Most Americans don't understand how insurance works.
Insurance is a way of pooling risk, not for saving up for it.
In insurance, your insurer calculates the risk of people they insure and estimates how much they will have to pay in claims during a particular time period. They then charge their customers a “premium”. The total of the premiums should, if they’ve done their job well, exceed the amount of claims paid out, allowing the insurance company to pay their overhead (sales commissions and staff) and to make a profit.
Insurance has worked this way for over 400 years now.
So, when you pay your money to the insurance company, they use it to pay all the claims made against everyone’s insurance that year. They keep any surplus, but if there’s a deficit it comes out of the insurance company’s capital. That’s the deal. Every year, you pay a new premium, and the cycle starts over again.
Most years, you will not make any claims, or will make minimal claims. However, if you’re in an auto accident or need an expensive operation. the pool will pay the costs (minus deductibles and co-pays) even if it far exceeds all the premiums you have paid or will ever pay.
So people are using what you put in to pay for expensive items.