Shep, Shappy, Sheppar and Shephari lived on a hill by the river, with their respective families and their herds of animals. On a good day, their farm would produce just enough to provide for themselves and their families.
One day, Shep fell ill. He got so weak, that he couldn’t tend to his farm duties. His family knew very little about what needed to be done to keep the farm working well. Some of the fences that were left in disrepair broke down and the sheep escaped, getting eaten by wild animals.
Seeing this, the other shepherds talked among themselves and decided to each give a few of their sheep, to rebuild Shep’s farm. They noticed that each of their farms were still at risk, if something happened to any of them. So they decided to pool together their animals, with each saving on some of the fence building, protection and labor. If one of them couldn’t work for some reason, the others would pitch in and cover for them, keeping all families in the village fed and cared for.
This is a shepherd’s version of insurance. A simple lesson in risk sharing, to better understand the foundations of insurance.
You’ll notice that each Shepherd still kept ownership of their share of farm animals, while splitting the risks. Similarly, in every insurance contract there is a policy OWNER. That’s YOU! The insurance company is the one managing the every day minutiae of the flock, while you get to have less risk and less losses if something unexpected happened.
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