The Fluidity of Insurance.
Sexual orientation Norms and Racial Bias in the Study of the Modern "Protection"
Protection is a method for assurance from monetary misfortune. It is a type of hazard the executives, fundamentally used to support against the danger of unforeseen or dubious misfortune.
A substance that gives protection is known as a guarantor, an insurance agency, a protection transporter, or a financier.
An individual or substance who purchases protection is referred to as a safeguarded or as a policyholder.
The protection exchange includes the safeguarded expecting to be an ensured and known - moderately little - misfortune as an installment to the safety net provider in return for the guarantor's guarantee to remunerate the safeguarded in case of a covered deficit. The misfortune might be monetary, yet it should be reducible to monetary terms, and typically includes something in which the safeguarded has an insurable interest set up by proprietorship, ownership, or prior relationship.
The protected gets an agreement, called the protection strategy, which subtleties the conditions and conditions under which the guarantor will remunerate the safeguarded.
The measure of cash charged by the safety net provider to the policyholder for the inclusion set out in the protection strategy is known as the premium. In the event that the protected encounters a misfortune that is possibly covered by the protection strategy, the guaranteed presents a case to the backup plan for handling by a cases agent.
A compulsory cash-based cost needed by a protection strategy before a safety net provider will pay a case is known as a deductible. The safety net provider might support its own danger by taking out reinsurance, whereby another insurance agency consents to convey a portion of the dangers, particularly if the essential guarantor considers the danger excessively enormous for it to convey.
History
Early techniques
Techniques for moving or disseminating hazards were polished by Babylonian, Chinese, and Indian dealers as some time in the past as the third and second centuries BC, individually. Chinese dealers voyaging slippery stream rapids would reallocate their products across numerous vessels to restrict the misfortune because of any single vessel upsetting.
Codex Hammurabi Law 238 specified that an ocean chief, transport supervisor, or boat charterer that saved a boat from absolute misfortune was simply needed to pay a one-a a large portion of the worth of the boat to the boat proprietor.
In the Digesta see Pandectae, the second volume of the codification of laws requested by Justinian I of the Eastern Roman Empire, a legitimate assessment composed by the Roman legal adviser Paulus toward the start of the Crisis of the Third Century in 235 AD was incorporated about the Lex Rhodia that verbalizes the overall normal guideline of marine protection set up on the island of Rhodes in roughly 1000 to 800 BC as an individual from the Doric Hexapolis, conceivably by the Phoenicians during the proposed Dorian intrusion and development of the indicated Sea Peoples during the Greek Dark Ages that prompted the expansion of the Doric Greek vernacular.
The law of general normal establishes the essential rule that underlies all protection.
Ideas of protection have been likewise found in the third century BCE Hindu sacred writings like Dharmasastra, Arthashastra, and Manusmriti.
The antiquated Greeks had marine credits. Cash was progressed on a boat or load, to be reimbursed with an enormous premium if the journey thrives, yet not reimbursed at all if the boat is lost, the pace of revenue being made sufficiently high to pay for the utilization of the capital as well as for the danger of losing it. Credits of this person have since the time been normal in oceanic grounds, under the name of bottomry and respondentia bonds.
The immediate protection of ocean chances for a premium paid freely of advances started, similarly as is known, in Belgium about A.D. 1300. These new protection contracts permitted protection to be isolated from the venture, a partition of jobs that originally demonstrated helpful in marine protection.
The soonest known approach of disaster protection was made in the Royal Exchange, London, on the eighteenth of June 1583, for £383, 6s. 8d. for a year, on the existence of William Gibbons. Various endeavored fire protection plans failed miserably, yet in 1681, financial expert Nicholas Barbon and eleven partners set up the principal fire insurance agency, the "Protection Office for Houses", at the rear of the Royal Exchange to safeguard block and casing homes. At first, 5,000 homes were guaranteed by his Insurance Office.
Simultaneously, the principal protection plans for the guaranteeing of undertakings opened up. Before the finish of the seventeenth century, London's development as a middle for exchange was expanding because of the interest in marine protection. In the last part of the 1680s, Edward Lloyd opened a café, which turned into the gathering place for parties in the transportation business wishing to safeguard cargoes and ships, including those willing to endorse such endeavors. These casual beginnings prompted the foundation of the protection market Lloyd's of London and a few related delivery and protection organizations.
The primary life coverage strategies were required out in the mid-eighteenth century. The primary organization to offer disaster protection was the Amicable Society for a Perpetual Assurance Office, established in London in 1706 by William Talbot and Sir Thomas Allen. Upon a similar rule, Edward Rowe Mores set up the Society for Equitable Assurances on Lives and Survivorship in 1762.
It was the world's first shared backup plan and it spearheaded age put together expenses based with respect to death rate laying "the system for logical protection practice and advancement" and "the premise of present-day life-affirmation whereupon all life confirmation plans were in this way based."
