What is insurance

LIFE IS A RISKY BUSINESS. Sometimes those risks hit home a car collision

your basement suffering water damageyour business interrupted by vandalism.

At times like these, insurance is there to help us recover, get us back on our feet

and provide peace of mind.

What is insurance? Insurance is a contract between an individual (the policyholder) and an

insurance company. This contract provides that the insurance company will cover some portion
of a policyholders loss as long as the policyholder meets certain conditions stipulated in the
insurance contract. The policyholder pays a premium to obtain insurance coverage. If the
policyholder experiences a loss covered by insurance, such as a car accident or a house fire, the
policyholder files a claim for reimbursement with the insurance company. The policyholder will
pay a deductible to cover part of the loss, and the insurance company will pay the rest.

How Does Insurance Work?

When people buy insurance, they put

money into a pool with many others. Th e

money they put in is called a premium.

Some of that pool of money helps the

policyholders who suff er a hardship

(e.g., a home fi re, a car collision or

business interruption) in that year. Payouts

for these hardships are called claims.

Because there are usually more people

contributing to the pool than there are

people making claims at any given time,

there is enough to pay the claims. Th ere

is, and needs to be, enough money for

large single claims (e.g., when someone is

permanently disabled as a result of a car

collision) or for a large number of smaller

claims such as those resulting from a

windstorm.

History of insurance

he first methods of transferring or distributing risk in a monetary economy, were practised by

Chinese and Babylonian traders in the 3rd and 2nd millennia BC, respectively.[1] Chinese
merchants travelling treacherous river rapids would redistribute their wares across many vessels
to limit the loss due to any single vessel's capsizing. The Babylonians developed a system that
was recorded in the famous Code of Hammurabi, c. 1750 BC, and practised by early
Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would
pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan
should the shipment be stolen or lost at sea.

Property insurance[edit]

Property insurance as we know it today can be traced to the Great Fire of London, which in 1666

Lloyd's Coffee House was the first marine insurance company. 1680

The first life insurance policies were taken out in the early 18th century
in the late 19th century, "accident insurance" began to become available.

By the late 19th century, governments began to initiate national insurance programs against
sickness and old age.