The History Of Life Insurance

Risk protection has been a primary goal of humans and institutions throughout history. Protecting against risk is what insurance is all about.

Over 5000 years ago, in China, insurance was seen as a preventative measure against piracy on the sea. Piracy, in fact, was so prevalent, that as a way of spreading the risk, a number of ships would carry a portion of another ship's cargo so that if one ship was captured, the entire shipment would not be lost.

In another part of the world, nearly 4,500 years ago, in the ancient land of Babylonia, traders used to bear risk of the caravan trade by giving loans that had to be later repaid with interest when the goods arrived safely. In 2100 BC, the Code of Hammurabi granted legal status to the practice. It formalized concepts of “bottomry” referring to vessel bottoms and “respondentia” referring to cargo. These provided the underpinning for marine insurance contracts. Such contracts contained three elements: a loan on the vessel, cargo, or freight; an interest rate; and a surcharge to cover the possibility of loss. In effect, ship owners were the insured and lenders were the underwriters.

Life insurance came about a little later in ancient Rome, where burial clubs were formed to cover the funeral expenses of its members, as well as help survivors monetarily. With Rome's fall, around 450 A.D., most of the concepts of insurance were abandoned, but aspects of it did continue through the Middle Ages, particularly with merchant and artisan guilds. These provided forms of member insurance covering risks like fire, flood, theft, disability, death, and even imprisonment.

During the feudal period, early forms of insurance ebbed with the decline of travel and long-distance trade. But during the 14th to 16th centuries, transportation, commerce, and insurance would again reemerge.

Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of Life Insurance Corporation of India's corporate headquarters, is derived from the Rig Veda. The term suggests that a form of "community insurance" was prevalent around 1000 BC and practiced by the Aryans.

And similar to ancient Rome, burial societies were formed in the Buddhist period to help families build houses, and to protect widows and children.

Term Life Insurance Articles:

Term life is a very popular from of life insurance. These articles were written for information purposes only. Each article has a different focus and provides an unique look at this life insurance product. Whether you are looking for information about renewable term or comparing available term to your current policy, information can be found at this research center. No one needs to buy insurance on their own. Information is king, so use it wisely. Please consult your financial advisor, your lawyer, and tax accountant before purchasing any life insurance policy.

Disclaimer: The information in this article should be construed to be insurance advice. Always consult a financial or insurance professional or tax accountant to determine what coverage is right for you.

Term vs. Permanent Life Insurance: Does the Battle Really Continue?

There seems to be two fundamental, opposing viewpoints in the financial community over which type of life insurance, individuals in this society should purchase. Many financial advisors believe both permanent and term insurance, should be considered and play an important role in the financial planning process. However for the sake of argument, we will discuss the different schools of thought, financial advisors who swear by term insurance only, and their opposition, the permanent insurance folks. Okay you are probably bored with this topic by now but one more article cannot hurt.

Term Insurance is the heralded vehicle seen on commercials in the United States. We have all been exposed to ads like "you can buy a $100,000 Life Insurance for $8 a month at age 27." Sounds great, where do I sign up for this policy? Before anyone wants to throw a lawsuit at me, most of these commercials are in compliance. The problem is not the ads but how we have been conditioned about life insurance, especially term." Term insurance" has become a" best quote party" instead of a discussion of what the policy can do for me. I have talked to individuals about their term policies and they have no clue about their insurance, other than the face amount and the length of the policy.

Permanent insurance has many forms, however we will use whole life insurance to illustrate the point. (Disclaimer: Universal and Variable Universal Life Insurance both have elements of a term and permanent policy.) The idea behind permanent insurance is to have coverage your entire life. When you die, the policy will be paid to your beneficiary, unless the policy is challenged by the insurance company over possible fraud or something. Many in the public argue over the necessary need for a permanent life coverage.

