If risk is like a smoldering coal that may spark a fire at any moment, then insurance is our fire extinguisher.
Countries and their citizens need something to spread risk among large numbers of people and to move risk to entities that can handle it. This is how insurance emerged. Read on to learn about how insurance evolved and how it can work to protect you from being burned by risk.
King Hammurabi's Code
The main concept of insurance - that of spreading risk - has been around as long as human existence. Whether it was hunting giant elk in a group to spread the risk of being the one gored to death or shipping cargo in several different caravans to avoid losing the whole shipment to a marauding tribe, people have always been wary of risk.
The first written insurance policy appeared in ancient times on a Babylonian obelisk monument with the code of King Hammurabi carved into it. The "Hammurabi Code" was one of the first forms of written laws. These ancient laws were extreme in most respects, but it offered basic insurance in that a debtor didn't have to pay back his loans if some personal catastrophe made it impossible (disability, death, flooding, etc.).
...Continue with the History of Insurance series to learn more about the evolution of Insurance.
Source: Andrew Beattie is a managing editor and contributor at Investopedia.com.
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