ELEMENTS OF LIFE INSURANCE. Insurance is the equalization of fortune. The degree to which it accomplishes that end is, of course, limited by its sufficiency and the contingencies to which it applies. But, by indemnifying one set of men for their losses through misfortune out of funds contributed by them selves and others who, like them, in advance seemed sub .
subjected to the danger of a like misfortune, it tends to spread the loss over all and thus to equalize their fortunes in the one regard.
By means of insurance, a large number of men arrange to lose small sums, the premiums which they pay. Their reward is that such of them as would otherwise lose great sums through a particular sort of mischance, shall be in demnified in whole or in part, as may be the agreement. Thus all have the benefits of the protection, though to only a part do the misfortunes actually come which are indemnified. The first known form of insurance, there fore, was giving a bond for another, a form even now not always recognized to be insurance at all.
Insurance is the alliance of prudent men against mis fortune. It is a peculiarly significant, important and even vital invention of civilization and a practical application of the principle of solidarity or community of interest. In this broader sense, the organization of the family, fol lowed by the community, by society and the State, was the first manifestation of the same principle.
Insurance, so far as it applies, prevents the crushing of the individual by disaster of a financial nature, through apportioning his loss among persons who appear to be subject to the risk of such disaster. Each, charged with a small part of the loss, determined in advance, carries no more than he can _)tear. Business men, though prudent and not wildly venturesome, who are freed in this manner from the fear of disaster, dare to essay that which would otherwise be most dangerous; and thus great enterprises are encouraged.
The practice of insurance was brought about not by an appeal to altruistic sentiment, but by purely business con siderations. It is worthy of note that even the most of the insurances upon lives were at first for security of cred itors. Sentimental charity had interpreted "Bear ye one another's burdens" to mean "Bear ye others' burdens." Insurance came about by a recognition of a truer inter pretation of the command, and one that made it a practical rule for wise living. The new meaning, which was per haps all along the true meaning, is : "Bear your share of the common burden and your own burden will be borne by you and the others." This principle has by some been thought to be applicable to a scheme of general co-opera tion, perhaps too repressive of individual freedom of action. Business men have recognized its applicability through insurance to the sharing of unexpectedly heavy financial burdens under given contingencies; and in a per fectly practical way, for purposes of enlightened selfish ness only, they co-operate in insurance, as they co-operate in the State, for mutual protection.
Indemnity is the fundamental idea of insurance. It replaces, in whole or in part, in kind or in equivalent, that which is lost. This it does by what is a reversal of gambling, though it bears much similitude to gambling in form. Thus gambling is to bet upon a certain contin i6 gency. If it happens, you get back your stake and also the stake of your opponent; if it does not happen, you lose your stake. In insurance, so far as the surface of the thing goes, you also bet upon a contingency. If it hap pens, you get the stake of your opponent, that is, the amount of the insurance if the loss is so much; but you do not get your stake back. It it does not happen, you lose your stake. The only difference appears, on the sur face, to be that you do not get your stake back and that your opponent is also stakeholder.
But when you go deeper into it, the case is otherwise. It would not be gambling, though it seems so, if another had ventured your money for you on a certain contin gency, for you to bet a like sum on the other side, so that in any event you would come out even. That is what gamblers call a "hedge" and speculators a "wash sale." Nature exposes men to certain risks of loss. To permit that risk to remain uncovered is really to gamble; to cover it by insurance is to "hedge." An illustration of this is the case of a miller buying a large quantity of grain in order to grind it, at the same time selling a like amount for future delivery, in order to protect himself against a fall in price.
It may also be shown that the company does not gamble. If you make one bet on the tossing of a coin, you either win or lose. But if you make ten thousand such bets, the laws of average come in to limit your loss or gain; and, if you make an unlimited number of such bets, you cannot lose or gain at all, because the chances are even. Nothing is more reliable than the laws of average when a _large number of risks are combined. Insurance, as conducted by prudent companies, is a business, with reasonably reliable margins of profit, and not a speculation. The totallo,ss_on_a large number of insurances within a given period can be foretold.with remarkable accuracy.
From these considerations, it must be evident that to insure for more than the amount of the loss converts in surance into gambling. This has long been recognized. In a like manner, to permit a person to have an insurance against that which involves no financial loss to him, is seen to be gambling. Both are discountenanced by the laws.
Insurance, except in the form of fidelity or surety bonds, was unknown .among the ancients, though some thing like insurance was practiced in marine loans. Thus money was advanced at higher than the current rates of interest, upon ships and cargoes, on condition that, in case the same were lost, the loan was not to be repaid.
Marine insurance was also the earliest form of modern insurance. Next came fire insurance and after that life insurance and other forms.