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Name : Maryam Nawaz
Class : BBA Sectoin-A
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Roll NO : BBHM-F14-083
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Assignment : MBF
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Insurance Company
Insurance:
A contract (policy) in which an individual or entity receives financial protection or
reimbursement against losses from an insurance company. The company pools clients risks to
make payments more affordable for the insured.

Explanation:
Insurance allows individuals, businesses and other entities to protect themselves against
significant potential losses and financial hardship at a reasonably affordable rate. We say
"significant" because if the potential loss is small, then it doesn't make sense to pay a premium to
protect against the loss. After all, you would not pay a monthly premium to protect against a $50
loss because this would not be considered a financial hardship for most.
Insurance is appropriate when you want to protect against a significant monetary loss. Take life
insurance as an example. If you are the primary breadwinner in your home, the loss of income
that your family would experience as a result of our premature death is considered a significant
loss and hardship that you should protect them against. It would be very difficult for your family
to replace your income, so the monthly premiums ensure that if you die, your income will be
replaced by the insured amount. The same principle applies to many other forms of insurance. If
the potential loss will have a detrimental effect on the person or entity, insurance makes sense.

History:
We can say that insurance dates back to early human society. We know of two types of
economies in human societies: natural or non-monetary economies (using barter and trade with
no centralized or standardized set of financial instruments) and monetary economies
(with markets, currency, financial instruments and so on). Insurance in the former case entails
agreements of mutual aid. If one family's house gets destroyed, the neighbors are committed to
help rebuild it. Granaries embodied another early form of insurance to indemnify against
famines. These types of insurance have survived to the present day in countries or areas where a
modern money economy with its financial instruments is not widespread.
The first methods of transferring or distributing risk in a monetary economy, were practiced
by Chinese and Babylonian traders in 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, 1750 BC, and practiced 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 or lost at sea. Achaemenian monarchs in Ancient Persia were
presented with annual gifts from the various ethnic groups under their control. This would
function as an early form of political insurance, and officially bound the Persian monarch to
protect the group from harm. At some point in the 1st millennium BC, the inhabitants
of Rhodes created the 'general average'. This allowed groups of merchants to pay to insure their
goods being shipped together. The collected premiums would be used to reimburse any merchant
whose goods were jettisoned during transport, whether to storm or sinkage. The ancient
Athenian "maritime loan" advanced money for voyages with repayment being cancelled if the
ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous
times of year, implying an intuitive pricing of risk with an effect similar to insurance.
The Greeks and Romans introduced the origins of health and life insurance. 600 BC when they
created guilds called "benevolent societies" which cared for the families of deceased members,
as well as paying funeral expenses of members. Guilds in the Ages served a similar purpose. The
Jewish Talmud also 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.

Life Insurance Company

Modern life insurance policies were established in the early 18th century. The first company to
offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in
London in 1706 by William Talbot and Sir Thomas Allen. The first plan of life insurance was
that each member paid a fixed annual payment per share on from one to three shares with
consideration to age of the members being twelve to fifty-five. At the end of the year a portion of
the "amicable contribution" was divided among the wives and children of deceased members and
it was in proportion to the amount of shares the heirs owned. Amicable Society started with 2000
members. The first life table was written by Edmund Halley in 1693, but it was only in the 1750s
that the necessary mathematical and statistical tools were in place for the development of modern
life insurance. James Dodson, a mathematician and actuary, tried to establish a new company
that issued premiums aimed at correctly offsetting the risks of long term life assurance policies,
after being refused admission to the Amicable Life Assurance Society because of his advanced
age. He was unsuccessful in his attempts at procuring a charter from the government before his
death in 1757.His disciple, Edward Rowe Mores, was finally able to establish the Society for
Equitable Assurances on Lives and Survivorship in 1762. It was the world's first mutual
insurer and it pioneered age based premiums based on mortality rate laying "the framework for
scientific insurance practice and development" and "the basis of modern life assurance upon
which all life assurance schemes were subsequently based".

Mores also specified that the chief official should be called an actuary - the earliest known
reference to the position as a business concern. The first modern actuary was William Morgan,
who was appointed in 1775 and served until 1830. In 1776 the Society carried out the first
actuarial valuation of liabilities and subsequently distributed the first reversionary bonus (1781)
and interim bonus (1809) among its members. It also used regular valuations to balance
competing interests. The Society sought to treat its members equitably and the Directors tried to
ensure that the policyholders received a fair return on their respective investments. Premiums
were regulated according to age, and anybody could be admitted regardless of their state of
health and other circumstances. The sale of life insurance in the U.S. began in the late 1760s.
The Presbyterian Synods in Philadelphia and New York City created the Corporation for Relief
of Poor and Distressed Widows and Children of Presbyterian Ministers in
1759; Episcopalian priests organized a similar fund in 1769. Between 1787 and 1837 more than
two dozen life insurance companies were started, but fewer than half a dozen survived. As the
United States grew as a nation, its military presence increased on its own continent and became
mobile on the high seas. Military officers banded together to found both the Army
(AAFMAA)and the Navy Mutual Aid Association(Navy Mutual) after the widely publicized
plight of widows and orphans left stranded in the West after the Battle of the Little Big Horn,
June 25, 1876, and U.S. sailors had died while at sea, leaving families back home to fend for
themselves.

