Insurance is a complicated subject, but it is required for nearly everyone in some way, shape, or form. It was based on the idea of risk-sharing. The big idea is that, within many people, only a few experience significant risks. Risk sharing is the concept that a person does not have to worry about financial troubles if a loss occurs. Some people have suspicions on the amount of money that an insurance company takes from an individual. What happens to all of it? Well, the money that insurance companies collect gets pooled together to pay for losses. However, this doesn’t necessarily mean your money is only for your damages.
The system works by sharing the money of many to support the losses of the few. For instance, federal taxes adopted the same concept. Your federal tax expenses that are taken from each check are thrown into a large pool of money to make up the costs for other bills. Medicaid is one example of how your federal tax money is put to use. Like insurance, the payment given by many pays for the expenses of the less fortunate.
The History of Insurance
There are various theories about when this big insurance idea came about. Some believe gangsters developed it. A person would pay them monthly dues to ensure no harm would come to their family or property. However, risk-sharing dates back much further than this. The concept has been around since human existence. Over the years, the idea has evolved and adapted many different aspects. The industry provides a vital source of long-term finance for everyone’s assets.
In the Babylonian Era, a king grew tired of the lack of structure he saw within his people. Then, he requested that a monument be made in the center of their colony to demonstrate his broad actions. Many of the civilians gathered around the memorial to watch the king carve the first written law ever recorded. The law states that a person doesn’t have to pay back any loans from him if they encounter a personal occasion that results in a significant loss.
The Middle and Dark Ages
Now, let’s move through a few hundred years and enter the Dark Ages. The idea of insurance began to evolve into more of a business-like factor. The guilds took over the first written law and made it into a system. The system used the craftsmen among the guilds to be trained by the masters. Once a craftsman reached a certain level of training, they would become apprentices. The problem associated with the system was that the training took most of their childhood to accomplish. The other rising issue was that they made little to no pay. Eventually, they would reach a level of mastery and only had to pay their dues to the guilds.
After becoming a master, they had to establish their practice area and find new apprentices. The masters were seen to be on the same level as the business partners of today. How do they work like insurance? The insurance aspect came from the guilds pooling their money into a wooden crate (the first established safe). Each practice had to have one. Then, they would place the dues from every master into the container and hide it. If the time ever came when a master passed away or a building was burned down, the loss was funded from the crate sum. Nonetheless, if a master were to pass away, the family would receive only enough money to pay for a funeral service.
The most significant trend through the 1600s was traveling to the New World. Colonies began to fail, and the colonists wanted to go to the new land. The most expensive factor in this century was the costs of the voyages. No matter whether you were a servant or a royal descendant, the insurance system made it possible for everyone to travel. People often traded their homes, gold, clothes, and any other items for passage. Even though this seems strange, everyone had heard of all the new happenings in the New World and wanted to see it for themselves.
Where did the money come from? The majority of the funds came from merchants and ship owners. They would meet in a small coffee shop just north of the shore and discuss the number of funds they were going to gather that morning. The concept of insurance only grew further because stock exchange shipments were coming up missing. As storm season was vastly approaching, stock owners could not afford to foot the bill for any more losses. Therefore, merchants began to help fund them if a shipment did not make it.
Merchants were seen as the highest class among the people, below the royals, of course. That is how the idea of insurance evolved even more. The idea began to grow into protecting your assets rather than just your family or personal property. Eventually, large sums of money started to flood in from all angles. So much that the merchants had no idea what to do with it all. Once shipments were funded, the king allowed all the colonies to transfer them and their families to the New World.
The Migration to America
After the booming of the Industrial Revolution in Europe, insurance companies began to thrive. However, American colonies were still figuring out the lifestyle and government issues. The New World was not making any money and was behind on stock shipments due to a vast drought. America was trying to establish different laws and ways of life. This included the way insurance companies were run. Due to the lack of goods, medicine, and conflicts, over 70% of the settlers died in the first 50 years. It took more than 75 years before the insurance industry came to town.
During this time frame, factors of the insurance business began to bloom. Policies became a significant aspect, and deductibles emerged. People noticed that to have money to pay for a loss, they needed to gather all the money from each client and put it in one account. Around this time, banks also became a big deal.
Everything About Deductibles
Today, some people are still confused about the concept of deductibles. Insurance agents may do a poor job of informing a client about deductibles. The definition of a deductible is the amount a policyholder must pay before a company can pay any expenses. Why is the system set up like this? Well, you might think that it seems a tad unfair, but in reality, a company cannot pay for anything if you have not contributed your share. Risk sharing is all about people each doing their part. To make the system work, a policyholder must pay that amount to make up for any losses within the company.
Difference Between Premium and Deductible
Now don’t get confused by either of these terms. They may seem complicated but are quite useful when it comes to the system. A premium is an amount that the policyholder must pay to maintain their insurance coverage. The dividend is the amount on your monthly bill. The deductible is the amount you pay upfront before a company can provide for a claim. Even though they seem alike, they hold sperate significances in the insurance industry. The system would fail without either of these methods.
Importance of Insurance
The main reason why insurance is essential has to do with its role in the economy. The insurance industry brings in at least 30% of our country’s profits each year. Another reason is it keeps commerce moving. The industry can only evolve by more and more incidents. Insurance may not cover something that seems unfair. If it is a big enough struggle in our country, the federal government may make a motion to change it.
An example would be the 9/11 occasion. Insurance does not cover acts of war; however, the federal government claimed the company and motioned to make it a requirement of any federal building. This is only a factor for government buildings, and it is not offered to just anyone.
The best instance in which insurance is vital is that it gives a person peace of mind. In today’s time, people find themselves being frantic and possessing more and more anxiety. Sometimes, peace of mind is exactly what someone needs. The human brain is wired to connect distraught feelings with terrible incidents. If a freak occurrence ever happens, you are covered from all angles. That is, if you chose to be.
The last reason as to why insurance is essential lies with stability. Coverage feels like a safety net for most businesses and families. When the day of your passing comes, life insurance is there to ensure your family can handle the grief and any extra expenses. Some say life insurance allows widows to get back on their feet because of the grieving process.
In conclusion, insurance can be a challenging topic for some but is needed by all. Whether your state makes it a requirement or you just want to continue to take care of your family after you’re gone, insurance is there. Think of insurance as a fire extinguisher to any fires in your life. The blanket of coverage it provides ensures that everyone and their property is taken care of. While not all insurance is necessary, most types of insurance are beneficial. Remember not to overcrowd your monthly or annual budgets on too much coverage, however.