The Origin of Life Insurance
Historians claim that it was the ancient Chinese who came up with the first form of insurance. It all started with small transport boat owners who would suffer a total loss when one of their boats sank. The competitiveness of these little shipping companies made it necessary to make good on these losses if they expected to stay in business. In time these very wise boat owners came up with a plan. As an explanation, using the number of 5 boats, each would split their cargo equally and place it on each others' boats. Eventually when a boat would sink, they all shared a fifth of the loss instead of one losing 100% of their cargo.
This idea spread and became the norm among shippers for many years. Then other types of trade and industry formed a similar type of "sharing the loss" in their own way. Before long, here came the entrepreneurs with an even better idea. Carefully calculated through past losses, they developed a schedule of risk and determined the total cost of the losses divided by the number of boats in operation and established a rate which included some profit. This was the birth of an insurance company.
Then the entrepreneurial spirit birthed the idea of insurance on someone's life. When a young father or husband died at an early age, his dependents were left to fend for themselves, many times causing the family to have to split up and live with friends and relatives. So they conceived of the idea to let all young men contribute to a fund, or life insurance as we know it today, so that the family would be taken care of in the event of the husband's death. Over time a face value was established; enabling a person to buy more insurance if he had a larger family, or to provide for other situations requiring a larger death benefit.
In the ancient days, life insurance was only for the death benefit and usually after after the family had grown up and left home, there was less need or even no need for life insurance. This was the basic insurance that today is called Term life insurance.
Then the life insurance entrepreneurs came up with a different approach designated as whole life insurance. Instead of life insurance for a limited term during one's life, they promoted life insurance which would be in effect until the person died, another way to put it, their whole life. Then shortly thereafter came the concept of an investment with life insurance. They sold these young men with families on the idea of buying whole life insurance with an investment called "cash value". The rates, or premiums as we call them today, were much higher, but the policy holder would build a nice cash value over the years. In effect, the insurance company was using a term life policy at a lower rate and charging a much higher rate for the investment portion. This increased premium would be re-invested in stocks, bonds, and other high yielding securities. The insurance company shares a portion of it with the policy holder.
This original concept of insurance was applied to houses and other risky products of that day. When the industrial revolution ushered in machinery, equipment, and the automobile, again the sharp entrepreneurs jumped upon the opportunity to sell insurance.
As the centuries have passed, the insurance industry has added many types of coverage and features. One can buy life insurance on their children, parents, a company's "Key Man", and on just about anyone in whom you would have an insurable interest. You can buy an annuity or single premium for life insurance protection which produces a higher yield investment. Health insurance is an absolute must in today's medical climate. Companies will even sell you a no-health-exam policy, young or old. It is all a matter of how large a premium you can afford and are willing to pay.
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