In the late nineteenth century "mishap protection" started to open up. The main organization to offer mishap protection was the Railway Passengers Assurance Company, shaped in 1848 in England to guarantee against the rising number of fatalities on the beginning rail line framework.
By the late nineteenth century governments started to start public protection programs against affliction and advanced age. Germany based on a custom of government assistance programs in Prussia and Saxony that started as right on time as during the 1840s. During the 1880s Chancellor Otto von Bismarck presented advanced age annuities, mishap protection, and clinical consideration that shaped the reason for Germany's government assistance state. In Britain, more broad enactment was presented by the Liberal government in the 1911 National Insurance Act. This gave the British common laborers the main contributory arrangement of protection against ailment and joblessness. This framework was enormously extended after the Second World War affected by the Beveridge Report, to shape the main current government assistance state.
Standards
Protection includes pooling assets from many safeguarded elements to pay for the misfortunes that some might cause. The safeguarded substances are consequently shielded from hazard for a charge, with the expense being subject to the recurrence and seriousness of the occasion happening. To be an insurable danger, the danger protected against should meet certain qualities. Protection as a monetary delegate is a business venture and a significant piece of the monetary administration's industry, however singular substances can likewise self-guarantee through setting aside cash for conceivable future misfortunes.
Insurability
The hazard which can be protected by privately owned businesses regularly share seven normal qualities:
# Large number of comparable openness units: Since protection works through pooling assets, most the protection approaches cover singular individuals from huge classes, permitting backup plans to profit from the law of enormous numbers in which anticipated misfortunes are like the real misfortunes. Exemptions incorporate Lloyd's of London, which is well known for guaranteeing the life or soundness of entertainers, sports figures, and other popular people. Notwithstanding, all openings will have specific contrasts, which might prompt distinctive premium rates.
# Definite misfortune: This sort of misfortune happens at a known time and location and from a known reason. The exemplary model includes the passing of a safeguarded individual on a disaster protection strategy. Fire, auto collisions, and laborer wounds may all effectively meet this rule.
Different sorts of misfortunes may just be clear in principle. Word-related illness, for example, may include delayed openness to damaging conditions where no particular time, spot, or cause is recognizable. Preferably, the time, spot, and reason for a misfortune ought to be clear sufficient that a sensible individual, with adequate data, could impartially confirm every one of the three components.
# Accidental misfortune: The occasion that comprises the trigger of a case ought to be happy, or possibly outside the control of the recipient of the protection. The misfortune ought to be unadulterated, as in it results from an occasion for which there is just the chance for cost. Occasions that contain theoretical components, for example, common business hazards or in any event, buying a lottery ticket are by and large not considered insurable.
# Large misfortune: The size of the misfortune should be significant according to the point of view of the safeguarded. Protection expenses need to take care of both the normal expense of misfortunes, in addition to the expense of giving and controlling the strategy, changing misfortunes and providing the capital expected to sensibly guarantee that the guarantor will actually want to pay claims. For little misfortunes, these last expenses might be a few times the size of the normal expense of misfortunes. There is not really any point in paying such costs except if the security offered has genuine worth to a purchaser.
# Affordable expense: If the probability of a safeguarded occasion is so high, or the expense of the occasion so enormous, that the subsequent charge is huge comparative with the measure of security offered, then, at that point it isn't reasonable that protection will be bought, regardless of whether on offer. Moreover, as the bookkeeping calling officially perceives in monetary bookkeeping guidelines, the premium can't be huge to the point that there is anything but a sensible possibility of a critical misfortune to the backup plan. Assuming there is no such possibility of misfortune, the exchange might have the type of protection, yet not the substance.
# Calculable misfortune: There are two components that should be basically respectable, if not officially measurable: the likelihood of misfortune, and the orderly expense. Likelihood of misfortune is, for the most part, an experimental exercise, while cost has more to do with the capacity of a sensible individual possessing a duplicate of the protection strategy and proof of misfortune related with a case introduced under that approach to make a sensibly unmistakable and target assessment of the measure of the misfortune recoverable because of the case.
# Limited danger of calamitously huge misfortunes: Insurable misfortunes are preferably free and non-disastrous, implying that the misfortunes don't occur at the same time and individual misfortunes are not extreme enough to bankrupt the backup plan; safety net providers might like to restrict their openness to a shortfall from a solitary occasion to some little piece of their capital base.
Capital obliges guarantors' capacity to sell tremor protection just as wind protection in tropical storm zones. In the United States, the central government guarantees flood hazards. In business fire protection, it is feasible to discover single properties whose all-out uncovered worth is well in overabundance of any individual guarantor's capital imperative. Such properties are for the most part divided between a few backup plans or are safeguarded by a solitary guarantor which coordinates the danger into the reinsurance market.
