Why Insurance?

Insurance is a pool of money set aside by a group of people against possible disaster. Everyone in the group contributes money, called premium, just in case they or some other unlucky member of their pool suffers a loss by fire, theft, death, lawsuit, etc. By each person putting in a little money, they are each spared having to set aside the full value of their home, their personal possessions, their future expenses, health care or business value. Having a policy with an insurance company means you are a member of that pool of money. The unfortunate ones who have a loss (a fire, accident or lawsuit) will have access to the pool of money and receive help from the insurance company. The others in the group will thank their lucky stars for their good fortune and continue to kick in their premium every month. It is one way that humans attempt to solve the problem of suffering unexpected and unpredictable losses to their lives, property and income.

These losses may come in the form of natural disasters such as fire, flood, earthquake, snow, rain or lightning or from war, crime or lawsuit. You can join a pool (get a policy) for car, home, health, business, recreational vehicles, rental properties, your life, your future income – just about anything you want to insure. Life for mankind on planet earth seems to hold few guarantees for future survival, even in a welfare state. You can look at history as the story of man's dealings with the risk of loss to his life, health, property and freedom. Insurance addresses the first three.

Og the Food Gatherer realized one day that every seven years the crops failed. It occurred to him that if everyone in the clan donated a week's worth of grain and dried meat each year for 6 years, they could all live through the bad seventh year in comfort without people dying of starvation.

Roman soldiers set up a widow's-and-orphan's fund for their families in case their soldierly duties resulted in their deaths. The death of the breadwinner of the family in times when women could not work or own property meant almost certain destitution for the entire family. This was the start of Life Insurance in the west.

Merchants in China, and later in Europe and England, found ways to balance out the threat of economic loss on their very dangerous ventures down the Silk Road or across the high seas by creating an insurance pool. Insuring commerce was the first major effort to insure property. Lloyd's of London is the oldest western insurance company, beginning over 500 years ago with insuring cargo and ships.

The greatest threat to homes in western civilization where wood was the main building material was, of course, fire. In the late 1700's fire insurance came into use for protecting against the loss of one's home by fire. In those days a person's home and contents often constituted their entire wealth and security. It was the difference between affluence and poverty, between comfort and extreme duress. Imagine watching it all go up in smoke with no possibility of recovery.

There is another form of insurance which was born from the necessity to protect oneself from a lawsuit. Someone somewhere at sometime got the "bright" idea that an injury he sustained could be blamed on the negligence of another person. His claim could take the negligent person's money and property to compensate for his injury or loss. The guy whose property was being taken would have been happy to have paid a small portion of his loss to have had some protection against losing everything. And thus Liability Insurance was born. A person has liability insurance to protect himself against a lawsuit in the event that his unintentional actions cause harm to another. In other words, liability insurance is there to pay the other guy who would otherwise have sued you personally. Automobile Liability Insurance is the most common form of liability insurance and is required by most states in the U.S.

Why would the state require liability insurance? In California the law requiring insurance comes under the heading of Financial Responsibility. The state wants you to be able to respond financially to injuries or damage you may cause. If you are at fault in an accident the state wants you to be able to compensate the injured party for the bodily injury or property damage you may have caused. Too often an uninsured motorist may cause serious injury to someone and be unable to pay for their damages. The injured person would scream bloody murder to the State of California saying: "Why did you allow this person to register a vehicle in California if he has no insurance? I am injured, I've lost my job and my car! What is the state going to do about it?" The state now requires that all registered vehicles be insured with liability insurance. Still, in California, 35% – 40% of the cars on the road in urban areas are NOT insured. So the state also requires that the insurance company who sells you the liability insurance offer and explain Uninsured Motorist Coverage and provide it for an additional cost.

Uninsured Motorist Coverage gives you and your passengers bodily injury coverage and covers your vehicle up to the limits of the policy in the event that you are hit by an uninsured motorist and it is their fault. Your Uninsured Motorist Coverage does for you what the other guy's policy should have done if he had had one. Standard Uninsured Motorist Coverage will provide bodily injury coverage for you and your passengers up to the limits of the policy. It provides bodily injury to you and your immediate family as pedestrians if you are hit by an uninsured motorist, for instance, while crossing a street. It may also provide compensation for loss of earnings, loss of use of your vehicle, death and dismemberment benefits, and pain and suffering. However, in California many companies write a modified version of this coverage and you must check your policy or call your agent or broker to find out what version you have.

Steve Groton is a licensed Insurance Agent and Broker with 23 years experience in Automobile, Property, Commercial, Health and Life insurance. His agency in Pasadena specializes in personal service and low cost insurance. Phone number (626) 584-6303.