What is insurance? Insurance is a contract, called a policy, between you and an insurance provider, under which you can be compensated for certain losses. You pay a fee called a premium. In exchange, the insurance company agrees to pay you a certain amount of money if the event you are insured against happens during the term of the policy.
Your premiums are pooled with those of other policyholders at your insurance company. The money in the pool is then used to pay policyholders’ claims.
Many insurance policies include a deductible. That is a portion of the claim that you pay up front, before the insurer pays the rest. If you pay a higher deductible, your premiums may be lower.