To begin with, insurance is one of the ways that businesses and individuals reduce the financial impact of a risk occurring. While an insurance policy does not remove a risk, it does provide the policyholder with some security should the worst happen.

Insurance works like this. A business that provides insurance – known as the ‘insurer’ – agrees to take on the risk on behalf of the business or individual concerned – known as the ‘insured’. It does this by providing the insured with an insurance contract, sometimes called a ‘policy’. In this contract the insurer will state what risks it has agreed to insure against and how much it will pay if the risk happens so that insured is put back into the same position as if the risk had not happened. The policy may also include a list of things that are not insured against, known as ‘exclusions’. So for example, if someone buys insurance in case their car is stolen, the insurance may have an exclusion if the insured was careless and left the keys in the car, making it easy for the car to be stolen. In return, the insurer receives a fee from the insured, and this is called the insurance ‘premium’.

The insurer will collect premiums on a number of policies and pool these funds together which it then invests to make the pot of money grow. Should any insured person make a claim on a policy, the insurer will pay out on that claim from the pool of funds. The insurer is in business to make a profit and will be hoping that the total premiums it receives in any one year together with any money it can make by investing the money will exceed the total claims it has to pay out.

It's understood, I think, that there are numerous insurance types: auto insurance, business insurance, dental insurance, equipment insurance, property insurance, health insurance, credit card insurance, home insurance, landlord insurance, life insurance, travel health insurance etc. And sometimes it's really difficult to find out all the particularities. For example, if you are just going to live in one of the apartments for rent you'll have to buy not less than 10 insurance policies!!! If you are going to leave abroad, travel health insurance is only the small part of all the policies you'll need. So it's vital to understand all the nuances of this business.