The basic idea behind insurance is that it's a way to manage risk. As we all know, there are many various types of insurance, ranging from car insurance, home insurance, and personal insurance. However, the basic concept behind each insurance is always the same, as there's always a chance some damage could come to your car, house or you. And whilst the accident itself may be small, its financial effect could be catastrophic, as without insurance, you'd have to fit the bill yourself.

Insurance companies know that car, personal, and accidents with the home don't happen to everyone, but they do happen to some people, and through statistical analysis, it's possible to group together enough data so as to know roughly how many people these types of incidents will happen to, and the cost of fixing the situation. The insurance company then, using this information, can spread the potential risk among all of its customers.

To paint a picture, I'll now discuss an example of how this could be put into practise, for those who are struggling to understand the concept. Imaging that there's a football team, and this team is made up of 25 players, each fighting for a place in the first team. Every year, for the past 20 years, a player has broken their leg either during a match or during training, which resulted in roughly £5,000 worth of medical expenses. If insurance didn't exist, or there wasn't an insurance scheme, each player or their family would have to save £5000 in case they were the one to suffer the broken leg. After all this, 24 players family's would have saved £5000 after spending nothing, but one players family would have paid £5000 in medical fees.

With an insurance policy, the risk is spread out among the players, so in this situation, each player or their families would each put in £200 at the start of the season. This would amount to £5000 in total, and this would cover the cost of medical fees for whichever player was unfortunate enough to suffer the broken leg.

£200 may seem like a lot in this situation, but I'm sure you'd agree, most people would rather foot the bill to the tune of £200 rather than having to scrape together £5000 each season, on the off chance their family member was the one to suffer with the injury.

This is the basic concept of insurance, and why we have to pay insurance, even though we may not actually make a claim, and also why, we can't claim back the money we've paid to the insurance company if we go a year without claiming.

I hope you've enjoyed reading this article.

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