Insurance, simply stated, is a way of offsetting risk. Everyone’s life is exposed to certain amounts of risk, and when this potential danger carries with it the possibility of a negative financial outcome, an insurance policy can help by sharing the burden of any financial loss. In actuality, just about anything can be insured. It’s simply a question of you, the prospective insured, coming to an agreement with an entity willing to share a particular risk, the insurer, in exchange for a specific fee, called the premium.
Although the issuing of insurance (underwriting) is thought to go back as far as four thousand years, as a means of helping protect Babylonian merchants against the risk of loss while their goods were in transit along caravan routes, the invention of modern-day insurance is generally credited to Lloyd’s of London during the late 1600s. They came up with an indemnity plan to offset the risk of merchants who were shipping goods on the high seas between the Old and New Worlds.
While today’s types of insurance coverage still include Lloyd’s of London and the shipping business, the most common types used by most individuals include life, auto, homeowner’s and business coverage, although there are many other forms of coverage also available. In today’s world, these four are “must-haves” for anyone at specific risk for financial loss in any of the covered areas. If you own a car here in North Carolina, for example, you’re required by law to carry a certain amount of vehicle liability coverage. Homeowners with a mortgage will be required by their lenders to carry a certain amount of coverage to protect the lenders’ interests against potential loss or default.
Life insurance provides security for the insured that, should his or her income be suddenly curtailed due to death, those depending on that income would be able to continue on with a reasonable standard of living. Those survivors, the beneficiaries of policy payout proceeds, will typically change as family circumstances change, and policy particulars should be reviewed whenever family status changes through events such as births, divorce, college matriculation, etc.
Experts recommend every policy you own be reviewed on an annual basis or when any event takes place altering risk potential. Homeowner’s coverage, for example, needs to be reviewed when changes occur that alter your home’s value. Business coverage should be reviewed regularly as business valuations change.