Life Insurance

The first reference to life insurance comes from the Middle Ages. Groups of the poor in Rome came together to bury members and help their surviving family. It became popular in England in the 1600s. In France, life insurance was forbidden by the Marine Ordinance of 1681 on the basis that human life could not be valued or traded. In 1787 the King's Council authorized the first life insurance company in France.

The first company in the United States was formed in 1735 to help the families of Presbyterian ministers in Philadelphia and New York. The first companies were mutual companies, owned by the policy members. Later companies were publicly owned stock companies. The United States still has a mixture of the two types of companies.

In the United States, life insurance became popular in the 1840s when companies started to aggressively market life insurance policies. Since people did not want to place a dollar value on loved ones' lives, policies were used for commercial interests. Policies were first used by creditors on the lives of people who owed them money in the Northeast and in the South on the lives of slaves. In addition, slaves' lives were also insured by fire insurance as property. Business still uses life insurance to protect against the loss of key personnel and to allow a partner to buy out the family of a deceased partner. By 1860 the industry was marketing policies to protect the family if the primary breadwinner died.

Due to lavish spending and lobbying in the late 1800s at the expense of policyholders, New York legislature formed the Armstrong committee and in 1907 enacted strict guidelines for the investment [Page 652]and use of life insurance premiums. This legislation was later adopted in many other states. With the passage of the War Risk Insurance Act in 1914 the U.S. government started to offer term and disability insurance. In April 1917, it provided $4,500 term life insurance to active duty personnel and sold additional insurance to families who wanted more coverage. When the service men and women returned home this type of policy declined in favor of whole life insurance. By the time of the Great Depression over 120 million policies were in force, the equivalent of one for every man, woman, and child in the United States at that time.

Although life insurance has many uses in both business and family life, the main purpose of life insurance for families is to replace lost income to the family when a family member dies during his or working years. It is also used to cover final medical bills, funeral expenses, and estate taxes for families that do not have other assets to cover these expenses. Life insurance policies can be used to ensure that child support or spousal maintenance payments continue even if the spouse making the payments dies. In recent years, a new issue with life insurance, the viatical insurance payment, has been tapping into the death benefit by critically ill patients while they are still alive.

...