Term insurance lasts only a specific amount of time unless it is a one year adjustable policy (some of these end at age 65). A one year adjustable term policy's premium is fixed for 12 months, and the company reserves the right to raise your premium every year on the anniversary and usually will. Otherwise you will have an option of possibly 5, 10, 15, 20, 25, or 30 year term. Some polices are able to be converted to a permanent insurance plan, often without evidence of insurability (maybe no physical) within a certain amount of years after the policy has been issued. Why is this important to know you ask? Term is good for covering large debts when limited dollars are available. For instance you buy a $150,000 home and have $100,000 worth of student loans debt and you make $40,000 a year income, and have a non-working spouse and child, you may need $1,000,000 worth of coverage and term is all you can afford.

Let us say you purchase a $500,000, 10 year, level term insurance policy with no ability to convert the policy after five years, and you have an heart attack in the 9th year of the policy. You still need the $500,000 policy after the 10th year, but you know that probably be declined or heavily rated for a new policy . What can you do in this situation? You could keep your current policy, maybe the policy goes from $100 a month to $1900 (or maybe they will let you drop the face amount to 100,000 and you pay $1000 a month). Also if that price is to steep, you could possibly buy a guaranteed policy for an amount of $50,000 or less, but you have to live a certain amount of years to receive the full death benefit and often pay a hefty premium. Ladies and gentleman this can be a reality or have foresight to purchase a policy with the ability to be converted. If you purchase term insurance, please find out if it can be converted and how many years you have this privilege.

Permanent or whole life insurance can be cost prohibitive to many individuals. People do not want to pay $250 a month for a $250,000 policy. This is not the family car they are talking about, but life insurance. Life insurance only pays off one time, so why spend so much on it if I can get double the coverage with term and pay $50 a month; why even have this discussion? With many universal life and all whole life insurance policies, you can lock your rates, and once the policy is approved, who cares if you are diagnosed with inoperable cancer in 27 years. Also if you need a loan or something, there may be cash value in the policy for an emergency. This does not exist in the usual term insurance policy. When you get to the end of a term life insurance policy, it is usually a good reason to buy a new policy or a reason to yell at your financial advisor. Key point, whole life insurance should not be a replacement for saving for retirement.

Now, now, term insurance definitely has its advantages. You can usually cover a large amount of financial responsibilities with less money. Term insurance is often an excellent vehicle for short- term obligations such as when the kids go away to college, and you do not have the money to otherwise send them if you die. Also if cannot afford permanent coverage, term should be considered.

My gripe is how term insurance is being sold as the only policy needed by mankind. Remember if you believe in the "buy term and invest the difference theory" you need to save money and have a return on your investments equal to or greater than the current death benefit of a permanent plan to make up the difference when your 30 year term policy expires.

Permanent and term insurance both have their positive and negative attributes. Do not rule either one out until you carefully evaluate your own financial situation. Term insurance is usually a cheaper plan in youth but becomes more expensive as you get older. Many individuals are turned off by the cost of a permanent or whole life insurance plan in their 30's as well as their late 60's. See your financial advisor for more information or request a quote for life insurance.

Term vs. Permanent Life Insurance: Does the Battle Really Continue?

There seems to be two fundamental, opposing viewpoints in the financial community over which type of life insurance, individuals in this society should purchase. Many financial advisors believe both permanent and term insurance, should be considered and play an important role in the financial planning process. However for the sake of argument, we will discuss the different schools of thought, financial advisors who swear by term insurance only, and their opposition, the permanent insurance folks. Okay you are probably bored with this topic by now but one more article cannot hurt.

Term Insurance is the heralded vehicle seen on commercials in the United States. We have all been exposed to ads like "you can buy a $100,000 Life Insurance for $8 a month at age 27." Sounds great, where do I sign up for this policy? Before anyone wants to throw a lawsuit at me, most of these commercials are in compliance. The problem is not the ads but how we have been conditioned about life insurance, especially term." Term insurance" has become a" best quote party" instead of a discussion of what the policy can do for me. I have talked to individuals about their term policies and they have no clue about their insurance, other than the face amount and the length of the policy.

Permanent insurance has many forms, however we will use whole life insurance to illustrate the point. (Disclaimer: Universal and Variable Universal Life Insurance both have elements of a term and permanent policy.) The idea behind permanent insurance is to have coverage your entire life. When you die, the policy will be paid to your beneficiary, unless the policy is challenged by the insurance company over possible fraud or something. Many in the public argue over the necessary need for a permanent life coverage.