Parties to contract
There is a difference between the insured and the policy owner, although the owner and the
insured are often the same person. For example, if Joe buys a policy on his own life, he is both
the owner and the insured. But if Jane, his wife, buys a policy on Joe's life, she is the owner and
he is the insured. The policy owner is the guarantor and he will be the person to pay for the
policy. The insured is a participant in the contract, but not necessarily a party to it. Also, most
companies allow the payer and owner to be different, e. g. a grandparent paying premiums for a
policy on a child, owned by a grandchild.
The beneficiary receives policy proceeds upon the insured person's death. The owner designates
the beneficiary, but the beneficiary is not a party to the policy. The owner can change the
beneficiary unless the policy has an irrevocable beneficiary designation. If a policy has an
irrevocable beneficiary, any beneficiary changes, policy assignments, or cash value borrowing
would require the agreement of the original beneficiary.
In cases where the policy owner is not the insured, insurance companies have sought to limit
policy purchases to those with an insurable interest in the CQV. For life insurance policies, close
family members and business partners will usually be found to have an insurable interest. The

insurable interest requirement usually demonstrates that the purchaser will actually suffer some
kind of loss if the CQV dies. Such a requirement prevents people from benefiting from the
purchase of purely speculative policies on people they expect to die. With no insurable interest
requirement, the risk that a purchaser would murder the CQV for insurance proceeds would be
great. In at least one case, an insurance company which sold a policy to a purchaser with no
insurable interest (who later murdered the CQV for the proceeds), was found liable in court for
contributing to the wrongful death of the victim (Liberty National Life v. Weldon, 267 Ala.171
(1957)).

Contract terms
Special exclusions may apply, such as suicide clauses, whereby the policy becomes null and void
if the insured commits suicide within a specified time (usually two years after the purchase date;
some states provide a statutory one-year suicide clause). Any misrepresentations by the insured
on the application may also be grounds for nullification. Most US states specify a maximum
contestability period, often no more than two years. Only if the insured dies within this period
will the insurer have a legal right to contest the claim on the basis of misrepresentation and
request additional information before deciding whether to pay or deny the claim.
The face amount of the policy is the initial amount that the policy will pay at the death of the
insured or when the policy matures, although the actual death benefit can provide for greater or
lesser than the face amount. The policy matures when the insured dies or reaches a specified age
(such as 100 years old).

Costs, insurability, and underwriting

The insurer (the life insurance company) calculates the policy prices with intent to fund claims to
be paid and administrative costs, and to make a profit. The cost of insurance is determined using
mortality tables calculated by actuaries. Actuaries are professionals who employ actuarial
science, which is based on mathematics (primarily probability and statistics). Mortality tables are
statistically based tables showing expected annual mortality rates. It is possible to derive life
expectancy estimates from these mortality assumptions. Such estimates can be important in
taxation regulation.
The three main variables in a mortality table are commonly age, gender, and use of tobacco, but
more recently in the US, preferred class-specific tables have been introduced. The mortality
tables provide a baseline for the cost of insurance, but in practice these mortality tables are used
in conjunction with the health and family history of the individual applying for a policy to
determine premiums and insurability.
Many companies separate applicants into four general categories. These categories are preferred
best, preferred, standard, and tobacco. Preferred best is reserved only for the healthiest

individuals in the general population. This may mean, that the proposed insured has no adverse
medical history, is not under medication for any condition, and his family (immediate and
extended) have no history of early-onset cancer, diabetes, or other conditions. Preferred means
that the proposed insured is currently under medication for a medical condition and have a
family history of particular illnesses. Most people are in the standard category. People in the
tobacco category typically have to pay higher premiums due to the inherent health problems that
smoking tobacco creates. Profession, travel history, and lifestyle factor into whether the proposed
insured will be granted a policy and which category the insured falls. For example, a person who
would otherwise be classified as preferred best may be denied a policy if he or she travels to a
high risk country. Underwriting practices can vary from insurer to insurer, encouraging
competition.

Death proceeds
Upon the insured's death, the insurer requires acceptable proof of death before it pays the claim.
The normal minimum proof required is a death certificate, and the insurer's claim form
completed, signed, and typically notarized. If the insured's death is suspicious and the policy
amount is large, the insurer may investigate the circumstances surrounding the death before
deciding whether it has an obligation to pay the claim. Payment from the policy may be as a
lump sum or as an annuity, which is paid in regular installments for either a specified period
or for the beneficiary's lifetime.