Bad luck can strike any time. And since ancient times, people have tried to find ways to avoid it or at least share the burden with others. The first insurance policies were created to protect traders against theft or loss, whether in China, Babylon or Greece.
Nowadays, insurance is big business. But how does it work? You sign a contract called an 'insurance policy', with the company detailing the risks which are covered. Every year, you pay a premium to the insurance company to protect yourself against future losses.
If it does happen (you are sick, break your leg, have an accident, lose your luggage etc), you make a claim to the insurance company which pays to fix the problem. This is called indemnity and it could include many things, such as a medical or car repair bill and protection against stolen goods.
Except for life insurance, general insurance policies are not an investment. If the risk never happens to you, the insurance company won't pay you back anything. But if you are unlucky, the expense might be bigger than your annual insurance premium. Then you will be happy to have the insurance to pay for it.
