How Does Insurance Work?

wow that was um that was probably one of my more exciting words to start this video with um so we're going to talk about insurance today and i promise i'm going to do my best to make this really interesting um maybe but uh if you want to learn how insurance works stay tuned because that's what we're talking about but back to the video insurance it's the annoying necessity that we all pay for to make sure we don't end up in massive amounts of debt if our house burns down if we crash our car or if something tragic happens insurance helps us maintain peace of mind knowing that even if something bad does happen someone else is going to pay for what it costs to fix it though to an untrained eye this can be a lit tle perplexing i mean if you pay 200 a month for home insurance and after only six months your home burns down the insurance company will buy you a new house likely in the matter of hundreds of thousands of dollars but you would have only given them 1200 why would they do that that 's the power of insurance baby [Applause] the basic concept of insurance is that a company the insurer offers a guarantee for a certain risk that may or may not occur then another party the insured pays the insurer in exchange for protection against that risk when a when a bunch of people do the same thing for the same risk eventually the insurer is getting a lot of income but the probability of that risk happening is spread out among a bunch of people and and stays about the same insurance companies make money by figuring out how much money they need