What is "insurance"?

What is "insurance"?

Elliot Matloff (President and Broker, The Matloff Company) gives expert video advice on: What types of insurance are there?; Why do I need insurance? and more...

Insurance is a legal contract between you and a big insurance company. It is a promise that if you pay a certain amount of money every month or every quarter, the insurance company promises to take care of you in case you have an economic loss. So, if you have a house that burns down, they will help to rebuild your house. If you have a life insurance policy, i.e. you've insured yourself for a million dollars, they're going to pay to your beneficiary a million dollars. The way insurance goes is that your premium plus thousand or sometimes even millions of other people's premiums go together in a big pool. The insurance companies use that pool. They invest it, and then they pay it when there's a claim.