The purposes of long-term and general insurance
Insurance grew out of the need to provide some financial protection for individuals and businesses if a certain event happened. In return for this protection, the insured would pay to the insurance firm a premium to provide that protection.
Early life assurance policies were commonly taken out by a husband in order to protect his wife and children, should he die at an early age. Life assurance is an example of long-term insurance because, once started, the insurance continues over the long term – provided that the insured continues to pay their premium. It also usually means that, once the policy has begun, the level of premium stays the same. Long-term insurance is most commonly associated with insuring either someone’s life or their health.
In contrast, general insurance provides cover typically only for a year, at which point the firm has the right either to refuse continuing the insurance of the individual or firm, or to change the premium level. This business is usually associated with the need to provide financial protection in the event of destruction or damage to property (e.g. a car, house or building) and is usually known by the collective term of general insurance.
Now that you’ve examined the purposes of long-term and general insurance, it’s time to look at how some specific types of insurance have emerged since the seventeenth century.