Term insurance lasts only a specific amount of time unless it is a one year adjustable policy (some of these end at age 65). A one year adjustable term policy's premium is fixed for 12 months, and the company reserves the right to raise your premium every year on the anniversary and usually will. Otherwise you will have an option of possibly 5, 10, 15, 20, 25, or 30 year term. Some polices are able to be converted to a permanent insurance plan, often without evidence of insurability (maybe no physical) within a certain amount of years after the policy has been issued. Why is this important to know you ask? Term is good for covering large debts when limited dollars are available. For instance you buy a $150,000 home and have $100,000 worth of student loans debt and you make $40,000 a year income, and have a non-working spouse and child, you may need $1,000,000 worth of coverage and term is all you can afford.

Let us say you purchase a $500,000, 10 year, level term insurance policy with no ability to convert the policy after five years, and you have an heart attack in the 9th year of the policy. You still need the $500,000 policy after the 10th year, but you know that probably be declined or heavily rated for a new policy . What can you do in this situation? You could keep your current policy, maybe the policy goes from $100 a month to $1900 (or maybe they will let you drop the face amount to 100,000 and you pay $1000 a month). Also if that price is to steep, you could possibly buy a guaranteed policy for an amount of $50,000 or less, but you have to live a certain amount of years to receive the full death benefit and often pay a hefty premium. Ladies and gentleman this can be a reality or have foresight to purchase a policy with the ability to be converted. If you purchase term insurance, please find out if it can be converted and how many years you have this privilege.

Permanent or whole life insurance can be cost prohibitive to many individuals. People do not want to pay $250 a month for a $250,000 policy. This is not the family car they are talking about, but life insurance. Life insurance only pays off one time, so why spend so much on it if I can get double the coverage with term and pay $50 a month; why even have this discussion? With many universal life and all whole life insurance policies, you can lock your rates, and once the policy is approved, who cares if you are diagnosed with inoperable cancer in 27 years. Also if you need a loan or something, there may be cash value in the policy for an emergency. This does not exist in the usual term insurance policy. When you get to the end of a term life insurance policy, it is usually a good reason to buy a new policy or a reason to yell at your financial advisor. Key point, whole life insurance should not be a replacement for saving for retirement.

Now, now, term insurance definitely has its advantages. You can usually cover a large amount of financial responsibilities with less money. Term insurance is often an excellent vehicle for short- term obligations such as when the kids go away to college, and you do not have the money to otherwise send them if you die. Also if cannot afford permanent coverage, term should be considered.

My gripe is how term insurance is being sold as the only policy needed by mankind. Remember if you believe in the "buy term and invest the difference theory" you need to save money and have a return on your investments equal to or greater than the current death benefit of a permanent plan to make up the difference when your 30 year term policy expires.

Permanent and term insurance both have their positive and negative attributes. Do not rule either one out until you carefully evaluate your own financial situation. Term insurance is usually a cheaper plan in youth but becomes more expensive as you get older. Many individuals are turned off by the cost of a permanent or whole life insurance plan in their 30's as well as their late 60's. See your financial advisor for more information or request a quote for life insurance.

Graded Life Insurance

Graded Life Insurance is used to insure people, when they are turned down by an life insurance company because of health reasons. It can also be recommended by an agent, when a person is clearly uninsurable. Sometimes you may be required to live a certain length of time, to enjoy the full death benefit.

If you have been turned down for life insurance, you may still be eligible for coverage. Unless you are diagnosed with an illness that is terminal, you probably will qualify for Graded Life Insurance. You will not be required to take a physical. The insurance company will accept your Graded Life application or simply reject it.

There is a small catch to purchasing this type of insurance policy. It will cost more than the normal policy that you could buy for the same face amount. However it could be said that Graded Life Insurance should be considered a last resort policy. The policy is also not for those in a nursing home or hospice. Graded Life Insurance could be useful to someone who has three or more health conditions that are not terminal, but are not a good risk for an insurance company. For example a person who is slightly overweight, has high cholesterol, and is a diabetic who takes insulin, probably is a decline from most life insurance companies. However this same person will more than likely qualify for Graded Life Insurance.

