Have you ever taken the time to learn more about the life insurance industry, including when and where it got its start? Do you have everything in order in regards to your personal life insurance? Do you realize that life insurance could be essential to your business as well?
Most people look at life insurance and see two things: a monthly premium and a death benefit.
They never taken the time to better understand the industry, such as the fact that there are nearly 1,000 companies selling policies in the United States alone.
While the history of life insurance may not have any impact on the type of policy you buy, the way you shop, or how much you spend, it’s still important to collect this information.
So, with all this in mind, let’s examine some of the most important dates and events in the history of life insurance.
Let’s start with an excerpt from the Bank On Yourself website, as it details one of the first instances of any form of life insurance:
“The first recorded life insurance policy—more of a wager than a policy, actually—dates back to June 18, 1583. Place: London, England. Insured: William Gybbons, a salter (he preserved meat and fish). Policy owner: Richard Martin, a citizen and alderman of London. Insurance company (if you can call it that): Thirteen merchants of London.
The arrangement was that for a one-time “premium” of 30 pounds sterling, Martin was given a written promise (the “policy”) that if Gybbons died within one year (this was apparently a one-year term policy) Martin would receive a death benefit of 400 pounds.”
As noted, this was more of a wager than an actual life insurance policy, but the overall concept was the same. Simply put, if one man passed away before a certain date, another would receive a payout. This is exactly what happens in today’s day world, albeit in a more formal and friendly manner.
Note: for more details on this particular arrangement, as well as other early life insurance anecdotes, read The Annals of the American Academy of Political and Social Science, Vol. 26, Insurance (September 1905).
The Beginning of Life Insurance as it’s Known Today
While the above is an interesting story, it doesn’t really do much to provide a detailed look at where the life insurance industry got its true start.
Fortunately, Huntley Wealth Insurance Services has done a great job breaking this down, providing an inside look at some of the biggest events leading up to the industry that we see today.
The 1600’s: Where it All Began
The insurance industry began to grow in Europe in the 1600’s, with merchants and ship owners forming guilds to provide protection in the event of pirating, fire, or shipwrecks.
It was during this time that the marine insurance industry got its start, with Edward Lloyd’s Coffee House, located in London, taking the lead.
While it’s difficult to pinpoint exactly where the modern concept of insurance came into play, many industry researchers believe that Edward Lloyd’s Coffee House was first to the punch.
By 1735, the idea of insurance began to spread, making its way to Charleston, South Carolina in 1735. By 1760, life insurance was offered in the United States, despite the fact that other types of policies, such as fire and flood were more popular.
Note: in the early days of life insurance, some religions were outspoken against this type of coverage. They believed it was “going against the will of god” in many ways.
The Mid-1800’s: A Time for Growth
By the time the mid-1800’s rolled around, life insurance companies came to realize that more and more men were looking for a way to provide for their family in the event of a premature death.
This is when the life insurance industry went through its first big growth spurt. Some of the top companies were formed during this time, some of which are still in business. This includes big name such as: New York Life (formed in 1845), Mass Mutual (formed in 1851), Guardian Life (formed in 1860), and Met Life (formed in 1864).
Big Events of the Early 1900’s
With the industry beginning to pick up during the late 1800’s, a growing number of people purchased life insurance.
When the Titanic sank in 1912, Northwestern Mutual paid death benefits to 13 different policy holders.
Furthermore, once World War I came to an end, life insurance sales once again skyrocketed.
By 1920, for instance, there were approximately 120 million policies in the United States alone. Ten years later, the value of life insurance policies in force reached a then all-time high of nearly $120 billion.
Note: MetLife was the top life insurance company in the United States at this time.
Falling and Rising Sales
According to a study by LIMRA in 2010, less than 50% of households in the United States had any type of individual life insurance coverage. This was a 50 year low, with many studies believing the cause to be the neglect of the middle class.
Huntley Wealth Insurance Services added the following in regards to the decline:
“Life insurance agents target an affluent, senior market looking for big sales and neglect the average Joe and Jane who need life insurance coverage to protect their families in the event of unexpected death.”
This leads to a variety of important life insurance statistics, including the following:
- Sixty percent of all people in the United States were covered by some type of life insurance in 2015. (LIMRA)
- Thirty-four percent of Americans say they are likely to purchase a life insurance policy within the next year. (Insurance Information Institute)
- Nearly 9 in 10 consumers (86 percent) agree that most people need life insurance. (Insurance Information Institute)
When compared to 2010, things were much better in 2015 in regards to the number of people with life insurance coverage. Adding to this is the fact that most people understand the importance of having coverage, with more than 30 percent stating that they will purchase a policy over the next 12 months.
