The History of Life Insurance: Who, What, Where, When & How

Unlike other bedrock institutions such as banking and the stock market, life insurance has always been an unflinchingly secure option to ensure financial security.

The flexibility term insurance provides young families, along with its generous payouts bought at affordable rates, make the unthinkable a bit less scary.

With their assets protected, term life policyholders can later convert their term policies to more lucrative dividend-producing ones and enjoy the even stronger financial benefits wealthy families have enjoyed for centuries.

How It All Started

Social responsibility is at the heart of what life insurance is all about.

A lot of historians say the concept of life insurance started in Ancient Rome around 600 BC. At the time, the Roman Empire’s burial rites were an expensive undertaking that included music, processions, intricate urns, and body preparation.

They believed that if someone wasn’t buried properly, the dead would come back to haunt them.

Many people couldn’t afford all this pomp, especially military members whose numbers fell on a regular basis. To remedy the situation, military leader Caius Marius ordered his soldiers to contribute to a fund to cover each fallen soldier’s burial costs.

Soon, everybody in the community was taking advantage of this early form of life insurance. Members contributed a copper or two into a “casket kitty” that enabled everyone to bury their dead with dignity.

So it seems the concept of life insurance started about 2,000 years ago.

The First Official Life Insurance Policy

On June 18, 1583, a Londoner named Richard Martin paid thirteen merchants thirty pounds each to finance a 400-pound payout should a man named William Gybbons die within the next year. No one seems to know why. But when Gybbons did die within 12 months, the merchants squabbled about what constituted a lunar year. Martin didn’t get the payout.

And guilds in the Middle Ages successfully shared life insurance policies that protected people working in dangerous trades like building and blacksmithing from financial loss due to accidental death and dismemberment.

The First Official Life Insurance Company

Two guys named William Talbot and Sir Thomas Allen got together in 1706 and created The Amicable Society for Perpetual Assurance Office, and most people agree that it’s the first known life insurance company.

How it worked: Each member between the ages of 12 and 55 made an annual payment for one to three shares. These “amicable contributions” were divided among the families of deceased members at the end of each year. An estimated 2,000 people joined the society.

Other life insurance enterprises started springing up. Shipping workers formed an association to protect their families, and venture capitalists financing trips to the New World took out insurance on their crews. Meetings among the groups took place at Lloyd’s Coffee House, which later became Lloyd’s of London.

More business led to unscrupulous misdeeds. So, in 1774, Great Britain passed the Life Assurance Act to protect the public from insurance agent corruption.

The First Official Actuary Tables

Although historians tell the story differently, the basic idea is that a couple of people are responsible for creating the actuary tables using mortality rates to determine premiums.

It started when actuaries started reviewing church records to determine average life spans. Not long after, a guy named James Dodson produced a formula using these rates to determine how much a policy was worth. In 1762, Edward Rowe Mores used these formulas in the Equitable Life Assurance Society he formed to sell policies.

History of Life Insurance in the U.S.

Life Insurance crossed over to the U.S. in the eighteenth century through the Presbyterian Synods in Philadelphia and NYC. The enterprise started out as a fire insurance company in 1735 but grew into the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759.

Interesting fact: Within the next century preachers would demonize life insurance—calling it gambling.

Later, the 1837 financial crisis ushered in a push toward owned share business structure. Life insurance companies began offering mutuals instead of raising their capital through stocks alone. This opened the way for big-name companies like New York Life, John Hancock, MassMutual, and MetLife to start business, and as we all know, they’re still in business today.

But it wasn’t long before insurer fraud necessitated state regulations to tamp it down. At the 1871 National Insurance Convention, a National Association of Insurance Commissioners was formed to protect policyholders. It continues to oversee the industry today.

A few years later, Prudential began protecting working-class families in Newark, New Jersey, through the Widows and Orphans Society, which allowed women to collect on a husband’s life insurance policy for the first time.

And while World War I was going on across the Atlantic, the life insurance industry thrived. Beginning in 1917, insurance companies sold 120 million policies over the next two decades. And then, following a fallow period during the Depression, life insurance purchases surged again post-World War II.

By the mid-1970s, more than 90% of married couples owned a policy. And today’s technology makes online buying possible and even easier to purchase.

Can You Have More Than One Life Insurance Policy? Advice for Providing for Your Family

Not every life insurance policy fits every family’s needs. One person’s term life insurance policy may not be enough to cover burial costs. Another person’s whole life insurance premium may be too expensive, so spreading premiums across one or two less expensive ones may allow families to build permanent life insurance cash value and provide coverage from a less expensive term life policy.

Why Have More than One Life Insurance Policy?

