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Insurance companies are a special type of financial institution that deals in the business of managing risk. A corporation periodically gives them money and, in return, they promise to pay for the losses the corporation incurs if some unfortunate event occurs, causing damage to the well-being of the organization. Here are a few terms you need to know when considering insurance companies:

 Deductible: The amount that the insured must pay before the insurer will pay anything

 Premium: The periodic payments the insured makes to ensure coverage

 Co-pay: An expense that the insured pays when sharing the cost with the insurer

 Indemnify: A promise to compensate one for losses experienced

 Claim: The act of reporting an insurable incident to request that the insurer pay for coverage

 Benefits: The money the insured receives from the insurance company when something goes wrong

You’re probably thinking to yourself right now, “Wait. You pay the insurance company to indemnify your assets, but then it makes you pay a premium, deductible, and co-pay and caps your benefits? What’s the point?” Yeah, I know. Insurance companies can calculate the probability of something happening and then charge you a price based on the estimated cost of insuring you. They generate profits by charging more than your statistical cost of making claims.