Life Insurance and Your Business
It’s easy to assume that life insurance is a personal product. When you buy an individual life insurance policy, you do so with the idea that it will provide your family with financial protection upon your passing.
However, as a business owner, you don’t want to stop there. You need to understand that life insurance is essential to your company in a variety of ways:
- Money to Keep Your Business Running After Your Death
This doesn’t hold true with every type of company, but it’s something that comes into play for some small business owners.
When you purchase life insurance, you may do so with the idea that the death benefit will be used to keep your company on solid financial ground in the event of your death.
While some business owners don’t think about this, as they have no concerns about their company after they are gone, it’s something that is extremely important to others.
There is a lot that goes into this approach, including naming the right beneficiary and buying the appropriate amount of coverage.
- Key Person Life Insurance
Key person life insurance is exactly what it sounds like. Here’s a definition of this coverage (as shared by Entrepreneur):
“Life insurance on a key employee, partner or proprietor on whom the continued successful operation of a business depends. The business is the beneficiary under the policy.”
Is there a person within your company, outside of you, who is vital to the successful operation of the business? If so, you need to think about what would happen in the event of this person’s death.
Key person life insurance is one of the best ways to protect your company financially.
As complicated as it sounds, the way it works is simple. Here are a few key points:
- Your company purchases a life insurance policy on a key employee (or employees)
- Your company pays the premium and is named as the beneficiary of the policy
- If the person unexpectedly passes on, the company receives the death benefit
For bigger companies, this isn’t always necessary. However, with small businesses, the death of a key employee could result in the eventual death of the company.
Your company can use the death benefit in many ways, such as to pay off debt, pay severance to employees if the business is closing, or to search for the perfect replacement.
Buying key person life insurance isn’t required, but it’s something to strongly consider. From a business perspective, it can give you both a financial safety net and peace of mind.
- Group Life Insurance
Your employees have the right to purchase individual life insurance. This has nothing to do with their employment.
Conversely, you may want to purchase a group life insurance policy as to provide your workers with an additional benefit.
With this arrangement, your company purchases a single contract to cover a large group of people, typically your entire workforce.
Group life insurance is usually part of a larger employee benefit package, which may also include health insurance, disability insurance, and access to a retirement account.
Although you will pay a monthly or annual premium for group life insurance, it’s a benefit that goes a long way in attracting and retaining top talent.
Generally speaking, the cost of group life insurance coverage is much less than what an employee would pay for the same coverage on his or her own. This is why most people participate in a group policy if it’s available to them.
Here are some additional points of consideration:
- As a small business owner, your company is the policy owner. You keep the actual insurance policy, while those who are covered received a certificate of insurance. Just the same as an individual policy, members of the group coverage have the opportunity to choose their beneficiary.
- Term life insurance is the most common type of group coverage. This is provided in the form of an annual renewable term.
- There is more than one way to pay a group life insurance premium. Some companies pay the entire premium on behalf of their employers. Others, however, only pay for a portion of the premium.
- You can choose how much coverage to offer employees, with a general guideline being one to three times the person’s annual salary.
- The more coverage you purchase the higher your annual premium, so it’s important to understand the impact of the death benefit and number of employees who are covered.
- Group term coverage remains active until an employee is no longer part of the company, until the person stops paying his or her portion of the premium, or until the specific term expires. Depending on the type of coverage, a person may be able to convert to an individual policy upon leaving the company.
In the early days of life insurance, individuals were the only ones buying coverage. They would make a purchase with the idea that the death benefit would help their family upon their death.
As the years went by, a growing number of small business owners came to realize that there were many ways to use life insurance to their advantage.
Now, in today’s world, many owners are purchasing coverage for themselves, while also buying group life insurance and key person insurance. This is just another example of how the insurance industry has changed over the years.
The history of life insurance is a long and winding road. While the first policies are nothing like what we see today, they laid the groundwork for an industry that continues to grow.
Even when growth slows, nothing changes the fact that there will always be people who understand the value of buying a high quality life insurance policy. This is something that started hundreds of years ago, and it still holds true today.
What are your thoughts on the history of life insurance and how it has impacted the industry? Do you have a clear understanding of how you can use life insurance to your advantage as a business owner? If you have any additional information regarding the history of life insurance, don’t hesitate to share it in the comment section below.