You trade a series of annual payments for the assurance that you won't have to take a major loss at some unknown time. One person alone would find it difficult if not impossible to provide this protection because the possibility of a loss cannot be predicted as well for one person as for a group. Large groups of people can pool or transfer their risks to an insurance company. The individual pays the company a specified amount called the premium. The size of the premium is based on the frequency of losses by the group in past years, and the costs of company administration and selling divided by the number of people in the group.
Losses are many and varied.
Some are in the nature of disasters, such as the loss of your home by fire. The risks you face are not exactly the same as those other people face. Neither will your risks remain the same year after year. Your circumstances will keep changing. Decision-Making Determine what risks you face.