Although insurance could seem complex, the idea behind it is simple: it uses the small payments of several people to cover the big losses of a few unfortunate people. Your premiums go into a large pool at your insurance company, and those people who are insured and suffer a loss can then draw from the pool.
A common misconception is that your premiums keep building up, but your insurance policy covers you and your possessions on a year-by-year basis. Another widespread misconception is that your insurance covers every small loss but if that was true nobody could afford insurance as the pools would be drawn into constantly.