A pregnant wife is looking to buy life insurance for the first time. Neale has advice any first-timer can use! Insurance is based on these principles. Insurance companies calculate the odds of a particular event occurring, then compute how much money will be needed to pay those who have suffered losses. Then they add a bit more to cover administrative expenses and profits. The total cost is divided among a particular group in accordance with how much risk each party faces. The charge, or premium, is the price paid to be covered by insurance.