The policy can have a provision that states the insured has to live two or three years in order for the beneficiary to receive the full death benefit. Often the Graded Life Policy will pay the beneficiary, the premiums plus 8 to 12% if the insured dies before the death benefit becomes whole. While Graded Life Insurance may be more expensive than regular whole life, it is for those not in good health. It is to be used as a viable option, when people cannot qualify for insurance coverage otherwise.

Understanding Life Insurance

Term Insurance - Form of Insurance that usually last for a certain period of time. (i.e. 30 year term) After term is over you have to replace ice. No cash value usually in the policy. Main types: Level Face-where the face or insurance amount is the same throughout the period. Reducing Term-Usually coincides with mortgage or other personal debt. The policy face or insurance amount decreases over time, often based on debt obligations.

Whole Life -Type of insurance that you pay for your entire life. Level premiums and usually can borrow from cash value. An insurance that gives you the ability to have more insurance through the build-up of paid-up additions.

Universal Life - It is life insurance that is a Combination of Whole Life and Term. Can build cash value, but is usually not good for anything if it is allowed to lapse. Usually cheaper than whole life but can last a lifetime if funded properly and sold correctly.

Variable Universal Life - A policy that is made of term and separate accounts (not mutual funds) and has a designated face amount. Policies have either a level face or an increasing face. The premise of the policy is to hope that the separate accounts in the policy outperform the returns in the other types of policies mentioned above. The cash value is based on the market-based returns of the separate accounts in the policy minus any expenses of the policy. The prospectus as well as a quarterly statement will reveal the returns of the separate account.

Disclaimer: Always consult a financial profession to determine what coverage is right for you.

Buying Life Insurance on the Children

Every parent has to decide whether to buy life insurance on their children. While buying life insurance may not be an easy decision, the fear of not having it on your children may trouble you a bit.

Congratulations you have just become the parent of a baby boy or girl, or even twins or quadruplets. You have many new worries including the health, welfare, and eating habits of your child. What about life insurance on your child? While it may sound silly to a select few, those parents who were unfortunate to have a child die of SIDS, a car accident, etc., may have a different prospective. No one expects their children to die before them but it can happen. It may be sudden or unexpected, but all of us must realize that one day we will all come face with death.

There are those who have perceptions that life insurance should not be bought on children, because "the parents are wanting to get rich of the death of their child's death." Not having life insurance may cause a financial hardship in the case of a child's death. Also who really wants a check in a situation like this. The premium may be small enough that it is worth having that protection in place. There is a simple solution to solve this problem, just have enough life insurance on your child to insure burial expenses up to age 25 or so. Or if you have enough money in your personal account to bury any of your children then that would be another viable solution.

As children go off to college is important to reevaluate their life insurance needs. If they are going to have student loans or plan to buy a home after college it is important to plan ahead. Many times in college, children can find themselves uninsurable for any number of reasons. It is necessary to be conscious of this fact, in order to make sure they get on the right track to adequately have life insurance when they have a family.

African-Americans and Life Insurance

Have African-Americans been neglected, in understanding the need for life insurance? What has shaped African-Americans viewpoints towards life insurance, and what can be done to change some of these misconceptions?

The days of the debit insurance agent chasing your grandmother to collect the 10 cent premium have long gone. Yet in many ways, this interaction still has a chilling affect on many in the African-American community. At one time, life insurance in the African-American community became known as "burial insurance." African-Americans were allowed only to buy a small policy to bury themselves and this is how it was marketed to them. Yet many times, their Caucasian counterparts, who had the same type of insurance policy, paid less and were offered more coverage. However today underwriters of life insurance are not allowed to know the race of individuals applying for insurance.

