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The boyfriend had won again. This time the stakes were a little higher and he had won Rs. 20,000. "Hah. These desh drohis all had bet Rs. 5,000 each on Sri Lanka winning. So I had to take four of them on," he said full of pride. "So are you happy because the Indian cricket team has won the World Cup or are you happy that you have won the bet?" I asked. "Well. Isn't that the same thing?" "Hmmm. Not really." "Okay. Let me put it this way. I am happy because the Indian cricket team won, and the Rs.20,000 is the icing on the cake." "So what do you plan to do with this money?" "There you go again. Subtle hints to get me to buy you that diamond earring."

"Ha ha. Not really. Why don't you buy a term insurance policy? This money that you have won will help you pay that first year's premium to start off with," I suggested. "Term insurance policy?" "They are basically plans which insure your life. And in case of your death, your nominee gets a certain amount of money referred to as the "sum assured" or life cover in common parlance. Of course, you need to keep paying a certain premium for the period of the policy." "But what happens if I don't die?" "Well in that case you don't get anything." "Oh. Then all the premium I pay is a loss." "Not really. You need to understand that you are paying a premium for insurance and not for investing as you do in case of other insurance policies. Also, term plans have the lowest premium among all the different insurance plans." "I am still not convincedabout it," the boyfriend saidemphatically.

"Hmmm. So let me get into a little bit of history. Human beings came up with insurance more or less at the same time they discovered fire. This happened nearly 250,000-500,000 years ago. Of course, back then they did not call it insurance." "Oh. Now that's interesting." "It was a way of co-operating among men who went to hunt game to ensure that nobody went hungry. Those who went out to hunt, had to face the risk of coming back empty-handed. As Joseph Heath writes in EconomicsWithout Illusions - Debunking the Myths of Modern Capitalism, "Each morning, the hunters head out into the bush to find something to eat. Some are likely to catch something, while others are likely to come home empty handed."" "Yeah. That risk would have always been there."

"So men who were able hunt an animal were able to put something on the table to eat for their families. Others had to face the prospect of their families going hungry. One solution to this problem, as Heath puts it, could have been "by inventing better weapons or new strategies."" "And that of course would take time to happen and they needed a solution in the meanwhile," the boyfriend interrupted. "Yes sir. But there was another way out. The hunters could pool their risk together and that's what started to happen. As Heath puts it, "Suppose that a group of 10 hunters agree to share with one another, so that those who were lucky and had a good day give some of their catch to those who were unlucky and had a bad day. This is the most primitive form of insurance, or risk pooling." In order to end up empty-handed at the end of the day, it would have to be the case that not only you struck out, but that all 10 hunters struck out independently of one another. And even if that happens once, it is highly unlikely to occur again the following day."

"And this arrangement ensured that there was food on the table for everyone?" "Yup. A simple arrangement that worked well." "But what has this got to do with term insurance?" "Oh. I thought you would be intelligent enough to figure it out." "Baby, both of us know that I am not as intelligent as you are." "Hah, you and your maska polish. Anyway, let me explain it to you. Insurance in its current form, is basically an advancement of this simple arrangement where individuals taking the insurance pay a certain premium every year which is collected into a pool, and they are insured against the risk of 'something happening.'"

"Hmmm. That makes sense. Now when you insure your life, you are not the only one insuring your life. There are others as well. And with that premium amount a pool of money is built. If one of the individuals taking insurance expires, then his or her nominee is paid out of the "pool" that is built." "Very interesting. The way you link history to present day and age is simply fantastic." "So? Did all this talking have any impact?" I asked. "Of course it did. I mean if human beings 250,000-500,000 years ago could have an insurance arrangement in place, why shouldn't I?" "That's like my baby. For once you make sense."

Source: DNA Money