Have you ever wondered where insurance actually came from? Who were the first people to be insured – and why? Insurance is one of those things we tend to take for granted. It just seems to have always been there. The history of insurance is an interesting one, but the basic idea has always been the same .

The basis of insurance is “guarantee against loss”.

Insurance is a legal contract that protects people from the financial costs that result from loss of life, loss of health, car loss, loss due to catostrophe or property damage etc....

It helps to manage the risks of everyday life, to recover from the unexpected and to prepare for the future. Basically, insurance enables to cover a loss or accident due to misfortune. The payments come from a fund of money contributed by all the holders of individual insurance policies.

 

In other words, individual risks are pooled and shared, with each policyholder making a contribution to the common fund. The contribution is known as the premium. Premiums are paid to insurers. Premium varies between individual policyholder depending on the risk involved. In motor insurance a young person with a high powered car or a driver with a long history of accidents will pay a higher premium than a mature and experienced driver who has been accident free.

Similarly someone who is young, fit and in a risk-free job will find it easier to buy life insurance, and will pay lower premiums than someone who has a heart condition or is in a risky occupation. Insurers are professional risk takers. They know the probability of different types of risk happening. Clearly, only a proportion of policyholders will require compensation from the fund at any one time.Life comes at you fast. Insurance is a cornerstone of your financial security and the peace of mind. The following points should be bear in mind when going for insurance:

Insurance provides compensation for the actual value of property. It cannot cover the loss of sentimental value.

Losses must not be deliberate and not inevitable. Clearly, you could not buy fire insurance for a house, which was already burning or life insurance for someone who is on deathbed.

There must be a large number of similar risks so that the likelihood of a claim can be spread among other policyholders. It must be possible for insurers to calculate the chance of loss so that a premium can be set which matches the risk.

There are some risks, which have financial implications so vast that they can be dealt with only by the state. These risks may arise due to war or nuclear bomb and are normally not insurable. But things are changing now.

Insurance takes the risk away from people's lives and businesses. It brings peace of mind to the policyholder. In return for paying premiums the policyholder knows that, if the unexpected happens, financial compensation will be available from the fund of premiums.


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