What Is Insurance?
Insurance can help protect you from a large cost if something unexpected happens.
Things that could happen
Paying to be protected
A person pays an insurance company money called a premium. If a covered event happens, the insurer may help pay for the resulting loss, according to the policy — but not every loss is automatically covered.
A damaged car
An excess is an amount the insured person may have to pay themselves when making a claim. This is a simplified example — real policies vary.
Kinds of insurance
Insurance is primarily about protecting against risk — it's not designed to make your money grow, unlike investing.
Which situations need insurance?
1. You lose a $2 toy. 2. Your family's car is badly damaged. 3. Your house is damaged by a major event. Which situations might adults consider getting insurance for?
Probably the car and the house — the potential cost is large enough that protection makes sense. A $2 toy usually isn't worth insuring; the cost of the loss is small enough to just absorb. Insurance policies also have specific terms and exclusions, so not everything is automatically covered.
Use everyday examples. Children can learn the concept by understanding why adults sometimes pay for protection against risks they hope never happen — there's no need for disaster scenarios.
Where to next
More on unexpected expenses and planning ahead.