Insurance
In short
A financial arrangement where a person pays a regular fee to a company to protect themselves against unexpected costs.
In plain words
You pay a small amount of money regularly to a company. If something bad happens, like a car crash or a house fire, the company pays for the damage so you do not have to pay for everything yourself.
A simple example
If you have car insurance and get into an accident, the insurance company pays to fix your vehicle. This prevents you from having to pay a massive repair bill all at once.
Why it matters
It provides peace of mind and prevents people from going bankrupt after a disaster. It helps manage the risk of large, unpredictable expenses.
Easy to mix up
Do not confuse insurance with a savings account, which is money you keep for yourself rather than paying to protect against risk.