Insurance is transferring your financial risk to a company in exchange for a regular premium. You pay $1,000 per year for health insurance; the insurer pays $50,000 if you need surgery. You cannot prevent every bad event, but you can prevent financial ruin from one. Insurance is the foundation of financial planning.
Major types: life insurance (death benefit), health insurance (medical expenses), auto insurance (vehicle damage/liability), property insurance (home/business), and liability insurance (lawsuits). The global insurance industry collects over $6 trillion in annual premiums. LIC alone manages Rs 40+ lakh crore in assets — making it India's largest financial institution.
Insurance works on the law of large numbers — individual risk is unpredictable, but aggregate risk is very predictable. An insurer cannot predict which house will catch fire, but can accurately predict how many out of 100,000 will. This statistical predictability allows insurers to set premiums that cover claims while generating profit. Warren Buffett built Berkshire Hathaway's fortune largely through insurance company acquisitions.