Insurance 101: The Basics

Today, we are going to begin our “Insurance 101” series. In this series, we’ll discuss all things related to insurance: terms, topics, types — if it’s insurance-related, we will be talking about it. While this insurance stuff gets us really fired up, we realized it’s not the most exciting stuff for most people. So, we’ll try to make this short, sweet and fun!

And don’t worry — this is an ongoing series; we won’t be bombarding you week after week with this stuff (in fact, we have a really fun summer series coming up — so keep reading!)

Today, let’s talk about what insurance is.

Insurance is a form of risk management in which the insured (that’s you!) transfers the cost of potential loss to another entity (that’s us!) in exchange for monetary compensation known as the premium. The premium is what you pay monthly or annually, and it’s determined based on the type of coverage you have (essentially, the better the coverage, the more you’ll pay).

Insurance works by pooling risk. We use statistics and various factors to calculate the likelihood of loss. That’s why someone with multiple car accidents and tickets will pay more for car insurance than someone with a clean driving record: you pay for the probability of the loss and for the protection that you will be paid for losses in the event they occur.

There are many types of insurance: car, health, homeowner’s, life, disability — even pet insurance! In the coming weeks, we will discuss how each and every type of insurance works!

Photo credits: Chris Potter, instantcarinsurance.