Present day in the African-American community, some still have the "burial insurance" mentality towards life insurance. Yet many African-Americans have been upgraded, and have enough insurance to pay off their homes and to bury them. Through careful marketing in the late sixties and early seventies, African-Americans were steered to buying additional life insurance when purchasing a home. It seems creditors wanted to make sure as African-Americans moved into homes, that their investment in the mortgage would be paid off in the event of a premature death. As some African-Americans found new avenues of success in their careers, thanks in part to the civil rights moment, many of these individuals found themselves approached by insurance agents who began to enlighten them on life insurance. The "burial" and "mortgage protection" attitudes life insurance were replaced. Life insurance became the following:

1. To pay off all debt

2. Provide income to the spouse and children left behind

3. To set up a trust to leave money to their church or organization

4. Pay for children higher education including college, in the event of a death

5. A way to keep key employees from leaving current employment

6. A vehicle to buy out children not involved in the family business

Others African-Americans have fallen into I have "life insurance at work trap." At work you have $30,000 of life insurance or two or maybe three times your salary if you are lucky. Let us say you make it to retirement age with your company, and make $60,000 a year at the retirement. Many times you are allowed to convert your group life insurance at attained age, into a whole life or universal life insurance policy. You will not be paying $5 a month for your group insurance at retirement. So if you are a sixty-five year old male, and you want to keep $100,000 worth of coverage by converting your group insurance, you might see a premium of $469 a month. You might think it is not fair, but this is reality. Also sometimes you are allowed to keep one times your salary of insurance at retirement, then it cuts in half by age 68 and levels off at $10,000 at age 70. While others, still have no life insurance from their company's group insurance at retirement, because there is no conversion privilege.

If African-Americans have been buying life insurance for a death benefit or "mortgage protection," how are they being neglected? Unfortunately, some African-Americans' life insurance policies are so similar, that you would think they were lined up in the room to buy it. Purchasing this product should be based on your particular goals, keeping your family obligations in mind. People in the upper echelon of the African-American community, usually are aware of the uses of life insurance, and use them to better the lives of their families and businesses. There however seems to be a lack of financial planning and insurance knowledge transfer, from the elite in the Africans-American communities, to those who have less or not considered to be part of the professional class. Also, unfortunately some insurance agents try to sell products to American-Americans, instead of educating them, so that they can educate others about these subjects.

It is all about education in the African-American community, especially when it comes to life insurance. For many African-Americans, they turn to their ministers for guidance about insurance and financial planning. Hopefully their minister has gotten the message, and are willing to share their knowledge with all of their members. Otherwise we will continue to have a community, where children are orphaned because of the lack of proper life insurance or the spouse has lost the house, because they could not afford the mortgage. You have to be able to look past this year, $30,000 may take care of your daughter for a couple of years but Social Security will pick not pay the cost of raising a child. Some in the African-American community will spend $500 on a car note, but do not you have enough life insurance to feed, clothe, or send your children to college, as well as provide income for their spouse if they die. While some echo, "I do not want to leave my family rich," it is better to leave your family rich than poor.

A Life without Life Insurance

For whatever reason, buying life insurance has been reduced to an afterthought. Many of us are uncomfortable with facing our own mortality. Yet others do not see the value of life insurance because they are single, or will not live to receive the tangible benefit of having this coverage, unlike health insurance. Maybe you have been turned down for coverage because of a health condition, but most still can qualify for a graded death benefit policy.

Many people have life insurance at work. This usually comes in the form of term insurance. Term is insurance for a specific amount of time, and once it expires due to retirement, dismissal, or resignation, there is no benefit ( Some employers allow a reduced amount of insurance at retirement, usually a declining scale that often levels off at age 70, e.g.. 50,000 at age 65 and $25,000 at age 70). If you are dismissed from your job; you are without coverage unless you convert your group insurance into a whole or maybe universal life policy.

Some people have been conditioned that life insurance is for death benefit only. So buying life insurance, sometimes is not a priority until their mid-fifties or even late sixties when they retire. The problem is none of us know when we are going to die. You can literally cause your family to sell the family home, cause your spouse to work an extra ten years, and the brainy child may have to go the state university instead of your Ivy League alma mater (Some state colleges and universities are excellent. Go Buckeyes). If for nothing else, enough life insurance should be purchased so that loved ones are not left with your unpaid bills.