Lawful
At the point when an organization guarantees an individual element, there are essential legitimate prerequisites and guidelines. A few regularly referred to legitimate standards of protection include:
# Indemnity – the insurance agency repays or redresses, the safeguarded on account of specific misfortunes simply up to the protected's advantage.
# Benefit protection – as it is expressed in the examination books of The Chartered Insurance Institute, the insurance agency doesn't have the right of recuperation from the party who caused the injury and is to repay the Insured paying little heed to the way that Insured had effectively sued the careless party for the harms
# Insurable interest – the guaranteed normally should straightforwardly experience the ill effects of the misfortune. Insurable interest should exist whether property protection or protection on an individual is included. The idea necessitates that she protected have a "stake" in the misfortune or harm to the life or property safeguarded. What that "stake" is will be dictated by the sort of protection included and the idea of the property possession or connection between the people. The necessity of an insurable interest is the thing that recognizes protection from betting.
# Utmost great confidence – the safeguarded and the guarantor are limited by a decent confidence obligation of trustworthiness and reasonableness. Material realities should be uncovered.
# Contribution – safety net providers which have comparable commitments to the safeguarded contribute to the reimbursement, as indicated by some strategies.
# Subrogation – the insurance agency gets legitimate rights to seek after recuperations for the benefit of the guaranteed; for instance, the guarantor might sue those responsible for the protected's misfortune. The Insurers can forgo their subrogation rights by utilizing the uncommon provisions.
# Causa Proxima or general reason – the reason for misfortune should be covered under the safeguarding arrangement of the approach, and the predominant reason should not be rejected
# Mitigation – if there should arise an occurrence of any misfortune or loss, the resource proprietor should endeavor to downplay misfortune, as though the resource was not protected.
Repayment
To "repay" signifies to make entire once more, or to be reestablished to the position that one was in, to the degree conceivable, preceding the occurrence of a predetermined occasion or risk. Appropriately, disaster protection is by and large not viewed as repayment protection, yet rather "unexpected" protection. There are for the most part three kinds of protection gets that try to repay a safeguarded:
# A "repayment" strategy
# A "pay to forsake" or "for the benefit of strategy"
# An "reimbursement" strategy
From a protected's stance, the outcome is typically something very similar: the safety net provider pays the shortfall and cases costs.
On the off chance that the Insured has a "repayment" strategy, the guaranteed can be needed to pay for misfortune and afterward be "repaid" by the protection transporter for the misfortune and cash-based expenses including, with the authorization of the guarantor, guarantee costs.
Back-up plans might preclude certain exercises which are considered risky and along these lines barred from inclusion. One framework for arranging exercises as indicated by whether they are approved by guarantors alludes to "green light" endorsed exercises and occasions, "yellow light" exercises and occasions that require safety net provider meeting and additionally waivers of responsibility, and "red light" exercises and occasions which are denied and outside the extent of protection cover.
Social impacts
Protection can effectively affect society through the way that it changes who bears the expense of misfortunes and harm. On one hand, it can build misrepresentation; on the other, it can help social orders and people get ready for fiascoes and relieve the impacts of calamities on the two families and social orders.
Protection can impact the likelihood of misfortunes through upright risk, protection misrepresentation, and preventive strides by the insurance agency.
Protection researchers have commonly utilized good danger to allude to the expanded misfortune because of unexpected lack of regard and protection misrepresentation to allude to expanded danger because of deliberate imprudence or detachment. Back-up plans endeavor to address imprudence through assessments, strategy arrangements requiring particular kinds of upkeep, and potential limits for misfortune relief endeavors.
While in principle backup plans could energize interest in misfortune decrease, a few observers have contended that practically speaking safety net providers had verifiably not forcefully sought after shortfall control measures—especially to forestall debacle misfortunes like storms—due to worries over rate decreases and fights in court. Notwithstanding, since around 1996 guarantors have started to play a more dynamic job in misfortune alleviation, for example, through construction standards.
Strategies for protection
As per the examination books of The Chartered Insurance Institute, there are various techniques for protection as follows:
# Co-protection – chances divided among safety net providers
# Dual protection – having at least two approaches with covering inclusion of a danger
# Self-protection – circumstances where the hazard isn't moved to insurance agencies and exclusively held by the elements or people themselves
# Reinsurance – circumstances when the guarantor passes some piece of or all dangers to another Insurer, called the reinsurer
Guarantors' plan of action
Guarantors might utilize the membership plan of action, coll
Insurers make money in two ways:
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 taking the brunt of the risk should it come to fruition.
By investing the premiums they collect from insured parties
The most complicated aspect of insuring is the actuarial science of ratemaking of policies, which uses statistics and probability to approximate the rate of future claims based on a given risk. After producing rates, the insurer will use discretion to reject or accept risks through the underwriting process.
At the most basic level, initial rate-making involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils.
