What is insurance? Types of insurance, and why do you need one?

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With a good Insurance policy, the insurance company promises to pay for certain losses, damages, sickness, or deaths in exchange. Insurance is a contract, usually shown by a policy, in which the user agrees to pay a certain fee to an insurance company or the state. It’s a way to protect your finances and handle risks. It protects you from unpredictable losses, damages, or injuries, empowering you to manage risks and control your financial future.

The company responsible for providing insurance is known as an insurance company or, for short, an Insurer. The one seeking to be insured is called a policyholder, which is the person who buys the insurance policy. The policy covers the organisation, person, or product, referred to as the Insured, the entity protected by the insurance policy.

In exchange for this payment, the insurer promises to pay the insured if a loss covered by the policy happens. Even though this loss is not only a financial one, it must be measurable in money. Also, the insurance deal usually involves something in which the covered has an insurable stake, shown by ownership, possession, or a relationship already in place. 

This differentiates insurance from gambling; whatever is being insured must have a direct link with the policyholder. For example, you cannot insure your neighbour’s house or cars because, in the case of damage, you do not have anything to lose in that accident. This financial security is a crucial benefit of insurance, providing reassurance about your financial stability.