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What is "Insurance"?

Insurance is a contract, embodied by a policy, in which a commercial company or individual person receives financial protection (or reimbursement) against losses from an insurance company or government body. The insurance company pools client risks to make payments more affordable for the legal entity insured.

Insurance policies are used to offset against the risk of financial losses, that may occur as a result of damage to the insured or their property, or from liability for damage or injury caused to a third party. An insurance policy may be extremely affordable in cost to the client, while offering the insured client a high payout value in the event of a claim. This is known as limiting or mitigating risk.

Breaking Down "Insurance"

There are many different types of insurance policies available, and almost any individuals or businesses can find an insurance company willing to ensure them, for a proportionate price to risk value. The most common types of personal insurance policies include motor, health, homeowners, travel and life insurance policies.

Commercial enterprises require special types of insurance policies that insure against specific types of risks faced by the particular business. As an example, a construction, needs a policy that covers damage to a third party such as telecommunications company service lines, known as a “Hands on Tools Policy”. This Hands on Tools Policy will cover the construction company in the event that the telecommunication company’s service lines are damaged by the construction company’s workers. This type of policy may be needed by a construction company, while a hospital may rather require a medical malpractice policy, for the event that a doctor treats a patient incorrectly and this results in a claim against the hospital. There are also insurance policies available for very specific needs, such as kidnap & ransom (K&R), fidelity insurance and professional Indemnity insurance (also called errors and omissions insurance).

Insurance Policy Components

When choosing a policy, it is important to understand how insurance works. An insurance broker such as Ascot & Fitch Insurance Brokers, ensures that you get the maximum coverage, while making the premium affordable. The excess (This is a fee payable to an insurance company in the event of a claim), is also an important part of an insurance policy.

A policy's premium is simply its price, that is typically expressed as a monthly or yearly cost. Quite often, for a yearly premium, the cost will be reduced as this saves billing time on the part of the insurer. The premium is determined by the insurance company based on the client’s risk profile. For example, if a client own’s several expensive automobiles and has a history of reckless driving, they may pay more for an auto policy as compared to someone with a single mid-range sedan and a perfect record. However, different insurers may charge different premiums for similar policies, so finding the price that is right for you requires a lot of investigation. This is where a broker is extremely helpful, we take the time out of getting you the quotations that best suit your needs, as well as making sure that you have the best possible cover for your money.

The History of Insurance

If risk is like a smoldering coal that may spark a fire at any moment, insurance is your fire extinguisher.

Countries and their citizens need something to spread risk among large numbers of people, and to move risk to entities that can handle it. This is how insurance emerged, how insurance evolved, and how it can work to protect you from being burned by risk.

King Hammurabi's Code & the Beginning of Insurance

The main concept of insurance is that of spreading risk among many. Insurance has been around as long as human existence. Whether it was hunting giant deer in a group to spread the risk of being the one gored to death, or shipping cargo in several different caravans to avoid losing the whole shipment to a pillaging tribe, people have always been wary of risk.

The first written insurance policy appeared in ancient times on a Babylonian obelisk monument with the code of King Hammurabi carved into it. Hammurabi was the sixth king of the First Babylonian Dynasty, reigning from 1750 BC to 1792 BC. He was preceded by his father, Sin-Muballit, who abdicated due to failing health. The Hammurabi Code was one of the first forms of written laws. These ancient laws were extreme in most respects, but one offered basic insurance in that a debtor didn't have to pay back his loans if some personal catastrophe made it impossible (disability, death, flooding, etc.).

Guild Protection, First Form of Group Coverage

In the Dark and Middle Ages, most craftsmen were trained through the guild system. Apprentices spent their childhoods working for masters for little or no pay. Once they became masters themselves, they paid dues to the guild and trained their own apprentices. The wealthier guilds had large coffers that acted as a type of insurance fund. If a master's practice burned down, this was a common occurrence in the wooden hovels of medieval Europe, the guild would rebuild it using money from its coffers. If a master were robbed, the guild would cover his obligations until money started to flow in again. If a master were suddenly disabled or killed, the guild would support him or his widow and family.

This safety net encouraged more and more people to leave farming and take up trades. As a result, the amount of goods available for trade increased, as did the range of goods and services available. The style of insurance used by guilds is still around today in the form of group coverage.

Reducing Risk in Dangerous Waters

The practice of underwriting emerged in the same London coffeehouses that operated as the unofficial stock exchange for the British Empire. In the late 1600’s, shipping was just beginning between the New World and the old as colonies were being established and exotic goods were ferried back. A coffeehouse owned by Edward Lloyd, later of Lloyd's of London, was the primary meeting place for merchants, ship owners, and others seeking insurance.