Thereafter an insurance company will collect historical loss-data, bring the loss data to present value, and compare these prior losses to the premium collected in order to assess rate adequacy. Loss ratios and expense loads are also used. Rating for different risk characteristics involves - at the most basic level - comparing the losses with "loss relativities"—a policy with twice as many losses would, therefore, be charged twice as much.
More complex multivariate analyses are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses.
Upon termination of a given policy, the amount of premium collected minus the amount paid out in claims is the insurer's underwriting profit on that policy. Underwriting performance is measured by something called the "combined ratio", which is the ratio of expenses/losses to premiums.
A combined ratio of less than 100% indicates an underwriting profit, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings.
Insurance companies earn investment profits on "float". Float, or available reserve, is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out.
The Association of British Insurers has almost 20% of the investments in the London Stock Exchange. In 2007, U.S. industry profits from float totaled $58 billion. In a 2009 letter to investors, Warren Buffett wrote, "we were paid $2.8 billion to hold our float in 2008".
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 possible to sustain a profit from float forever without an underwriting profit as well, but this opinion is not universally held. Reliance on float for profit has led some industry experts to call insurance companies "investment companies that raise the money for their investments by selling insurance".
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.
Claims
Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insureds directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD.
Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes an investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment.
The policyholder may hire their own public adjuster to negotiate the settlement with the insurance company on their behalf. For policies that are complicated, where claims may be complex, the insured may take out a separate insurance policy add-on, called loss recovery insurance, which covers the cost of a public adjuster in the case of a claim.
Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel for the insured, monitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge.
If a claims adjuster suspects under-insurance, the condition of average may come into play to limit the insurance company's exposure.
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. Disputes between insurers and insureds over the validity of claims or claims handling practices occasionally escalate into litigation .
Marketing
Insurers will often use insurance agents to initially market or underwrite their customers. Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies. The existence and success of companies using insurance agents is likely due to the availability of improved and personalised services. Companies also use Broking firms, Banks and other corporate entities to market their products.
Types
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, vehicle insurance would typically cover both the property risk and the liability risk .
A home insurance policy in the United States typically includes coverage for damage to the home and the owner's belongings, 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 take a number of different forms, such as the various kinds of professional liability insurance, also called professional indemnity, which are discussed below under that name; and the business owner's policy, which packages into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners' insurance packages the coverages that a homeowner needs.
Auto insurance
Auto insurance protects the policyholder against financial loss in the event of an incident involving a vehicle they own, such as in a traffic collision.
Coverage typically includes:
Property coverage, for damage to or theft of the car
Liability coverage, for the legal responsibility to others for bodily injury or property damage
Medical coverage, for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses
Gap insurance
Gap insurance covers the excess amount on your auto loan in an instance where your insurance company does not cover the entire loan. Depending on the company's specific policies it might or might not cover the deductible as well. This coverage is marketed for those who put low down payments, have high interest rates on their loans, and those with 60-month or longer terms. Gap insurance is typically offered by a finance company when the vehicle owner purchases their vehicle, but many auto insurance companies offer this coverage to consumers as well.
Health insurance
Health insurance policies cover the cost of medical treatments. Dental insurance, like medical insurance, protects policyholders for dental costs. In most developed countries, all citizens receive some health coverage from their governments, paid through taxation. In most countries, health insurance is often part of an employer's benefits.
Income protection insurance
Disability insurance policies provide financial support in the event of the policyholder becoming unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgage loans and credit cards. Short-term and long-term disability policies are available to individuals, but considering the expense, long-term policies are generally obtained only by those with at least six-figure incomes, such as doctors, lawyers, etc. Short-term disability insurance covers a person for a period typically up to six months, paying a stipend each month to cover medical bills and other necessities.
Long-term disability insurance covers an individual's expenses for the long term, up until such time as they are considered permanently disabled and thereafter Insurance companies will often try to encourage the person back into employment in preference to and before declaring them unable to work at all and therefore totally disabled.
Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work.
Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.
Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expenses incurred because of a job-related injury.
Casualty insurance
Casualty insurance insures against accidents, not necessarily tied to any specific property. It is a broad spectrum of insurance that a number of other types of insurance could be classified, such as auto, workers compensation, and some liability insurances.
Crime insurance is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement.
Terrorism insurance provides protection against any loss or damage caused by terrorist activities. In the United States in the wake of 9/11, the Terrorism Risk Insurance Act 2002 set up a federal program providing a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism. The program was extended until the end of 2014 by the Terrorism Risk Insurance Program Reauthorization Act 2007 .
Kidnap and ransom insurance is designed to protect individuals and corporations operating in high-risk areas around the world against the perils of kidnap, extortion, wrongful detention and hijacking.
Political risk insurance is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions could result in a loss.
Life insurance
Life insurance provides a monetary benefit to a decedent'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.
In most states, a person cannot purchase a policy on another person without their knowledge.
Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies, are 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 United States 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 the United States, 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 . Moreover, other income tax saving vehicles plans, Roth IRAs) may be better alternatives for value accumulation.
Burial insurance
Burial insurance is a very old type of life insurance which is paid out upon death to cover final expenses, such as the cost of a funeral. The Greeks and Romans introduced burial insurance c. 600 CE when they organized guilds called "benevolent societies" which cared for the surviving families and paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose, as did friendly societies during Victorian times.
Property
Property insurance provides protection against risks to property, such as fire, theft or weather damage. This may include specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance.
The term property insurance may, like casualty insurance, be used as a broad category of various subtypes of insurance, some of which are listed below:
Aviation insurance protects aircraft hulls and spares, and associated liability risks, such as passenger and third-party liability. Airports may also appear under this subcategory, including air traffic control and refuelling operations for international airports through to smaller domestic exposures.
Boiler insurance insures against accidental physical damage to boilers, equipment or machinery.
Builder's risk insurance insures against the risk of physical loss or damage to property during construction.
Builder's risk insurance is typically written on an "all risk" basis covering damage arising from any cause not otherwise expressly excluded. Builder's risk insurance is coverage that protects a person's or organization's insurable interest in materials, fixtures or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from an insured peril.
Crop insurance may be purchased by farmers to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease. Index-based insurance uses models of how climate extremes affect crop production to define certain climate triggers that if surpassed have high probabilities of causing substantial crop loss.
When harvest losses occur associated with exceeding the climate trigger threshold, the index-insured farmer is entitled to a compensation payment.
Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary home insurance policies do not cover earthquake damage. Earthquake insurance policies generally feature a high deductible. Rates depend on location and hence the likelihood of an earthquake, as well as the construction of the home.
Fidelity bond is a form of casualty insurance that covers policyholders for losses incurred as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
Flood insurance protects against property loss due to flooding. Many U.S. insurers do not provide flood insurance in some parts of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort.
Home insurance, also commonly called hazard insurance or homeowners insurance, provides coverage for damage or destruction of the policyholder's home. In some geographical areas, the policy may exclude certain types of risks, such as flood or earthquake, that require additional coverage.
Maintenance-related issues are typically the homeowner's responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.
Landlord insurance covers residential or commercial property that is rented to tenants. It also covers the landlord's liability for the occupants at the property. Most homeowners' insurance, meanwhile, cover only owner-occupied homes and not liability or damages related to tenants.
Marine insurance and marine cargo insurance cover the loss or damage of vessels at sea or on inland waterways, and of cargo in transit, regardless of the method of transit.
When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss.
Renters' insurance, often called tenants' insurance, is an insurance policy that provides some of the benefits of homeowners' insurance, but does not include coverage for the dwelling, or structure, with the exception of small alterations that a tenant makes to the structure.
Supplemental natural disaster insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable.
Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed.
Surety bond insurance is a three-party insurance guaranteeing the performance of the principal.
Volcano insurance is a specialized insurance protecting against damage arising specifically from volcanic eruptions.
Windstorm insurance is an insurance covering the damage that can be caused by wind events such as hurricanes.
Liability
Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage.
For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property.
The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification with respect to a settlement or court verdict.
Liability policies typically cover only the negligence of the insured, and will not apply to results of wilful or intentional acts by the insured.
Public liability insurance or general liability insurance covers a business or organization against claims should its operations injure a member of the public or damage their property in some way.
Directors and officers liability insurance protects an organization from costs associated with litigation resulting from errors made by directors and officers for which they are liable.
Environmental liability or environmental impairment insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
Errors and omissions insurance is business liability insurance for professionals such as insurance agents, real estate agents and brokers, architects, third-party administrators and other business professionals.
Prize indemnity insurance protects the insured from giving away a large prize at a specific event. Examples would include offering prizes to contestants who can make a half-court shot at a basketball game, or a hole-in-one at a golf tournament.
Professional liability insurance, also called professional indemnity insurance, protects insured professionals such as architectural corporations and medical practitioners against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession.
For example, professional liability insurance in reference to the medical profession may be called medical malpractice insurance.
Often a commercial insured's liability insurance program consists of several layers. The first layer of insurance generally consists of primary insurance, which provides first dollar indemnity for judgments and settlements up to the limits of liability of the primary policy.
Generally, primary insurance is subject to a deductible and obligates the insured to defend the insured against lawsuits, which is normally accomplished by assigning counsel to defend the insured. In many instances, a commercial insured may elect to self-insure.
Above the primary insurance or self-insured retention, the insured may have one or more layers of excess insurance to provide coverage additional limits of indemnity protection. There are a variety of types of excess insurance, including "stand-alone" excess policies, "follow form" excess insurance, and "umbrella" insurance policies .
Credit
Credit insurance repays some or all of a loan when the borrower is insolvent.
