Demystifying "Demystified"

Insurance is the transfer of risk. If we have an object, any object, and that object is valuable, if it breaks then we no longer have use of the valuable object and because we can no longer use it, it becomes worthless. It may cost too much for us to fix or replace, so we insure it. When we insure it we transfer the risk of breakage or loss to an insurance company. For a small monthly fee known as a premium that we pay the insurance company, the insurance company will make us whole or indemnify us by replacing the object or paying us the value in tax free cash.

When large numbers of people pay small monthly fees to insurance companies it adds up to a lot of money. Because the insurance companies know that proportionately few people will lose the use of their objects at any particular time compared to the number of people and amount of premium (money) generated by the people who want to insure their objects and transfer risk, the insurance companies are able to be extremely profitable and accumulate wealth. This is called the Law of Large Numbers and it is how insurance companies work and are able to remain in business and be very profitable.

When Insurance is Demystified, we take this complicated subject and break it down to simple parts that people understand.