A long time ago in a galaxy far, far away, life insurance was considered to be the greatest discovery in the entire universe and those who purchased this wonderful product were considered to be worthy of great respect and consideration by their families, friends, and associates. Those who sold the holy and blessed life insurance policies were revered as great pillars of their community and everywhere they went, they were greeted with public affection and grand hospitality in the homes that they would enter.
However, here on planet Earth, things have come about a little bit differently!
Even though the final outcome around here seems somewhat muted from the above Star Wars version, the history of how life insurance came to play such a pervasive role in our financial lives is really quite interesting, even if the product and those who sell that product have become otherwise stereotyped in our modern culture. Its history is also a bit lengthier and much more dramatic than most might imagine, although it should probably be noted that the final ending was quite predictable. Sort of like the Star Wars movies themselves!
Open up your Bible to any of the earlier books and you will quickly discover that the need for life insurance has pretty much been around since the day after Adam and Eve left the garden and we all had to begin facing the danger of dying before we were supposed to die. And the answer to that last implied question, so you will know, is that you are supposed to die when all of your financial affairs have been properly attended to, you don’t owe anyone anything, and no one is counting on you for very much anymore. That is what we should all be aiming for, but getting the timing just right is the real challenge.
Anyway, you can actually find in the book of Deuteronomy the command that if a man’s brother died prematurely, he should take his brother’s wife for his own. Unless things were completely different back then, I’m guessing most of those who ended up married right after attending their sibling’s funeral could soon be found pining for that future day when life insurance salespeople could approach them for an appointment to review their coverage!
Unfortunately, it would be quite a few years until the Middle Ages would come along and the various mercantile guilds would begin to take on the task of moderating the risk of losing a breadwinner and facing an immediate financial disaster as a direct result. Such plans were set up on a pass the hat after the fact basis and so naturally they had no guarantee that any death benefits would actually be paid. So while it certainly wasn’t the precise protection and value one might expect of an A++ rated life insurance company today, it was far better than having your sister-in-law move in on short notice, so you have to give the Middle Ages that much.
Back during the time when England ruled the world and the American colonies were just being established, life insurance began to take on a much more scientific and mathematical approach with exact premiums being paid in return for predetermined death benefit amounts. There was actually less science of mortality than simple math as it turns out, however, because there was no real statistical base for the analysis of exactly how many people of each age die at any given point in time. Such statistics are in fact the true basis for modern life insurance products, such that when you know how long on average a thirty-eight year old female who doesn’t use tobacco in any form is expected to live, then you are well on your way to passing the modern day premium calculation requirements of each state’s department of insurance. Unfortunately, back when the sun never set on the British Empire, many of the life insurance policies being established were taken out on the poor indigents of the day with a spirit of gambling often being the more predominant interest than concern for continuation of families or businesses.
Today, of course, the concept of “insurable interest” means that a life insurance policy can only be issued if the beneficiary can be shown to actually have a financial relationship to the insured and the ugly gambling on someone else’s death is no longer legally possible. So, for example, you would be precluded from taking out a policy on me just because you suspect that an objectionable fellow like me might not be “long for this world” and the premiums on my life might be a good wager to make against potentially much larger death proceeds.
To a very large extent, the life insurance industry really began its modern day expansion through fraternal groups, inasmuch as the “fraternal” were among the first to begin to establish much more actuarial sound products for sale to its members when the certainty of outcome in numbers of deaths per one thousand grew closer to something that might approach “guaranteed.” Once the fraternal members’ neighbors began to see that you don’t have to suffer financial disaster at the death of a family member, but that a pooling of the risk among a large group of people can make for relatively inexpensive life insurance protection, companies selling such a miracle product began to proliferate at a rather impressive level. Today, we find that there are well over 2,000 life companies in operation in the USA alone. Nonetheless, they all must undergo rather rigorous review by the state insurance boards in each of the states where they choose to market their products, and such regulation and government oversight of insurance companies has no doubt assisted in creating a confidence that allows the long term promises of the modern life insurance policy to have true meaning in the financial services marketplace.
Whatever else is put forth on this subject, it needs to be said that the consistent theme throughout the history of life insurance regardless of who tells the story (do note that much more serious and scholarly attempts than mine here can – and should – be found elsewhere!) has consistently been that death invariably brings a financial loss to those around us. Perhaps close family members or perhaps business partners, but when most of us depart the planet, we are leaving behind a financial loss that can only realistically be dealt with through life insurance, the rather marvelous product that is only payable at the exact moment it is required! And while no one is attempting to sell anything here, I am pretty confident that most people reading this would benefit from continuing to allow the often maligned life insurance agents into their home for a life insurance policy review at least once a year, just to be safe and secure in knowing that the amount available at death will be the amount actually required.
