the history of life insurance

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it all started when…

Life insurance started in Ancient Rome with “burial clubs” that covered the costs of members’ funeral expenses.  General Gaius Marius started the first club for his soldiers; soldiers who opted in paid for their comrades’ funeral and had their own funeral covered when their own time came.

The first “life table,” the foundation of life actuarial science and thus life insurance as a business, was created by British Astronomer Royal (and mathematician) Edmund Halley in 1693, and the table basically outlined that 14.5% of the population of the Austrian city of Breslau (now in Poland) died in the first year of life, 2% of the total lived to the age of 84, and so on.  Halley compiled the table in an express “attempt to ascertain the price of annuities upon lives.” (The main reason Breslau was chosen was due to the meticulousness of the city’s records.)

The first modern example of life insurance was the Amicable Society for a Perpetual Assurance Office, started in London in 1706 with 2,000 members by William Talbot and Sir Thomas Allen.  Each member made an annual payment on one to three shares, and at the end of the year a portion of the “amicable contribution” was distributed among the wives and children of deceased members, in proportion to the number of shares the heirs inherited.

James Dodson, a mathematician and actuary, was rejected by ALAS because of his advanced age and tried to establish his own rival company, but could not obtain a charter from the British government.  His disciple Edward Rowe Mores succeeded, however, and the Society for Equitable Assurances on Lives and Survivorship was founded in 1762. SEALS was the world’s first mutual insurer (a company owned by its policyholders), and it pioneered age-based premiums based on mortality rates.  Notably, anybody could be admitted regardless of their health and other circumstances.

Life insurance began in the US at about the same time; The Presbyterian Synods in Philadelphia and New York City created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759, and Episcopalian priests organized a similar fund in 1769.  In the 50 years between 1787 and 1837 more than two dozen life insurance companies were started, but no more than 20% survived, mainly due to the fact that many started with little or no reserve capital.

In the 1870s, distraught at the plight of widows and orphans left stranded in the West after the Battle of the Little Big Horn (aka “Custer’s Last Stand”), military officers banded together to form the American Armed Forces Mutual Aid Association (its sister organization Navy Mutual is better known).  Also in the 1870s, the first company to offer burial coverage as a distinct product was founded in New Jersey as the Widows and Orphans Friendly Society (this company is now Prudential).

The life insurance industry continued to evolve in the 20th Century (group coverage began in 1911, most likely as one result of the Triangle Fire) and the 1945 McCarran-Ferguson Act confirmed that the individual states would continue to regulate the industry (that’s why you still need to get your licenses today state-by-state).  By the 1970s, 90% of married couples had some sort of coverage.

Unfortunately for Americans (but perhaps fortunately for ambitious agents) life insurance has become less popular in the 21st Century, with one-third of households having no coverage at all and coverage rates at their worst since the Sixties.