Describe insurance.

An effective way to guard against financial loss is through insurance. It is a type of risk management that is mostly employed to protect against the possibility of an unforeseen or contingent loss.

• The organization that offers insurance is referred to as an underwriter, carrier, insurer, or insurance firm. The individual or organization purchasing the insurance is referred to as the policyholder, and the individual or organization covered by the policy is referred to as the insured. Although the terms “policyholder” and “insured” are frequently used synonymously, they are not always the same because coverage occasionally extends to extra policyholders who did not purchase insurance.

• In an insurance transaction, the policyholder pays the insurer (premium) in exchange for the insurer’s promise to cover against a guaranteed, known, and relatively minor loss. Moreover, it is typically something that the insured has a pre-existing relationship with, ownership over, or an insurable interest in.
• An insurance policy, which describes the conditions and terms under which the insurer will compensate the insured or his specified beneficiary or assignee, is given to the insured. The premium is the sum of money that the insurer charges the policyholder for the coverage that is outlined in the insurance contract.
• The insured files a claim with the insurer for the claims adjuster to handle if they sustain harm that might be covered by the insurance agreement. Deductibles are mandatory out-of-pocket payments that the policy stipulates must be made before the insurer will cover the insured event (or deductibles if required under the health insurance policy). By taking out collateral, an insurer can guarantee its own risk, with another insurer agreeing to take on part of the risk—especially if the primary insurer thinks the risk is too big to take on.
• A policy in the context of insurance is an agreement (usually in the form of a standard form contract) between the policyholder and the insurer that specifies the claims that the insurer is required by law to pay. To the extent specified in the policy language, the insurer will pay for a loss resulting from dangers covered in return for an upfront payment called the premium.
• Because insurance plans are made to fulfill certain requirements, they have a lot of features that are uncommon in other kinds of policies. Insurance policies use standard wording that is the same for many different kinds of insurance policies because they are standard forms.

Generally speaking, the policy is an integrated contract, meaning it contains all the documents related to the agreement between the insurer and the insured.

Insurance’s Past

The Arly Method

1. As early as the third and second millennia BC, Babylonian, Chinese, and Indian traders used strategies for shifting or distributing risk. Chinese traders would divide their cargo among several ships when traversing dangerous river rapids in order to reduce losses in the event that one vessel capsized.
2. A sea captain, shipkeeper, or charterer who prevented a ship from being completely lost was only obliged to pay the shipowner half of the ship’s value, according to Codex Hammurabi Law 238 (c. 1755–1750 BCE).

• At the start of the third century, in AD 235, Roman jurist Paulus was included in the Lex Rhodia (“Rhodian law”), which articulates the general average principle of marine insurance established on the island of Rhodes from approximately 1000 to 800 BC as a member of the Doric Hexapolis, most likely by the Phoenicians during the planned Dorian invasion and the emergence of the supposed Sea Peoples during the Greek Dark Ages (c. 1100 – c. 750), which contributed to the Doric Greek dialect’s dissemination.
• A fundamental idea underlying all insurance is the law of general averages. A tablet from the Nerva-Antonine era was discovered in 1816 during archaeological excavations at Minya, Egypt (then under the Eyalet of the Ottoman Empire), from the ruins of the Temple of Antinone at Antinoöpolis, Egypt. The tablet contained membership contributions and rules for funeral customs.
• The life table of the Severan dynasty, which was compiled by the Roman jurist Ulpian in approximately 220 AD during the reign of Elagabalus (218–222), was described historically in an article Bradley (1870–1892), an actuary who had previously worked for the Mutual Benefit Life Insurance Company, submitted to the Journal of the Institute of Actuaries. The article was also included in the Digesta.
• Hindu texts from the third century BCE, including the Dharmasastra, Arthashastra, and Manusmriti, also contain references to insurance. The Greeks of antiquity had maritime loans. If the journey was successful, money was advanced against a ship or cargo and would be heavily reimbursed.

The interest rate was set high enough to cover both the risk of the capital’s loss and the use of it, as explained in detail by Demosthenes, because if the ship was lost, there would be no repayment of any kind. Since then, these kinds of loans—known as respondentia bonds and bottomry loans—have become widespread in coastal nations.