By Martha MyronMurder has been committed for it, in the worst of human tragedies due to selfishness, total greed, and vicious disregard for the human suffering of the victim(s).Suicide has been enacted in the name of “caring for the remaining family members”.Larceny in the heart, then implemented through deception (and hired criminals) has resulted in phoney claims and catastrophic property damage.It has been embezzled, borrowed from, and most people just hate to pay for it.The premiums from this business have generated some of the largest cash ‘floats’ in modern finance, all representing major liabilities of other people’s money (that is, belonging to individuals and businesses) at least, until a contract terminates.It is one of, if not the longest-tailed business model seen today, with liabilities for prepaid finance on the management of risk that may encompass holding patterns of sixty or more years.It requires one of the broadest bodies of knowledge for the professionals who are employed in this spectrum of any business or industry operating today: insurance professionals, both on the risk management side, and the claims specialist side, must be familiar with, and specialists in, fraud, crime, terrorism, kidnapping, counterfeiting, general and esoteric investment vehicles, geography, nuclear and other energy sources, weather, the oceans, the stratosphere information technology, politics, economies, military, industrial complexes, manufacturing, service providers, legal, tax, medical, governmental infrastructures, human psychology, animal behaviour, and encompassing all salient intersections, facility with math, chemistry, biology, genetics, physics and geometry along with the rest of natural sciences.In many respects, it may represent the greatest available cash totals of any industry at any one point in time of our current economic era, while imbuing the caretakers of such massive financial accumulations with the protection of greatest risks of loss.This is the great ‘what if’ — insurance: the business of insuring risk. Often thought of as boring, not needed, or a necessary evil, it is anything and everything but.These comments are all part and parcel of the modern insurance industry whose implicit model is, “if the event can be foreseen, projected, risk-calculated and managed, we can insure it — for a price.”Insurance represents some certainty as a hedge against an uncertain world.We, as individuals and businesses, may in the course of our lives, insure against the what if, the great risk of loss. Insurance companies accept those risks. We think these events are unpredictable and dread the thought of facing any such calamity. Insurance gurus employ highly refined structures gained through cumulative years of business experience. Their business models, often complex to the ninth degree, are built on assessing events, building probability models of the event happening, understanding how many individuals, property, investments, businesses, economies, and so on, will be affected, then charging an amount to insure against these events while generating a profit for the company and its shareholders.Get the model right, great profits for expansion and competitive initiatives. Get it wrong, lamentable losses, though a well-financed firm may have sufficient reserves to weather a bad year or two. Generate projections entirely out of the framework of reality, the worst case happens, the insurance firm is out of business — run-off.One of the most incredible, and comforting (if such a tragedy can have any comfort) memories of the horrific 911 event was the immediate mobilisation of the global insurance / reinsurance industries. Within several days, analysts for the industries had reviewed the coverage capacity of every insurance / reinsurance company connected with the individuals, businesses, and property structures affected by this catastrophe. Note that many of these firms were Bermuda-based reinsurance companies. The analysts, then, were able to project how financially strong the industry was, and how much capacity each firm had accrued for handling the subsequent 911 claims. As we all now realise, no matter how appalling the event and the accompanying human tragedy is, the aftermath to recovery means that financing — in the form of insurance payments and government backup — is needed to take care of the survivors and their families — to return lives and businesses to normality, as expeditiously as is humanly possible.Basic Life insurance.In a way, perhaps, due to that terrible time, it is fitting to discuss first, one of the most basic and the oldest types of insurance, life insurance.A couple of thoughts crossed my mind this week regarding travelling, which then led to visions of many Bermudians excitedly standing in line waiting to fly once more across the Atlantic. They will then arrange for their rental car, SUV or van at some chaotic airport, this being a historically heavy travel time what with Cup Match, shopping, visiting relatives and all.Car rental companies want to sell insurance coverage while in a foreign environment (and usually succeed), while flight insurance is often readily purchased through airport kiosks, but we delay that aspect of insurance matters for later chapters.The thoughts of the surviving 911 families who had to endure the losses of loved ones, somehow putting aside the sorrow to focus on living again, I often wondered if many of those who died so tragically carried life insurance. Life insurance can temper some of the immediate grief and trauma by ensuring some financial security, however, temporarily, or into the future, but the money will never take away the pain of losing a loved one.Tragic events have a common thread. Life is to be celebrated, we say, and we should try to make every day count. When it is our turn to meet the almighty, we hope we are ready. In the meantime, most of us prefer not to think about these risks, but others do.Of course, if we never died, we would not have to consider life insurance, would we? Now, that’s a real cosy thought.The primary function of insurance is the creation of the counterpart of risk, which is security. It is an economic device whereby you, the client, substitute a very small certain cost (the premium) for a large uncertain financial loss (the life contingency insured against) that would exist if it were not for the insurance.Insurance wheels turnSo, just exactly how do insurance companies make a profit and pay off on that million-dollar life insurance? For this example, we will just stick to the business of insuring people’s lives.You are a male — forty years old, the primary wage earner (by far) in the family, have a hefty home mortgage, little savings, two young children, and a mom-spouse working part-time. You worry about their financial situation, if something should happen to you.Sound financial planning stipulates that you need to purchase some life insurance, whatever you can afford because your whole family is totally dependent upon you.You arrange an interview with a licensed insurance professional. You know what the first question is going to be — how much life insurance can you afford? You are wrong, almost dead wrong. The first question is: are you an insurable risk?Why would that matter?Stay tuned.Martha Harris Myron JP CPA PFS CFP (USA) is a Bermudian journalist and a cross border financial planning specialist focused on the Offshore financial perspectives for international citizens living, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle: United States, Canada, United Kingdom, Europe, and the island of Bermuda, the premier international finance centre.President of Pondstraddler? Life™ Consultancy providing Publications, Presentations, Workshops and Seminars. info@pondstraddler.com