Insurance is simply a vehicle for transferring risk from one party to another. You need insurance if you have financial risk (and everyone does) and you want to reduce that risk. To do so, you pay someone else (the insurance company) to assume much of the risk for you, in return for a payment known as a “premium.”
Because American consumers hold a tremendous amount of wealth in property — ranging from homes and cars to collections of baseball cards and Christmas ornaments — they have a basic need to protect themselves from losing that value.
Insurance is designed to “make people whole” after their property or assets are damaged or stolen, or if they are responsible for harm caused to another party. An insurance policy is a contract under which an insurance company agrees to pay a certain amount of money to the policyholder if certain events happen (and their property is damaged or they cause harm to someone else or someone else’s property).