Some history about life insurance. In a broad sense, insurance is a method of spreading, among a very large group of persons, a financial loss which might be disastrous to an individual or family. Many people look upon life insurance as a modern product, an invention of our century. Actually however a form of risk sharing was developed by merchant tradesmen in the kingdoms around the Mediterranean Sea hundreds of years before the Christian era. Later, in the middle ages, guilds were formed of people in the same trade or occupations, such as bankers or silversmiths. They agreed to help each other with the expense involved if someone became sick or died. At each meeting they would "pass the hat", so to speak, taking a collection to build a fund which would be used when a member became ill or died. in a sense, they were beginning to recognize the monetary value of the human life.
There is remarkable similarity between the risk of pooling of the early tradesmen and today's life insurance companies. in all cases, a number of people exposed to similar hazards pool their assets spread among themselves the impact of a financial loss. Insurance is commonly defined as a pooling of funds and sharing the cost of losses.
Persons who buy life insurance policies pay a premium that creates the pool of funds. When losses occur the persons who suffer the losses are paid from the funds in the insurance pool.
Modern insurance practice is based on a mathematical principal called the law of large numbers. This law states that the larger the number of exposures to loss, the more closely the experience of the sample group will approximate the experience of an infinite number of exposure to the same loss. Today by using the experience of large numbers, insurance companies are able to predict with reasonable accuracy the number expected to die in each age group, each year, as well as the number of accidents and illnesses. I hope you understand more why it is necessary to pay for life insurance premiums.
There is remarkable similarity between the risk of pooling of the early tradesmen and today's life insurance companies. in all cases, a number of people exposed to similar hazards pool their assets spread among themselves the impact of a financial loss. Insurance is commonly defined as a pooling of funds and sharing the cost of losses.
Persons who buy life insurance policies pay a premium that creates the pool of funds. When losses occur the persons who suffer the losses are paid from the funds in the insurance pool.
Modern insurance practice is based on a mathematical principal called the law of large numbers. This law states that the larger the number of exposures to loss, the more closely the experience of the sample group will approximate the experience of an infinite number of exposure to the same loss. Today by using the experience of large numbers, insurance companies are able to predict with reasonable accuracy the number expected to die in each age group, each year, as well as the number of accidents and illnesses. I hope you understand more why it is necessary to pay for life insurance premiums.
