Brief History
Life insurance is the contract between two parties, usually a single individual and an insurance company, dictating that the company is to pay the policy holder's beneficiary if the insured dies or upon the occurrence of another event, such as terminal illness. In return, the policy owner agrees to pay a stipulated amount called a premium at regular intervals or in lump sums. Where did the idea of life insurance come from?
The structure of insurance can be traced back thousands of years ago. According to the Financial Shopper Network in Ancient China, as long ago as the 3rd millennia BC, sailors would prevent pirates from stealing all their goods by carrying portions of other ships cargos, this way if a pirate stole the cargo of one ship, the entire load would not be lost. A little bit later, in 2nd millennia BC, Babylonian traders simply gave loans that had to be repaid when the contents of the trade were delivered safely. Both those civilizations created the framework for insurance; however, life insurance as we know it began in the city of Rome.
The people of this highly advanced civilization decided to form what they called “burial clubs.”These clubs were designed with one sole purpose, in case of an unexpected death of a club member; everyone else would be willing to pay for their funerary expenses and help the family of the survivor financially. The concept of life insurance as they knew it ended dramatically in the year 450 A.D. when the Roman Empire fell and its practices were abandoned for a long period of time. It is also important to highlight that many historians agree that about at the same time of Rome, the Indian Empire and its citizens also formed “burial clubs.”
Modern life insurance however did not start until the British decided to try and make it work. It was in the middle of the 17th century that in the streets of London, England a group of people met together at Lloyd's Coffee house and decided to come about with life insurance ideas. The coffee house was a famous place for merchants, ship owners and traders and therefore it would be the perfect place to discuss life insurance knowing that most of those people had money. Insurance was officially born in 1680, when the first insurance was offered to insure brick and frame homes, a result of the devastation of the Great Fire of London in 1666.
Basing their model on the British system, the first life insurance company in American soil was founded in the Southern Colony of Charleston, South Carolina in the year 1735. Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. A few years later years later the entire colonies saw that this was a good idea, so the Presbyterian Synod of Philadelphia decided to sponsor the first life insurance corporation in the United States (U.S.), which wrote its first policy in the year 1761.
The actual life insurance industry as we know it really took off in the year 1840. Another big reason that life insurance companies came about proved to be the New York and Chicago Fire's that killed a whole bunch of people in each of the two cities. After this more and more life insurance companies started coming about and in the 1900's business really grew. People wanted to be protected in case of an accidental death.
The 1900's proved to be an era of growth for the life insurance industry. Two wars went on and many people decided to insure themselves to establish a secure monetary future for their families. People decided that not having protection was not worth it and that a little premium each month was better than leaving their families in economic burden.
Today, life insurance protects individuals, families, and businesses against risks and life-crisis such as premature death of a family member or key employee.