Life Insurance Uses:

• Death Benefit
• Provide income to pay off the mortgage in the event of death
• Replace lost income that your spouse and children would otherwise miss
• Make sure that future college tuition can be paid
• An effect way to pay off children and spouse who do not participate in family business
• To pay possible Estate Taxes
• To provide liquidity when many assets are tied into Real Estate

Life Insurance - Case Study

Tim and his wife Sue bought their first home which they had been saving hard for, and happily moved in with their two young children.

They decided to look at buying life insurance to cover the mortgage with extra to provide Sue with a regular amount of income while the children were young. Their budget was tight and they weren't sure whether they could afford the $95 per month for the life insurance to cover both of them, but with 2 small children they wanted each other to have certainty and cashflow should something happen.

Then tragedy struck - Tim was killed in a car crash

Did they purchase life insurance?

Yes -

Sue could never have Tim back but with his life insurance she had immediate cash available for funeral expenses, was able to repay their mortgage and all outstanding debts. Most importantly the family received cash which they were able to use as a regular income, and Sue was able to continue to support her children.

No -

Sue was devastated at Tim's sudden death but there was worse to come. Who was going to pay the $8,000 funeral expense required immediately? Mortgage payments were due and Sue wasn't currently working and had no income to speak of.

The financial pressure was on and Sue needed to get a job, and put the children in permanent child care. If only they had taken the life insurance cover to provide certainty and cashflow.

Regulation of insurance companies

Regulation of the business of insurance

Insurance regulation that governs the business of insurance is typically aimed at assuring the solvency of insurance companies. Thus, this type of regulation governs capitalization, reserve policies, rates and various other "back office" processes.

In the United States each state typically has a statute creating an adminsitrative agency. These state agencies are typically called the Department of Insurance, or some similar name, and the head official is the Insurance Commissioner, or a similar titled officer. The agency then creates a group of administrative regulations to govern insurance companies which are domociled in, or do business in the state.

The origins of insurance policies in general differs through various countries. Limited policies (particularly against damage to homes) can be traced to the 17th and 18th centuries, though establishment of newer policies (such as health insurance and car insurance) did not come until the 20th century.

In the United States regulation of insurance companies is almost exlusively conducted by the several states and their insurance departments. Various states have different names for their regulatory agencies and regulators. In many states the department is called the Department of Insurance, and the regulator is called the Insurance Commissioner - although there are numerous variations. The federal government has explicitly exempted insurance from federal regulation in most cases.

However, regulation of the insurance industry began in the 1940s in the United States, through several supreme court rulings. The first ruling on insurance had taken place in 1868 (in the Paul v. Virginia ruling[1]), with the supreme court ruling that insurance policy contracts were not in themselves commercial contracts. This stance did not change until 1944 (in the United States v. South-Eastern Underwriters Association ruling , when the Supreme court upheld a ruling stating that policies were commercial, and thus were regulatable as other similar contracts were.

Nowadays, many countries - and states in the United States - regulate insurance companies through laws, guidelines and independent commissions and regulatory bodies. These laws and statutes ensure that the policy holder is protected against bad faith claims on the insurer's part, that premiums are not unduly high (or fixed), and that contracts and policies issued meet a minimum standard.

A bad faith action may constitute several possibilities; the insurer denies a claim which is seemingly valid in the contract or policy, the insurer refuses to pay out for an unreasonable amount of time, the insurer lays the burden of proof on the insured - often in the case where the claim is unprovable. Other issues of insurance law may arise when price fixing occurs between insurers, creating an unfair competitive environment for consumers. A notable example of this is where Zurich Financial Services [3] - along with several other insurers - inflated policy prices in an anti-competitive fashion. If an insurer is found to be guilty of fraud or deception, they can be fined either by regulatory bodies, or in a lawsuit by the insured or surrounding party. In more severe cases, or if the party has had a series of complaints or rulings, the insurers license may be revoked or suspended.

In the case that an insurer declares bankruptcy, many countries operate independent services and regulation to ensure as little financial hardship is incurred as possible (National Association of Insurance Commissioners operates such a service in the United States .

Insurance companies

Insurance companies may be classified into two groups:

• Life insurance companies, which sell life insurance, annuities and pensions products.
• Non-life, General, or Property/Casualty insurance companies, which sell other types of insurance.

