The concept of insurance was sparked by the idea of pooling risk. People with families and valuable property have always faced the possibility of loss; even the possibility of such loss has caused individuals so much concern that they have ultimately refused to live without having options for replacement of their loss. Thus, the practice of insuring property for its replacement value has evolved. Even more importantly, the practice of replacing of the economic value of a human life has also grown out of this thought process.

Insurance allows you to transfer the financial risk of certain types of losses to another entity, usually an insurance company, that is organized according to stringent federal and state regulations specifically for the purpose of protecting you against losses. By transferring the financial risk to such an entity and paying the required premiums, you can receive compensation for loss in the form of either a lump sum or an annual amount of financial resources. This compensation can maintain or replace your income stream. In this way, insurance helps you and your family maintain financial stability if you get sick or become unable to work because of disability, injury, or death.

If you have insurance but do not incur a loss for which you had coverage, you lose only the premium you paid, although some insurance policies do have a return-of-premium feature. And even though a particular loss may not occur, you still receive value from the premium paid in the form of peace of mind and the knowledge that you are being obedient to commandments that instruct you to care for your family. However, if you do not have insurance and you are sued, get sick, or even die, you and your family may suffer serious consequences: your family may have to rely on only one income or a reduced income to get by, and your children may not be able to achieve important goals. If you do not have insurance and you suffer great loss, it is likely that you will not be able to take care of your family as you should. You may be unable to work, and you may lose your earning capacity: you may lose everything you have ever saved. Insurance allows you to transfer the financial responsibility for risks like illness, disability, and death to an institution capable of handling these risks.