The origins of life insurance date back to the times of ancient Rome, when a traditional Roman funeral included paid performers, a band, actors, singers, and sometimes even a clown. And that was all even before the cost of the gravesite and burial! And so began the practice of forming ‘burial clubs’ to cover the exorbitant costs associated with funerals. And although traditions have changed, the cost of a funeral can still be crippling.
In American, a group of Presbyterian ministers put together the first semblance of what we now know as a group life insurance policy. They created a fund for distressed widows and their children. The idea took off, and twenty-six new insurance companies opened their doors between 1787 and 1837. Many of those companies didn’t make it more than a few years, but a fire had been kindled.
But the industry was young and flawed. Until 1840, women were not able to buy policies for their husbands or themselves, as they were barred from entering into contracts. According to the common law idea of “insurable interests”, a husband-and-wife relationship was not considered adequate evidence to necessitate a policy. The only way to purchase a policy was for the husband to take out the policy on his own life and name his wife or child as beneficiary. On April 1st,1840 New York State passed a law allowing women to enter into contracts on their own. By December of that same year other states passed similar laws, thus removing the purchase barrier for many women in the country.
Since insurance was a new business sector, there were no laws in place to protect consumers, and the industry was rife with scandal. Companies sold policies with no capital with which to pay claims, and ruthless business practices forced out competitors and created monopolies. This caused a massive distrust of insurance companies among Americans.
Eventually, stock institutions began to lobby the New York state legislature for laws that would protect the reputation of life insurance, which ultimately led to the self-preservation of life insurance companies. One law required companies to possess at least $100,000 in capital stock before they could do business in New York state. This was just the first in a long line of laws that regulated the industry, but also resulted in a decade-long stagnation in sales.
But after the 1850’s sales began to climb, and by 1862, $200 million in premium was sold. By the end of the Civil War, premium totals had almost tripled. The establishment of state-run insurance departments to oversee the operations of life insurance companies did much to reinforce public trust. With confidence in the financial stability of insurance companies, sales rose, and faith in those companies was restored.
World War I
Then during WWI, the military issued all active personnel a policy worth $4,500. According to the Bureau of Labor Statistics, the average household income at that time was $1,518.00, so that was a sizable death benefit. The government also began selling War Risk policies to active military members, which were low cost, term life, guaranteed acceptance policies. War Risk policies proved to be extremely popular and reached sales of over $40 billion in premium by 1919.
In the aftermath of the war the industry pivoted from selling term policies to the sale of whole life policies by stock and mutual companies. Sales peaked in 1930 at $177 billion and remained strong through the Great Depression, at which time more than 120 million life insurance policies existed. This was the equivalent of every man, woman, and child in the United States owning a life insurance policy!
Fast forward to 2021. The total amount of insurance benefits and claims in the U.S. was over $790 billion. And according to the 2022 Insurance Barometer Study, 106 million adults still lack sufficient life insurance.
Life insurance was a game changer in America and remains one of our most powerful financial tools. If you would like to learn more about how life insurance can change the course of your family’s history, contact AMAC’s RoseMark Advisors. They are the financial arm of AMAC and their guidance and expertise are free to AMAC members.