Mortgage insurance insures the lender against default by the borrower. Mortgage insurance is a form of credit insurance, although the name "credit insurance" more often is used to refer to policies that cover other kinds of debt.
Many credit cards offer payment protection plans which are a form of credit insurance.
Trade credit insurance is business insurance over the accounts receivable of the insured. The policy pays the policy holder for covered accounts receivable if the debtor defaults on payment.
Collateral protection insurance insures property held as collateral for loans made by lending institutions.
Cyber Attack Insurance
Cyber-insurance is a business lines insurance product intended to provide coverage to corporations from Internet-based risks, and more generally from risks relating to information technology infrastructure, information privacy, information governance liability, and activities related thereto.
Other types
All-risk insurance is an insurance that covers a wide range of incidents and perils, except those noted in the policy. All-risk insurance is different from peril-specific insurance that cover losses from only those perils listed in the policy.
In car insurance, all-risk policy includes also the damages caused by the own driver.
Bloodstock insurance covers individual horses or a number of horses under common ownership. Coverage is typically for mortality as a result of accident, illness or disease but may extend to include infertility, in-transit loss, veterinary fees, and prospective foal.
Business interruption insurance covers the loss of income, and the expenses incurred, after a covered peril interrupts normal business operations.
Defense Base Act insurance provides coverage for civilian workers hired by the government to perform contracts outside the United States and Canada. DBA is required for all U.S. citizens, U.S. residents, U.S.
Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, foreign nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits.
Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.
Hired-in Plant Insurance covers liability where, under a contract of hire, the customer is liable to pay for the cost of hired-in equipment and for any rental charges due to a plant hire firm, such as construction plant and machinery.
Legal expenses insurance covers policyholders for the potential costs of legal action against an institution or an individual. When something happens which triggers the need for legal action, it is known as "the event".
There are two main types of legal expenses insurance: before the event insurance and after the event insurance.
Livestock insurance is a specialist policy provided to, for example, commercial or hobby farms, aquariums, fish farms or any other animal holding. Cover is available for mortality or economic slaughter as a result of accident, illness or disease but can extend to include destruction by government order.
Media liability insurance is designed to cover professionals that engage in film and television production and print, against risks such as defamation.
Nuclear incident insurance covers damages resulting from an incident involving radioactive materials and is generally arranged at the national level.
Pet insurance insures pets against accidents and illnesses; some companies cover routine/wellness care and burial, as well.
Pollution insurance usually takes the form of first-party coverage for contamination of insured property either by external or on-site sources.
Coverage is also afforded for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded.
Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, warranties, guarantees, care plans and even mobile phone insurance. Such insurance is normally very limited in the scope of problems that are covered by the policy.
Tax insurance is increasingly being used in corporate transactions to protect taxpayers in the event that a tax position it has taken is challenged by the IRS or a state, local, or foreign taxing authority
Title insurance provides a guarantee that title to real property is vested in the purchaser or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate transaction.
Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, loss of personal belongings, travel delay, and personal liabilities.
Tuition insurance insures students against involuntary withdrawal from cost-intensive educational institutions
Interest rate insurance protects the holder from adverse changes in interest rates, for instance for those with a variable rate loan or mortgage
Divorce insurance is a form of contractual liability insurance that pays the insured a cash benefit if their marriage ends in divorce.
Insurance financing vehicles
Fraternal insurance is provided on a cooperative basis by fraternal benefit societies or other social organizations.
No-fault insurance is a type of insurance policy where insureds are indemnified by their own insurer regardless of fault in the incident.
Protected self-insurance is an alternative risk financing mechanism in which an organization retains the mathematically calculated cost of risk within the organization and transfers the catastrophic risk with specific and aggregate limits to an insurer so the maximum total cost of the program is known.
A properly designed and underwritten Protected Self-Insurance Program reduces and stabilizes the cost of insurance and provides valuable risk management information.
Retrospectively rated insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula.
Under this plan, the current year's premium is based partially on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use.
Formal self-insurance is the deliberate decision to pay for otherwise insurable losses out of one's own money.
This can be done on a formal basis by establishing a separate fund into which funds are deposited on a periodic basis, or by simply forgoing the purchase of available insurance and paying out-of-pocket. Self-insurance is usually used to pay for high-frequency, low-severity losses.
Such losses, if covered by conventional insurance, mean having to pay a premium that includes loadings for the company's general expenses, cost of putting the policy on the books, acquisition expenses, premium taxes, and contingencies. While this is true for all insurance, for small, frequent losses the transaction costs may exceed the benefit of volatility reduction that insurance otherwise affords.
Insurance companies
Insurance companies may sell any combination of insurance types, but are often classified into three groups:
Life insurance companies, which sell life insurance, annuities and pensions products and bear similarities to asset management businesses Mutual companies are owned by the policyholders, while shareholders own proprietary insurance companies.
