Insurance is a kind of Derivative. You pay an insurance company an amount to insure your property, they agree to pay you another amount in case an event happens, for example your property is stolen.
In finance, a very common Derivative is an Option. This is a contract where the buyer of the option pays a specific amount in exchange for a contract that fixes the purchase or sale price of the stock. For example, you might enter an option where you can buy 1 share of Apple stock at $100 on January 1 next year, this means on January 1, you can purchase a share of Apple for $100 regardless of the current market price. If, on that day, the Apple stock is trading at $120, you can make a profit of $20. If the Apple stock is only trading at $80, you could still use the option, but as your original Option cost you $100, you would be paying $20 more than trading directly on the Market, in this case you would tear up your option and move on.
To make things more complicated, before the option expires, you can trade the option itself. So a week before expiry, if Apple is trading at $120, the option is worth money. Usually less than $20 there is an associated risk that the Apple price will drop between now and option expiry, however, there’s also the chance that the price will rise and increase the value of the option.
Derivatives can be much more complicated and sometimes this complexity is intentional to hide the risks involved. The key to making a sound investment with Derivatives is to fully understand the risks associated, such as the counterparty, underlying asset, price and expiration date.