The beginnings of life insurance
Life insurance dates back almost 5,000 years. People in ancient Egypt took burial practices very seriously. They created a system to provide the financial resources needed for people to be laid to rest with the dignity they desired. [1] Workers gave a portion of their earnings to cover burial costs for fellow laborers.
Life insurance as a concept later showed up in ancient Rome. A Roman military leader called Caius Marius was the first person that we know of to come up with the concept of “burial clubs,” where Roman soldiers agreed to cover expenses related to unexpected deaths of their fellow troops. [2] Romans wanted to protect the honor of their deceased soldiers, so these burial clubs ensured that fallen army men would be buried in a respectable way.
Today, when you apply for life insurance, your mortality risk is assessed by your insurer. It uses actuarial tables to evaluate your risk and set a price for your insurance, based on how likely it is that you’ll outlive the policy. This evaluation process is called underwriting. But this wasn’t the system used in ancient times. For example, in Rome, to be part of a burial club, “there was a flat fee paid by soldiers” says Daniel Bauer, Professor of Risk and Insurance at the University of Wisconsin School of Business.
It wasn’t until the 1700s in London that underwriters began to calculate a level of risk to insure merchant ships. “Underwriters” were individuals who signed underneath the line on the bottom of insurance proposals, meaning they would agree to insure the ship's voyage as written in the contract. [3] This risk assessment process has become more sophisticated in the last 300 years, although underwriters often do exercise a certain degree of subjectivity. Different insurers will be able to offer you different rates based on their company’s internal underwriting guidelines.
The first life insurance policy
The policies in ancient Egypt and Rome functioned a lot like how group life insurance policies work today. The first individual life insurance policy didn’t come about until the 19th century in England.
The very first written individual life insurance policy on record insured the life of an Englishman named William Gybbons, explains Ronald Kessler in The Life Insurance Game. The policy was written in 1853 and insured Gybbons’ life for one year. Gybbons died within this time frame, so his beneficiary, Richard Martin, received 400 pounds. The relationship between the two men is unknown. [4]
At first, the insurers didn’t want to pay the death benefit, claiming the policy was only good for a lunar year, not a calendar year (a lunar year is shorter — about 355 days). Martin took the insurers to court, won his case, and received the payout.
Life insurance grew in popularity in England in the following decades, with Edward Lloyd’s coffee house. This small shop on Tower Street was a common meeting place for ship captains, merchants, and ship owners. It became a central location for shipping news and, eventually, maritime insurance. [5]
In 1769, underwriters from Edward Lloyd’s coffee house broke off and started their own insurance organization, which eventually became what we know today as Lloyd’s of London, one of the world’s largest insurance companies. [6]
Life insurance in the U.S.
Life insurance in America dates back to colonial times. In 1759, the Presbyterian Church started offering life insurance for clergy members, with the intention of caring for the clergy’s family members if they passed away, explains financial history blogger and CFA Daniel DeMatos. [7] The Presbyterian Church had originally set up a fund in 1717 to operate like a charity to provide financial support to clergy members’ families if they died.
But over several decades, this fund evolved into a formal life insurance model, where ministers paid premiums in exchange for insurance. Episciopalian ministers set up a similar fund starting in 1769. [8]
Life insurance companies continued to spring up over the next several decades, experiencing a boom in the 1840s. New York Life, MassMutual, John Hancock, and MetLife were all created around this time. This created a difficult dynamic during the American Civil War, as insurance became very popular — tripling the amount of life insurance coverage in force between 1862 and 1865. So many people died during the war that most insurance companies only broke even on soldiers’ life insurance policies. [9]
During the 1870s, there was a financial depression and many insurance companies failed. Then, in 1875, the Widows and Orphans Friendly Society was founded as the first insurance company to make life insurance available to the working class, meeting the needs of the struggling economy. This company eventually became Prudential. [10]
Following both World War I and World War II, life insurance sales increased significantly. By the mid-1970s, 72% of all American adults had some form of life insurance. [11]
Life insurance today
Life insurance is considered an important part of a robust financial plan. More than half of Americans have life insurance today and 41% say they don’t have enough life insurance. [12] Life insurance companies have sought to modernize to make their coverage more accessible to people in the current age in order to fill this gap.
Life insurance companies set your rates based on the likelihood that you’ll outlive the policy. These days, insurers evaluate this risk based on factors from your lifestyle and health. One of the ways insurers measure your health status is through a medical exam. Taking a medical exam is like getting an annual physical. An examiner will measure your height, weight, and blood pressure and you’ll provide a blood and urine sample so the insurer can verify their health status.
In recent years, more life insurance companies have been able to waive the medical exam for many applicants, instead using medical records to verify their health status. Before the exam waiver option came about, life insurance “was probably the hardest or most difficult product to buy left in the modern economy,” said Brooks Tingle, president and CEO of John Hancock Insurance in 2020. [13]
This practice grew more common during COVID-19. “In an effort to make life insurance accessible for people during the pandemic, many insurers found ways to approve policies without requiring an in-person medical exam,” says senior sales agent at Policygenius, John Harris.
Waiving the medical exam fast-tracks the traditional review process, which usually takes four to six weeks between when you submit your application and when your coverage begins. By waiving the medical exam, insurers can shorten this time down to two weeks, and in some cases, you can get approved instantly.
These days not only can you get approved for life insurance faster than ever before, but you can even shop online for free quotes and apply for coverage through your phone thanks to independent brokers like Policygenius. Founded in 2014, Policygenius works with 12 different insurers, including five that offer a no-medical exam option — one of which was selected by Forbes as the best no-exam life insurance on the market. [14] Working with several insurers allows Policygenius to get you the best rate for the coverage you need.
If you’re shopping for life insurance, you’re arranging for your burial costs and protecting your loved ones financially, much like people in ancient times. Unlike ancient times, the freedom to work with a broker like Policygenius can help you compare rates and get the most affordable coverage on the market, all in one place.
