We all need it. We all buy it. Most of us dislike it. Very few really understand it.
Please allow me to give you the text book answer.
“Insurance is a Social Device that allows for the management of an Unforeseen Fortuitous Event”
Wow! Big words but a pretty simple concept.
Fortuitous: accidental
Unforeseen: I never saw it coming.
Try this for an example:
Your sitting in your den, your family is out, finally getting a chance to watch that game on TV.
BANG!    Lightning. TV, your chair and your house…. Burned to the ground!
(Sorry about that but I wanted to be sure I had your attention)
Scary but it does fit our definition so far.
I was an accident and you certainly did not see it coming.
Your Home Owners Insurance is the device that will help you manage the damage caused by the accident you did not see coming. You have owned your home for 10 years and for 10 years you have paid a small premium for insurance. “Hold on”, you say, “I don’t consider $1,000 a year for 10 years as small” Yes, that is a valid opinion before the lightning hit you.
It looks quite different after the hit. “Hey my house is worth $400,000, it gone, I just got a check for: $400,000”
$10,000 paid in to get $400,000. out looks real good now.
We’ve covered: Unforeseen, Accident and Manage but how about “Social”?
Let’s say you have a great neighbor. You and you neighbor make a deal (a contract) your neighbor will give you $1,000. every year for as long as they own their home. If or when their home burns down, you will give them $400,000. We don’t have to do the math to know that this may not work very well.
But, if 1,000 neighbors met to gether and worked out a system where each of them would put $1,000. in a fund they could certainly help the few neighbors who may need to rebuild their homes.