Plain version: insurance moves a possible loss off one person's shoulders and spreads it across many people. Picture 1,000 people each chipping in, agreeing that whoever suffers the loss gets paid from the pool. Each person's share is the premium.
California's legal definition (Ins. Code §22): insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.
Know the five roles:
Insurer: the insurance company, which is the agent's principal.
Applicant / policyowner: the applicant fills out and signs the application; the policyowner pays and controls the policy (for example, can change a revocable beneficiary). They are often the same person, but do not have to be.
Insured: the person whose life is covered.
Beneficiary: receives the death benefit. A contingent beneficiary is paid only if the primary beneficiary has died before the insured.
Agent: represents the insurer.