General insurance companies can be further divided into these sub categories.

• Standard Lines
• Excess Lines

In most countries, life and non-life insurers are subject to different regulatory regimes and different tax and accounting rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature — coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year.

In the United States, standard line insurance companies are "main stream" insurers. These are the companies that typically insure autos, homes or businesses. They use pattern or "cookie-cutter" policies without variation from one person to the next. They usually have lower premiums than excess lines and can sell directly to individuals. They are regulated by state laws that can restrict the amount they can charge for insurance policies.

Excess line insurance companies (aka Excess and Surplus) typically insure risks not covered by the standard lines market. They are broadly referred as being all insurance placed with non-admitted insurers. Non-admitted insurers are not licensed in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they are not required to file rates and forms as the "admitted" carriers do. However, they still have substantial regulatory requirements placed upon them. State laws generally require insurance placed with surplus line agents and brokers not to be available through standard licensed insurers.

Insurance companies are generally classified as either mutual or stock companies. This is more of a traditional distinction as true mutual companies are becoming rare. Mutual companies are owned by the policyholders, while stockholders (who may or may not own policies) own stock insurance companies. Other possible forms for an insurance company include reciprocals, in which policyholders 'reciprocate' in sharing risks, and Lloyds organizations.

Insurance companies are rated by various agencies such as A. M. Best. The ratings include the company's financial strength, which measures its ability to pay claims. It also rates financial instruments issued by the insurance company, such as bonds, notes, and securitization products.

Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well.

Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices.

The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance.

Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:

• heavy and increasing premium costs in almost every line of coverage;
• difficulties in insuring certain types of fortuitous risk;
• differential coverage standards in various parts of the world;
• rating structures which reflect market trends rather than individual loss experience;
• insufficient credit for deductibles and/or loss control efforts.

There are also companies known as 'insurance consultants'. Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client.

Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.

The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies, such as Best's, Fitch, Standard & Poor's, and Moody's Investors Service, provide information and rate the financial viability of insurance companies.

Life

Life insurance provides a monetary benefit to a descedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity.

Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance.

Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed.

In many countries, such as the U.S. and the UK, the tax law provides that the interest on this cash value is not taxable under certain circumstances. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death.

In U.S., the tax on interest income on life insurance policies and annuities is generally deferred. However, in some cases the benefit derived from tax deferral may be offset by a low return. This depends upon the insuring company, the type of policy and other variables (mortality, market return, etc.). Moreover, other income tax saving vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better alternatives for value accumulation. A combination of low-cost term life insurance and a higher-return tax-efficient retirement account may achieve better investment return.

Types of insurance

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as "perils". An insurance policy will set out in detail which perils are covered by the policy and which are not. Below are (non-exhaustive) lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set out below. For example, auto insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from causing an accident). A homeowner's insurance policy in the U.S. typically includes property insurance covering damage to the home and the owner's belongings, liability insurance covering certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property.

Business insurance can be any kind of insurance that protects businesses against risks. Some principal subtypes of business insurance are (a) the various kinds of professional liability insurance, also called professional indemnity insurance, which are discussed below under that name; and (b) the business owner's policy (BOP), which bundles into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs

History of insurance

In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread (for example countries in the territory of the former Soviet Union).

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practised by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. 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 which 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.

Achaemenian monarchs of Iran were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices. The purpose of registering was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of his books on ancient Iran: "[W]henever the owner of the present is in trouble or wants to construct a building, set up a feast, have his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much."[1] A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage. The Greeks and Romans introduced the origins of health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which cared for the families and paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in

which people donated amounts of money to a general sum that could be used for emergencies.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed.

Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.

Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon o

pened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.

The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina, in 1732. Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. In recent years, some have called for a dual state and federal regulatory system (commonly referred to as the Optional Federal Charter (OFC)) for insurance similar to that which oversees state banks and national banks.

Insurers' business model

Profit = earned premium + investment income - incurred loss - underwriting expenses.

Insurers make money in two ways: (1) through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks and (2) by investing the premiums they collect from insured parties.

