model to ensure profits.
The foundation of companies lies in the fact that the future is uncertain and unpredictable and the companies encash on this fear of people who have something valuable that they might lose due to bad happening.
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