Alright kids, settle down.  Class is starting!


Insurance is, in it's most basic form, distributing risk.  If you are certain that 1 in 10 people are going to get into an auto accident this year that will cost $10,000, if you get 9 other people to put $1000 into a pool with you, you each have only paid $1000 instead of one of you paying $10,000.  The risk for all 10 of you was spread out so that you may have to pay something even if nothing happens, but if something does, you didn't have to pay as much.  And next year, you'll do it again and someone else will be covered.  Over 10 years, everyone pays $10,000 but no one had to pay the $10,000 at once.

Again, this is the most simple way of explaining insurance.  Chinese merchants were doing essentially this with their cargo four thousand years ago! Merchants would distribute their cargo across several ships with other merchants with the idea that if a ship was lost at sea, everyone would only lose a small amount of merchandise.  

Modern style insurance where people paid a premium based on factors like amount to lose and likelihood of loss, was started in England in 1667 after the Great London Fire of 1666.  Even though the "Insurance Office" was started in 1667, it wasn't until 1681 that the idea took root and the Insurance Office insured thousands of homes in England.

Here in the USA, in the 1970s, the Insurance Services Office standardized insurance across the board by providing forms that would allow all insurance companies to have a basic standard for their policies.  All policies on an ISO form would have certain amounts of coverage but companies could add to it if they wanted.  If you've ever heard an insurance agent say, "This is an HO-5 policy," you can know that it has certain aspects no matter what company that agent works for.

Even today, insurance companies are changing things up and improving.  Only a few years ago, you could only get Flood Insurance through Federal programs, but insurance companies have developed private flood insurance over the last few years that you can add onto your home insurance.  Another example of insurance innovation is "mechanical breakdown" coverage.  Most people are familiar with a home warranty, many homebuyers request a home warranty as part of their offer.  But, after the first year, it expires of must be paid by the homeowner.  Mechanical breakdown will cover items in the home like a furnace, AC unit, even things like ovens and refrigerators at a fraction of the cost of a home warranty.

Service line coverage, digital loss, ID theft, smart device discounts, and so many more coverages are being added all the time!  The insurance you started 10 years ago is completely different than what you may need now!  If you haven't lately, check in with your insurance agent, things may be a lot different than the last time you talked!

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