A: Insurance is a form of risk sharing, or spreading the risks evenly among members of the insured community – policy holders. Each member of this group makes a small contribution into a pool of funds – buying insurance. In the event of mishaps occurring to o­ne of the members, the funds are used to compensate the unlucky for their losses.

The act of buying insurance is in fact transferring the risks you are likely to face to many others, so that the risks to you will be minimized. In other words, you are buying yourself some peace of mind, by turning the uncertainty of accidents, disasters to the certainty of being covered financially in case they do occur.