Insurance is a contract where you pay a small, regular fee (called a premium) to a company. In return, the company promises to pay for your major financial losses if bad things happen, like a car crash, a sick day in the hospital, or damage to a home.
How Insurance Works
- Premium: The money you pay each month or year to keep your plan active.
- Claim: The formal request you send to the company to ask for money after a loss.
- Deductible: The set amount of money you must pay out of your own pocket before the company pays the rest.
- Risk Pooling: The company collects money from many people to pay for the few people who suffer a sudden emergency.
Common Types of Insurance
- Health Insurance: Pays for doctor visits, medicines, and hospital stays.
- Auto Insurance: Pays to fix your car or cover crash injuries.
- Home Insurance: Pays if your house has fire, storm, or theft damage.
- Life Insurance: Gives cash to your family if you pass away.
