Winthrop University: My Money Matters - Insurance - Introduction



The concept behind insurance is to spread risk across a pool of individuals with similar needs. Each person in the pool pays a price (typically called a premium) to the insurance company for the right to obtain coverage in the event of an accident, theft, illness, death, etc. At any given time, most of the individuals in the pool will not actually “need” their insurance, and the insurance company will get to keep the premiums they’ve collected from those individuals. But those premiums are essentially used by the insurance company to subsidize the unlucky few who do “use” their insurance policies and file a claim. Ironically, the hope of everyone who carries insurance in any capacity is that they’ll never have to use it.

Last Updated: 10/5/22