Best purpose of insurance? 2022

 

Risk sharing or pooling is a central concept of the purpose of insurance business. This idea has the beauty of simplicity combined with practicality.

If the risks—the chances of loss—can be divided among several members of the group, they need to fall lightly on any member of the group. Thus, misfortunes that can crush one can be endured by all. Seen as a form of mutual aid, risk-sharing can be seen not only as a sound business practice, but as enlightened social behavior rooted in accepted principles of ethics.

Beginning

The idea and practice of risk-sharing originates in antiquity. Thousands of years have passed since Chinese merchants devised an ingenious way to protect themselves against the prospect of economically devastating upsets in the treacherous river rapids along their trade routes.

They divided their cargo among several boats.

If a boat went to pieces in the rapids, no merchant lost all his goods. Each lost only a small portion. They may not have thought of their plan as insurance, but the principle is remarkably similar to its modern counterpart, ocean marine insurance, as well as other forms of property and casualty insurance. With modem insurance, however, instead of literally distributing the cargo among a number of ships, merchants and shipowners find it more convenient to spread the financial cost of any loss among several merchants and shipowners through the use of financial contracts.

Again for convenience, these contracts usually take the form of insurance policies, with insurance underwriters or insurance companies acting as financial intermediaries. In exchange for a payment called a premium, the insurer assumes the risks—that is, is responsible for paying all the policyholders’ losses.

In 17th-century England, insurance underwriting got its name from the practice of signing the names of private investors who guaranteed, for a fee, under posted lists of sea voyages and cargoes. They will share the assumed financial risk.

This group of underwriters, who initially met in a London coffee house owned by one Edward Lloyd, formed themselves into an association which became known as Lloyd’s of London, after the coffee house. Long before its tercentenary celebrations in 1988, Lloyds had become a major force on the global insurance scene. Still adhering to the practice of individual underwriting by members, Lloyd’s has become known as a source of coverage for almost any imaginable risk.

Although it took a different direction from Lloyd’s activities, modern fire insurance also originated in 17th-century England. This need became evident when the Fire of London in 1666 destroyed nearly 14,000 buildings and left 200,000 persons homeless. The first fire insurance company was established in London the following year. First run single-handedly by an entrepreneur named Nicolas Barbon, in 1680 it was organized as a stock company known as the Fire Office.

In the New World, the first fire insurance company was formed in 1735 but lasted only five years. It was Benjamin Franklin who got fire insurance to its real start – in 1752 – with the successful creation of the Philadelphia Contribution to insure houses against damage by fire. The company was also known as Hand in Hand, after its firemark, a symbol that originally appeared on houses that were insured by contribution. That company still exists today.

When the automobile arrived, insurance wasn’t far behind—providing financial security and peace of mind to car owners whose accidents, though few in the early days, could still be expensive. What is said to be the first auto liability policy to be written—actually a horse-drawn carriage policy applied to an automobile—was issued in 1887 to one Gilbert Loomis of Westfield, Connecticut. The cost was $7.50 per $1,000 of liability coverage. Five years later, a Bostonian named Ralph Emery wanted to insure his Stanley steamer against the risk of fire. The marine policy adopted to cover it was probably the first policy issued to insure automobiles as property.

Over the years, property/casualty insurance companies have expanded their horizons to provide coverage against many perils, from the violence of hurricanes and tornadoes to identity theft resulting from one person’s negligence causing harm to another. And again and again, insurers have found a way to deal with the highly specialized insurance demands of advancing technology—aircraft, nuclear power, offshore oil rigs, spacecraft.

Today, home owners, car owners, businesses and organizations have a wide range of insurance products available to them, many of which have become essential to the functioning of a free-enterprise economy.

The basic concept of insurance is that one party, the insurer, will guarantee payment for an uncertain future event. Meanwhile, the other party, the insured or policyholder, pays a small premium to the insurer in exchange for that protection against that uncertain future event.

In the insurance world, there are six basic principles or forms of insurance coverage that must be met, including utmost good faith, insurable interest, indemnity, proximate cause (proximate cause), subrogation (transfer of rights or guardianship), and contribution.

Characteristics Of Insurance

1. A CONTRACT:
2. UNDERTAKING OF RISK:
3. A COOPERATIVE DEVICE:
4. PAYMENT OF POLICY AMOUNT ON THE HAPPENING OF EVENTS:
5. PREMIUM:
6. CONTRACT OF ADHESION:
7. DEVELOPMENT OF LARGER INDUSTRIES:
8. PROVIDE PROTECTION:

What is an example of purpose of insurance?

An example of an auto purpose of insurance policy is when you pay a premium in exchange for a policy that pays out when your car crashes in a car accident. This is an example of insurance if you lose your job and you save money when you are out of work.

According to the “get a life insurance policy while you’re young and healthy,” mentality, 20 would be the ideal age. Many young people think they don’t need a life insurance policy, and it’s not hard to see why.