The most complicated aspect of the insurance business is the underwriting of policies. Using a wide assortment of data, insurers predict the likelihood that a claim will be made against their policies and price products accordingly. To this end, insurers use actuarial science to quantify the risks they are willing to assume and the premium they will charge to assume them. Data is analyzed to fairly accurately project the rate of future claims based on a given risk. Actuarial science uses statistics and probability to analyze the risks associated with the range of perils covered, and these scientific principles are used to determine an insurer's overall exposure. Upon termination of a given policy, the amount of premium collected and the investment gains thereon minus the amount paid out in claims is the insurer's underwriting profit on that policy. Of course, from the insurer's perspective, some policies are winners (i.e., the insurer pays out less in claims and expenses than it receives in premiums and investment income) and some are losers (i.e., the insurer pays out more in claims and expenses than it receives in premiums and investment income).

An insurer's underwriting performance is measured in its combined ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company's combined ratio. The combined ratio is a reflection of the company's overall underwriting profitability. A combined ratio of less than 100 percent indicates underwriting profitability, while anything over 100 indicates an underwriting loss.

Insurance companies also earn investment profits on “float”. “Float” or available reserve is the amount of money, at hand at any given moment, that an insurer has collected in insurance premiums but has not been paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest on them until claims are paid out.

In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held. Naturally, the “float” method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards. So a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the "underwriting" or insurance cycle.

Property and casualty insurers currently make the most money from their auto insurance line of business. Generally better statistics are available on auto losses and underwriting on this line of business has benefited greatly from advances in computing. Additionally, property losses in the US, due to natural catastrophes, have exacerbated this trend.

Finally, claims and loss handling is the materialized utility of insurance. In managing the claims-handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages. As part of this balancing act, fraudulent insurance practices are a major business risk that must be managed and overcome.

Principles of insurance

1. A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004.[2] The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable.
2. Definite Loss. The event that gives rise to the loss that is subject to insurance should, at least in principle, take 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. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for 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.
3. Accidental Loss. 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, are generally not considered insurable.
4. Large Loss. 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 little point in paying such costs unless the protection offered has real value to a buyer.
5. Affordable Premium. 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, it is not likely that anyone will buy insurance, even if on offer. Further, 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, the transaction may have the form of insurance, but not the substance.
   
6. Calculable Loss. There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. 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.
7. Limited risk of catastrophically large losses. The essential risk is often aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5 percent. Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurer's appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since the combined capital of insurers and reinsurers can be small compared to the needs of potential policyholders in areas exposed to aggregation risk. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

Insurance

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of a guaranteed small loss to prevent a large, possibly devastating large loss. An insurer is a company selling the insurance. The insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

Choosing an Agent

Almost all life insurance companies sell their products through agents, rather than directly to the public. Some companies use "captive" agents, who can only represent one company. Most of the competitive term life insurance providers (such as those featured at this site) use independent agents, who are free to represent several companies. These agents can help you select from a variety of products and companies to tailor a plan.

You should first obtain online life insurance quotes and review other life insurance choices before making a decision.

Term Life Insurance or Whole?

Term life insurance, also called temporary insurance, covers a person against death for a limited time, the term. For example, the term might be until children are grown, or until college is paid for, or until retirement. You pay for the policy period and at the end of the term, the contract or policy expires. If no claims are made against the policy during the term, you don't receive any benefits after the policy expires, just like auto or homeowners insurance.

Whole life insurance, also called permanent insurance, is permanent and does not expire (assuming you continue to pay the premiums). It provides coverage similar to term life insurance, but it also provides an investment vehicle. A portion of the premium goes for life insurance, while the rest goes into an investment account. This account can be either an interest bearing account or a variable (stocks and bonds) investment account.

Which is better (our opinion)? Young families with large financial obligations are usually better off with term life insurance policies. The substantially lower premiums enable them to purchase sufficient coverage to protect against loss of income. Any discretionary investment funds can be placed in other vehicles (mutual funds, money market accounts, etc.) that are likely to generate returns similar to or better than life insurance policies. Whole life insurance is often purchased by people for tax and estate planning purposes. Recently, some advisors have started recommending life insurance as an investment. You should consult with your financial advisor.