How do you know what types you need? Is it required by your state?
Early methods[ edit ] Merchants have sought methods to minimize risks since early times. Methods for transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.
The Babylonians developed a system which was recorded in the famous Code of Hammurabic. This allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether due to storm or sinkage.
The first known insurance contract dates from Genoa inand in the next century maritime insurance developed widely and premiums were intuitively varied with risks.
Insurance became far more sophisticated in Enlightenment era Europeand specialized varieties developed. Property insurance as we know it today can be traced to the Great Fire Types of insurance Londonwhich in devoured more than 13, houses.
Initially, 5, homes were insured by his Insurance Office. In the late s, Edward Lloyd opened a coffee housewhich became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures. By the late 19th century governments began to initiate national insurance programs against sickness and old age.
Germany built on a tradition of welfare programs in Prussia and Saxony that began as early as in the s. This gave the British working classes the first contributory system of insurance against illness and unemployment.
The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring.
In order to be an insurable riskthe risk insured against must meet certain characteristics. Insurance as a financial intermediary is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses.
Insurability Risk which can be insured by private companies typically shares seven common characteristics: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses.
However, all exposures will have particular differences, which may lead to different premium rates. The loss takes place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy.
Fireautomobile accidentsand worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational diseasefor instance, may involve prolonged exposure to injurious conditions where no specific time, place, or cause is identifiable.
Ideally, the time, place, and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance.
The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements such as ordinary business risks or even purchasing a lottery ticket are generally not considered insurable.
The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims.
For small losses, these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such costs unless the protection offered has real value to a buyer.
If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, then it is not likely that the insurance will be purchased, even if on offer.
Furthermore, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer.
If there is no such chance of loss, then the transaction may have the form of insurance, but not the substance see the U. Financial Accounting Standards Board pronouncement number There are two elements that must be at least estimable, if not formally calculable: Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.
Limited risk of catastrophically large losses: Insurable losses are ideally independent and non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base.
In the United States, flood risk is insured by the federal government. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.
Legal[ edit ] When a company insures an individual entity, there are basic legal requirements and regulations. Several commonly cited legal principles of insurance include:The five types of insurance identified in this article are general policies most everyone should have.
The five unnecessary types of insurance mentioned are policies that . Types of Insurance Whether you are looking to purchase insurance or simply trying to understand the insurance you currently have, the links below provide guidance .
What does car insurance cover? Do you need it? Car insurance There are – three types of cover: Third party – this covers other people (such as your passengers) involved in an accident, or damage to other people’s property, but if your car is damaged or stolen you have to pay for it yourself.
Casualty insurance insures against accidents, not necessarily tied to any specific property. It is a broad spectrum of insurance that a number of other types of insurance could be classified, such as auto, workers compensation, and some liability insurances.
The two basic types of life insurance are Traditional Whole Life and Term Life. Simply explained, Whole Life is a policy you pay on until you die and Term Life is a policy for a set amount of time.
There are different types of Marketplace health insurance plans designed to meet different needs. Some types of plans restrict your provider choices or encourage you to get care from the plan’s network of doctors, hospitals, pharmacies, and other medical service providers. Others pay a greater.