cyclone, by death (of valuable animals), by robbery, and by breakage (of window glass). Personal insurance is that which indemnifies the beneficiary for loss of income as the result of various happenings to persons, the chief being death, accident, sickness, invalidity, old age, and unemployment.  The principle of insurance is being constantly extended to new subjects[2] and it is capable of further development in a variety of directions.

Sec. 5. #Insurance viewed as a wager.# Insurance, without question a highly useful thing, appears, paradoxically, to be in its outer form a bet.  The large merchant with many vessels used in many kinds of business had in the days before marine insurance an advantage in distributing his losses over a number of voyages.  Antonio, the wealthy merchant, is made thus to express his security: 

  “My ventures are not in one bottom trusted
  Nor to one place; nor is my whole estate
  Upon the fortune of the present year. 
  Therefore my merchandise makes me not sad.”

In its early form marine insurance was the attempt of smaller ship-owners to distribute their losses (as could the wealthy merchant) over a number of undertakings, lucky and unlucky.  It became customary for a ship-owner to bet with a wealthy man that the ship would not return.  If it did come back, the owner could afford to pay the bet; if it did not, he won his bet and thus recovered a part of his loss.  Gradually there came about a specialization of risk-taking by the men most able to bear it.  They could tell by experience about what was the degree of uncertainty, and could lay their wagers accordingly.  When several insurers were in the same business, competition forced them to insure the vessel and cargo of the ordinary trader for something near the percentage of risk involved.  The insurance thus tended to become a mutual protection to the ship-owners; what had to be paid in premiums to cover risk came to be counted as part of the cost of carrying on that business.

Every legitimate form of insurance exhibits substantially the same characteristics; it reduces loss at the margin where it is felt most keenly.  The difference between insurance and gambling, thus, lies primarily in the purpose of insurance, which is not to increase artificially the risk that any individual runs, but to neutralize or offset an already existing chance.  The insurance bet is what is called a “hedge.”  The difference lies further in the collective method of insurance, which combines the chances scattered among a number of persons.  Insurance does not increase the total of risks and of losses, but merely combines, averages, and distributes them equally among all the insured.  This eliminates the chance element to the individual by converting it into a regular cost.