Question: What is Insurance?
Answer: Insurance may be defined as a contract between two parties whereby one party undertakes, in exchange for a fixed sum, to pay the other party a fixed amount of money on the happening of a certain even (death or attaining a certain age in case of human life), or to pay the amount of actual loss when it takes place through the risk insured (in case of property).
The party who seeks protection against a particular risk is called the insured, while the party undertaking to protect the former is called the insurer. Mostly the insurers are insurance companies these days.
The amount for which the risk is insured is called the insured amount of policy money or is also known as the fact value of the policy. The amount which is paid by the insured to the insurer as a consideration of the insurance contract is called the premium, this is the price of the insurance. The document which contains the terms and conditions of the insurance contract is termed the insurance policy.
When a person takes insurance on the same subject-matter with more than one insurer, it is called double insurance. In case of life, one can take insurance with as many insurers as one likes for any amount and on the maturity of policies and assured can realise the total amount for these various insurers. But in indemnity contracts, nothing more can be realised than the actual loss though the insurance might have been effected with more than one insurance company.
When an insurer transfers a part of his risk on a particular policy by insuring it with some other insurer, it is called reinsurance. It is a contract between two insurance companies and the original insured is not affected by it. Some insurance companies conduct only the business of reinsurance.
Question: What is the Origin of Life Insurance ?
Answer: Almost 4,500 years ago, in the ancient land of Babylonia, traders used to bear the risk of caravan trade by giving loans, which had to be repaid later with interest after the arrival of goods. In 2100 BC, the Code of Hammurabi granted legal status to the practice.
Life insurance had its origin in ancient Rome, where citizens formed burial clubs that would meet the funeral expenses of its members as well as help survivors by payments.
As European civilization progressed, its social institutions and welfare practices also got more refined. With the discovery of new lands, sea routes and the consequent growth in trade, medieval guilds took it upon themselves to protect their member traders from loss on account of fire, shipwrecks and the like.
Since most of the trade took place by sea, there was also the fear of pirates. So these guilds even offered ransom for members who were held captive by pirates. Burial expenses and support in times of sickness and poverty were other services offered. Essentially, all these revolved around the concept of insurance or risk coverage. That's how these, concepts really originated.
In 1347, in Genoa, European maritime nations entered into the earliest known insurance contract and decided to accept marine insurance as a practice.
Insurance, today owes its existence to 17th century England. In fact, it began taking shape in 1688 at a rather interesting place called Lloyd's Coffee House in London, where merchants, ship-owners and underwriters met to discuss and transact business. By the end of the 18th century, Lloyd's had brewed enough business to become one of the first modem insurance companies.
In 1693, an astronomer, Edmond Halley constructed the first mortality table to provide a link between the life insurance premium and the average life spans, based on statistical laws of mortality and compound interest. In 1756, Joseph Dodson reworked the table, linking premium rate to age.
The first stock of companies to get into the business of insurance were chartered in England in 1720. The year 1735 saw the birth of the first insurance company in the American colonies in Charleston, SC.
In 1759, the Presbyterian Synod of Philadelphia sponsored the first life insurance corporation in America for the benefit of ministers and their dependents. However,) was after 1840 that life insurance really took off in a big way.