What exactly is insurance and why do people purchase it?

Question

What exactly is insurance and why do people purchase it?

Answer 1

everyone pays a specified amount, called a "premium" each month for insurance against something bad happening.

for example, lets say 50000 people sign up for car insurance through a company, for say, $200.  Now the company has $1000000.

Some of those 50000 people will have an accident, and some will not.  That $1000000 is used to pay for the accidents.  So if you got in an accident that cost $2000, it is paid for by all of the people who didn't have an accident.  The company also takes a cut for themselves.

As far as car insurance goes, it's mandatory, but you can purchase insurance on pretty much anything that could have a negative result.  (Fire insurance, Theft insurance, Life insurance, etc)

Answer 2

Insurance is a way for many people to lower their individual financial risks by pooling their money together to help cover losses. Everyone pays a little money every month into a pool. Some of those people experience a loss that is paid for by the large pool of money.

If you have insurance on everything you own, you're financial risks are greatly lowered.....meaning, if something bad happens to your car, home, business, etc. you don't have to fork over the money out of your own pocket to pay for it.

Answer 3

you're a young kid arent you??? we buy it because we have to.

Answer 4

Insurance is a form of protection against anything that has a small chance of happening but will cost a lot of money if it does. There are things such as health insurance, auto insurance, fire insurance, home insurance, medical malpractice insurance, and countless more types. For example, medical malpractice insurance is bought by doctors and hospitals from special companies that deal with this kind of service. Should the doctors ACCIDENTLY kill or injure a patient, the patient will sue the doctors or hospital for a lot of money. This insurance that the doctors bought, will pay off all expenses pertaining to the wronged patient. These expenses can run anywhere from hundreds of thousands to millions of dollars. If the doctors had to pay this from their pocket they would be ruined. So they buy this insurance, and pay a lot of money to be protected from situations like that. This insurance will be very expensive because the insurance company want to make money too even if they had to pay out a few times. And that is insurance in a nutshell. It protects from the unlikely and the expensive for a large fee.

Answer 5

Insurance is risk management.

Answer 6

A large group of people pay money (Insurance premiums) into a big pot.  It's mathematically certain that a small percentage of those people will experience a certain problem (car accident, death, etc.).  When they do, they take a chunk of money out of the pot to cover the cost of their problem.  So, people pay a little money each month so that, in case they have a major problem, it is already paid for, and they're not stuck with a devastating bill.

Answer 7

Insurance was created to assure people they are being robbed on a monthly basis.