Picture the scene: it’s 2001, you’re the CEO of Taco Bell, and it’s been reported that a space station is about to crash into the South Pacific. So you make the (totally obvious and totally normal) decision to stick a Bell-branded target in the ocean, and you tell the world that if the space station hits that target, you’ll give every American citizen a free taco.

Now, it’s very unlikely the station will hit the target, but it is theoretically possible. And if it does, you’re going to have to deliver on your promise to the tune of a cool $400 million. That’s a possibility you’re probably not comfortable with – but that promotion sure sounds like a good way to put tacos on the map. So you decide to take out insurance. Taco insurance.

You do it because you know that, in exchange for a fee (known as a premium), your insurer will agree to compensate you in the event a risk becomes a reality. In this case, the firm will guarantee to pay for America’s taco bonanza in the unlikely event the space station lands on that one spot. And yes, this really happened.

**Why would the insurer agree to this? *A $400 million sum might knock the filling out of Taco Bell, but insurers are very clever about how they manage risk. Let's say the firm has worked out there’s a 1% chance the station will hit the target, and it charges Taco Bell $4 million for its policy. That means it believes it’ll have to pay out once in every one hundred crashes. So if there were 99 other companies that had the same idea as Taco Bell (unlikely, sure, but bear with us), it could charge each of them $4 million. The insurer would then have a $400 million pot ready in case it actually needs to cover the costs of a payout. Or, better still, the station won’t hit anyone’s* target and the insurer won't have to pay out at all.

That’s insurance in a nutshell. But it’s a $5.2 trillion industry with sneaky secrets galore, and if you’re all clued up on the ins and outs, you stand to win big. That’s precisely why it attracts big-name investors like Elon Musk and Warren Buffett. In fact, many argue that Buffett is only where he is today thanks to his insurance investments.

So as a wise man once said, “Shoulda got that insured Geico for your money”. And you’d have been wise to follow Kanye’s advice: since he recorded that, shares of Geico’s parent company have tripled in value.

The takeaway: Insurance is the business of risk transfer – and it’s a favorite of successful investors.