Insurance is available to help you pay for damage to your property or to pay others on your behalf when you injure someone or damage their property. Insurance is a contract that transfers the risk of financial loss from an individual or business to an insurance company. The company collects small amounts of money from its clients and pools that money together to pay for losses.
Insurance is divided into two major categories:
Property and casualty insurance protects businesses and individuals for losses related to their belongings or assets, both physical and financial. Life and health insurance protect people from financial loss due to premature death, sickness or disease.
Insurance uses probability and the law of large numbers to determine the cost of insurance premiums it charges its clients based on various risk factors. The rate must be sufficient for the company to pay claims in the future, pay its expenses, and make a reasonable profit, but not so much it turns away customers.
The more likely an event will occur for a given client (i.e. a house near the water flooding area when the area has a history of frequent flooding), the more insurance companies will need to collect to pay the anticipated claims.