Demutualization of mutual insurers to form stock companies, as well as the formation of a hybrid known as a mutual holding company, became common in some countries, such as the United States, in the late 20th century. However, not all states permit mutual holding companies.
Reinsurance companies
Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from substantial 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
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 industr); 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 or loss control efforts
Other forms
Other possible forms for an insurance company include reciprocals, in which policyholders reciprocate in sharing risks, and Lloyd's organizations.
Admitted versus non-admitted
Admitted insurance companies are those in the United States that have been admitted or licensed by the state licensing agency. The insurance they sell is called admitted insurance. Non-admitted companies have not been approved by the state licensing agency, but are allowed to sell insurance under special circumstances when they meet an insurance need that admitted companies cannot or will not meet.
Insurance consultants
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 among many companies. Similar to an insurance consultant, an "insurance broker" also shops around for the best insurance policy among 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.
Financial stability and rating
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 . A number of independent rating agencies provide information and rate the financial viability of insurance companies.
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.
Across the world
Global insurance premiums grew by 2.7% in inflation-adjusted terms in 2010 to $4.3 trillion, climbing above pre-crisis levels. The return to growth and record premiums generated during the year followed two years of decline in real terms. Life insurance premiums increased by 3.2% in 2010 and non-life premiums by 2.1%. While industrialised countries saw an increase in premiums of around 1.4%, insurance markets in emerging economies saw rapid expansion with 11% growth in premium income.
The global insurance industry was sufficiently capitalised to withstand the financial crisis of 2008 and 2009 and most insurance companies restored their capital to pre-crisis levels by the end of 2010. With the continuation of the gradual recovery of the global economy, it is likely the insurance industry will continue to see growth in premium income both in industrialised countries and emerging markets in 2011.
Advanced economies account for the bulk of global insurance. With premium income of $1.62 trillion, Europe was the most important region in 2010, followed by North America $1.41 trillion and Asia $1.16 trillion. Europe has however seen a decline in premium income during the year in contrast to the growth seen in North America and Asia.
The top four countries generated more than a half of premiums. The United States and Japan alone accounted for 40% of world insurance, much higher than their 7% share of the global population. Emerging economies accounted for over 85% of the world's population but only around 15% of premiums.
Their markets are however growing at a quicker pace. The country expected to have the biggest impact on the insurance share distribution across the world is China.
According to Sam Radwan of ENHANCE International LLC, low premium penetration, an ageing population and the largest car market in terms of new sales, premium growth has averaged 15–20% in the past five years, and China is expected to be the largest insurance market in the next decade or two.
Regulatory differences
In the United States, insurance is regulated by the states under the McCarran-Ferguson Act, with "periodic proposals for federal intervention", and a nonprofit coalition of state insurance agencies called the National Association of Insurance Commissioners works to harmonize the country's different laws and regulations. The National Conference of Insurance Legislators also works to harmonize the different state laws.
In the European Union, the Third Non-Life Directive and the Third Life Directive, both passed in 1992 and effective 1994, created a single insurance market in Europe and allowed insurance companies to offer insurance anywhere in the EU and allowed insurance consumers to purchase insurance from any insurer in the EU. As far as insurance in the United Kingdom, the Financial Services Authority took over insurance regulation from the General Insurance Standards Council in 2005; laws passed include the Insurance Companies Act 1973 and another in 1982, and reforms to warranty and other aspects under discussion .
The insurance industry in China was nationalized in 1949 and thereafter offered by only a single state-owned company, the People's Insurance Company of China, which was eventually suspended as demand declined in a communist environment. In 1978, market reforms led to an increase in the market and by 1995 a comprehensive Insurance Law of the People's Republic of China was passed, followed in 1998 by the formation of China Insurance Regulatory Commission, which has broad regulatory authority over the insurance market of China.
In India IRDA is insurance regulatory authority. As per the section 4 of IRDA Act 1999, Insurance Regulatory and Development Authority, which was constituted by an act of parliament. National Insurance Academy, Pune is apex insurance capacity builder institute promoted with support from Ministry of Finance and by LIC, Life & General Insurance companies.
In 2017, within the framework of the joint project of the Bank of Russia and Yandex, a special check mark text box) appeared in the search for Yandex system, informing the consumer that the company's financial services are offered on the marked website, which has the status of an insurance company, a broker or a mutual insurance association.
Controversies
Does not reduce the risk
Insurance is just a risk transfer mechanism wherein the financial burden which may arise due to some fortuitous event is transferred to a bigger entity called an Insurance Company by way of paying premiums. This only reduces the financial burden and not the actual chances of happening of an event. Insurance is a risk for both the insurance company and the insured. The insurance company understands the risk involved and will perform a risk assessment when writing the policy.
As a result, the premiums may go up if they determine that the policyholder will file a claim. However, premiums might reduce if the policyholder commits to a risk management program as recommended by the insurer. It's therefore important that insurers view risk management as a joint initiative between policyholder and insurer since a robust risk management plan minimizes the possibility of a large claim for the insurer while stabilizing or reducing premiums for the policyholder.
