An insurance policy is a legally binding contract between an insurance company and a policyholder in which the policyholder pays a premium in exchange for the insurance company agreeing to pay for certain types of losses. When a loss occurs that is covered by the terms of the policy, the insurance company will compensate the policyholder financially. Insurance provides protection against economic losses that can be measured in monetary terms, such as repairing property damage or covering medical expenses, but cannot replace non-economic losses like human life or emotional trauma. The purpose of insurance is to put the policyholder in a similar financial position as if the loss had not occurred.