Insurance is a contract that provides compensation for specific losses, in exchange for a periodic payment. Contracts for individuals are known as insurance policies, and the periodic payment is known as the insurance premium. Insurance provides a mechanism for shifting risk from a person, business, or organization to an insurance company, in exchange for the payment of the insurance premium.

There are many types of insurance. The most important ones, for most individuals, are health insurance, life insurance, and auto insurance. Health insurance provides protection against sickness and injuries. Auto insurance provides provides protection against auto accidents. Auto insurance can also pay for injuries or damages resulting from an auto accident or when an auto is vandalized or stolen. As for life insurance, their role is to make a payment to your beneficiaries, in the event of your death (to protect them from the loss of your income and to cover funeral costs).