A basic system for funding voyages to the New World was established. In the first stage, merchants and companies would seek funding from venture capitalists. The venture capitalists would help find people who wanted to be colonists, usually those from the more desperate areas of London, and would purchase provisions for the voyage. In exchange, the venture capitalists would be guaranteed some of the returns from the goods the colonists would produce or find in the Americas. It was widely believed you couldn't take two left turns in America without finding a deposit of gold or other precious metals. When it turned out this wasn't exactly true, venture capitalists still funded voyages for a share of the new bumper crop: tobacco.

After the voyage was secured by venture capitalists, the merchants and ship owners would go to Lloyd's and hand over a copy of the ship's cargo to be read to the investors and underwriters who gathered there. The people interested in taking on the risk for a set premium would sign at the bottom of the manifest beneath the figure indicating what share of the cargo they were taking responsibility for (hence, underwriting). In this way, a single voyage would have multiple underwriters who would try to spread their own risk by taking shares in several different voyages.

By 1654 AD, Blaise Pascal, the Frenchman who gave us the first calculator, and his countryman, Pierre de Fermat, discovered a way to express probabilities and, thereby, understand levels of risk. Pascal's triangle led to the first actuary tables that were, and still are, used when calculating insurance rates. These formalized the practice of underwriting and made insurance more affordable.

Fire & Plague Protection

In 1666 AD, the great fire of London destroyed around 14,000 buildings. London was still recovering from the plague that ravaged it a year earlier, and many survivors found themselves without homes. As a response to the chaos and outrage that followed the burning of London, groups of underwriters who had dealt exclusively in marine insurance formed insurance companies that offered fire insurance.

Armed with Pascal's triangle, these companies quickly expanded their range of business. By 1693 AD, the first mortality table was created using Pascal's triangle and life insurance soon followed.

Five Insurance Policies Everyone Should Have

Protecting your most important assets is an important step in creating a solid personal financial plan, and the right insurance policies will go a long way toward helping you safeguard your earning power, and your possessions. In this section, we look at five policies you shouldn't do without.

  • Long-Term Disability Insurance

    The prospect of long-term disability is so frightening that some people simply choose to ignore it. While we all hope that "nothing will happen to me", relying on hope to protect your future earning power is simply not a good idea. Instead, choose a disability policy that provides enough coverage to enable you to enjoy your current lifestyle even if you can no longer continue working.

  • Life Insurance

    Life insurance protects the people that are financially dependent on you. If your parents, spouse, children, or other loved ones would face financial hardship if you died, life insurance should be high on your list of required insurance policies. Think about how much you earn each year (and the number of years you plan to remain employed), and purchase a policy to replace that income in the event of your untimely demise. Factor in the cost of burial too, as the unexpected cost is a burden for many families.

  • Medical Insurance

    The soaring cost of medical care is reason enough to make medical insurance a necessity. Even a simple visit to the family doctor can result in a hefty bill. More serious injuries that result in a hospital stay can generate a bill that tops the price of a one-week stay at a luxury resort. Injuries that require surgery can quickly rack up five-figure costs. Although the cost of health insurance is a financial burden, the potential cost of not having coverage is much higher.

  • Home-owner's Insurance

    Replacing your home is an expensive proposition. Having the right home-owner's insurance can make the process less difficult. When shopping for a policy, we look for one that covers replacement of the structure, and the contents, in addition to the cost of living somewhere else while your home is repaired.

    Bear in mind the cost of rebuilding doesn't need to include the cost of the land, since you already own it. Depending on the age of your home and the amenities it contains, the cost to replace it could be more or less than the price you paid for it. To get an accurate estimate, find out how much local builders charge per square foot and multiply that number by the amount of space you will need to replace. Don't forget to factor in the cost of upgrades and special features. Also, be sure the policy covers the cost of any liability for injuries that might occur on your property.

  • Motor Insurance

    Some level of motor insurance is required by law in the United Arab Emirates. Even if your vehicle has been paid off for years, motor insurance is something you shouldn't skip. If you are involved in an accident and someone is injured, or their property is damaged, you may be subject to legal action that could cost you everything you own. Accidents happen quickly and the results are often tragic. Having no motor insurance or purchasing only the minimum required coverage saves you only a tiny amount of money, and puts everything else you own at risk.

Bonus Tip For Business Owners: In addition to the policies listed above, business owners need business insurance. Liability coverage in a litigation-happy society. This could be the difference between a long, prosperous endeavor, and a trip to bankruptcy.

We look for your Insurance Carefully

Insurance policies come in a variety of shapes, sizes and boast many different features, benefits, and prices. We read the fine print carefully, to make sure that you are adequately covered, for a fair price. It is our role to ensure that all your risk needs, or possible eventualities, are covered.

Ascot & Fitch Insurance Brokers LLC is the handle on your fire extinguisher, that will extinguish your rixk, and secure your unknown.