If a person is financially stable and plans for life's unexpected events, they may be able to go without insurance. However, they must have enough to cover a total and complete loss of employment and of their possessions. Some states will accept a surety bond, a government bond, or even making a cash deposit with the state.
Moral hazard
An insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be, a concept known as moral hazard. This 'insulates' many from the
true costs of living with risk, negating measures that can mitigate or adapt to risk and leading some to describe insurance schemes as potentially maladaptive.
Complexity of insurance policy contracts
Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.
For example, most insurance policies in the English language today have been carefully drafted in plain English; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying. Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy.
Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer, and typically counsels the buyer on appropriate coverage and policy limitations, in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.
Insurance may also be purchased through an agent. A tied agent, working exclusively with one insurer, represents the insurance company from whom the policyholder buys .
Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company.
Agents generally cannot offer as broad a range of selection compared to an insurance broker.
An independent insurance consultant advises insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers or agents. However, such a consultant must still work through brokers or agents in order to secure coverage for their clients.
Limited consumer benefits
In the United States, economists and consumer advocates generally consider insurance to be worthwhile for low-probability, catastrophic losses, but not for high-probability, small losses. Because of this, consumers are advised to select high deductibles and to not insure losses which would not cause a disruption in their life.
However, consumers have shown a tendency to prefer low deductibles and to prefer to insure relatively high-probability, small losses over low-probability, perhaps due to not understanding or ignoring the low-probability risk. This is associated with reduced purchasing of insurance against low-probability losses, and may result in increased inefficiencies from moral hazard.
Redlining
Redlining is the practice of denying insurance coverage in specific geographic areas, supposedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling or redlining has a long history in the property insurance industry in the United States.
From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.
In July 2007, the US Federal Trade Commission released a report presenting the results of a study concerning credit-based insurance scores in automobile insurance. The study found that these scores are effective predictors of risk.
It also showed that African-Americans and Hispanics are substantially overrepresented in the lowest credit scores, and substantially underrepresented in the highest, while Caucasians and Asians are more evenly spread across the scores.
The credit scores were also found to predict risk within each of the ethnic groups, leading the FTC to conclude that the scoring models are not solely proxies for redlining. The FTC indicated little data was available to evaluate benefit of insurance scores to consumers. The report was disputed by representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice, for relying on data provided by the insurance industry.
All states have provisions in their rate regulation laws or in their fair trade practice acts that prohibit unfair discrimination, often called redlining, in setting rates and making insurance available.
In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.
An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss will occur. Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. This basic principle of insurance must be followed if insurance companies are to remain solvent.
Thus, "discrimination" against potential insureds in the risk evaluation and premium-setting process is a necessary by-product of the fundamentals of insurance underwriting. For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently from younger people .
The rationale for the differential treatment goes to the heart of the risk a life insurer takes: older people are likely to die sooner than young people, so the risk of loss is greater in any given period of time and therefore the risk premium must be higher to cover the greater risk. However, treating insureds differently when there is no actuarially sound reason for doing so is unlawful discrimination.
Insurance patents
New assurance products can now be protected from copying with a business method patent in the United States.
A recent example of a new insurance product that is patented is Usage Based auto insurance. Early versions were independently invented and patented by a major US auto insurance company, Progressive Auto Insurance and a Spanish independent inventor, Salvador Minguijon Perez .
Many independent inventors are in favor of patenting new insurance products since it gives them protection from big companies when they bring their new insurance products to market. Independent inventors account for 70% of the new U.S. patent applications in this area.
Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.
There are currently about 150 new patent applications on insurance inventions filed per year in the United States. The rate at which patents have been issued has steadily risen from 15 in 2002 to 44 in 2006.
The first insurance patent to be granted was including another example of an application posted was . It was posted on 6 March 2009. This patent application describes a method for increasing the ease of changing insurance companies.
Insurance on demand
Insurance on demand is an insurance service that provides clients with insurance protection when they need, i.e. only episodic rather than on 24/7 basis as typically provided by traditional insurers .
Insurance industry and rent-seeking
Certain insurance products and practices have been described as rent-seeking by critics. That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made. Sometimes this tax deferral is the only reason people use these products.
Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.
Religious concerns
Muslim scholars have varying opinions about life insurance. Life insurance policies that earn interest are generally considered to be a form of riba and some consider even policies that do not earn interest to be a form of gharar . Some argue that gharar is not present due to the actuarial science behind the underwriting.
Jewish rabbinical scholars also have expressed reservations regarding insurance as an avoidance of God's will but most find it acceptable in moderation.
Some Christians believe insurance represents a lack of faith and there is a long history of resistance to commercial insurance in Anabaptist communities but many participate in community-based self-insurance programs that spread risk within their communities.