It basically comes down to five different scenarios:

1. You want to supplement the group coverage your employer provides. This is particularly useful if you tend to change jobs often because not every group policy can follow you.

2. Your circumstances change. Your salary increases, your family increases, or your square footage increases through buying a new home. It’s easier to add a policy to your existing one than to replace it.

3. Your financial goals change. A term policy replaces lost income. A permanent policy builds cash value. Term life insurance is less expensive and provides coverage for a limited amount of time. A permanent policy like whole life is more expensive, but it builds wealth and provides coverage for life.

4. You want the long-term coverage and cash value whole life provides but can’t afford the full cost of a permanent life insurance policy. Using a strategy called laddering life insurance, you can buy policies with different face values and spread your premium costs across each.

5. You want long-term care. There are permanent life insurance policies that offer long term care benefits with permanent life insurance coverage.

Now, as great as multiple policies sound, there is a limit to how much coverage you can buy. And how much you’re allowed to buy depends on your income and your age.

For those aged 40 or younger, you may only buy coverage equaling 25 to 35 times your annual income. Coverage is limited to 20 to 25 times annual income for those 40 to 50 years of age, 20 times annual income for those between 50 and 60 years old, and 5 times annual income for those 60 to 70 years old.

How much coverage you’re allowed to buy is also dependent on your health, hobbies, and job. The more risk you pose to the insurance company the less total coverage you’re allowed to have.

Buying More than One Life Insurance Policy? What to Expect

If you do decide to go the multiple-policy route, you will definitely need to disclose to the insurance company all the other policies you have. This keeps you honest and protects the insurance company from fraud.

You will probably be looking at additional underwriting to ensure you’re healthy. This could include an EKG on top of your medical exam and lab testing.

And, you may also have to prove your income matches what you claim to make. This includes assets, too.

Again, not every life insurance policy fits every family seeking insurance. Take time to find the lowest term insurance rates and the best permanent life insurance policies you can find. There’s some surprisingly affordable online life insurance quotes out there you can leverage in a strategy you never thought was possible.

Does Life Insurance for Minors Make Sense?

You may have heard that life insurance for minors is a good way to invest in your child’s financial future. In some cases, it is. But in other cases, it’s not.

At the end of the day, it’s really a cost equation—do the costs of paying a premium for your child’s life insurance policy outweigh the costs of not having one?

The Pros of Buying Life Insurance for Minors

Life insurance is great for providing lifetime coverage, building wealth, and covering burial and medical costs.

Most life insurance carriers provide coverage for minors as whole life policies, however, only a few life insurance companies offer it at all.

A whole life policy’s biggest asset is that it provides lifetime coverage at a fixed rate—a blessing for a child as they grow older and develop more health conditions that would otherwise raise their premium rate later in life.

And a life insurance policy for a child obviously makes sense for families with a child dealing with a chronic or terminal illness. Although payouts tend to be low, they will help cover burial and medical costs or replace part of a salary while family members take time off from a job to grieve.

The Cons of Buying Life Insurance for Minors

Like any other life insurance policy, the younger you are when you buy it, the less expensive it will be.

However, an interest-bearing policy like whole life takes a long time to accrue enough cash value to pass on to your child by the time they can really use it. There are better ways to invest in your child’s future, such as a trust fund, which may make more sense.

The Rider Option

Term life insurance makes sense for families who can’t afford whole life as it’s only needed for a specific amount of time to protect your children for the 10 to 20 years they still depend on you. This incremental term model makes it less expensive.

A child rider can bridge the gap between coverage while they’re young and wealth-building when they’re older. Child riders can be converted to a permanent policy like whole life once the term on your policy is over. You can convert that policy to a whole life policy and then transfer it to your child. The new policy will accrue cash value they can enjoy later.

How Life Insurance for Minors Works

If you choose to buy a life insurance policy for your child, you can do so as early as 14 days after their birth and as late as their teens.

The only difference between your insurance policy and the one for your child is that although your child is the insured, you, your spouse, or another family member or guardian is the legal policyholder on behalf of your child as well as the beneficiary should an insurance payout be necessary.

If you are considering buying a life insurance policy for your child, the first thing you want to do is assess your budget, your child’s needs, the premium rate you will pay, and the best insurance companies you can find to determine if the cost/benefit equation comes out in your favor.

Living Life as an Expat Calls for a Life Insurance Review

Living like a nomad has its charms. The Internet makes it easy to work from anywhere, and online schooling has become a popular option for many families. But before you buy your plane tickets and pack your bags, make sure you take a look at your life insurance policy.

Remember, any life change—bringing home a baby or getting a divorce–necessitates you revisit your life insurance policy to make sure your death benefit will go to the people you want it to.

Life insurance isn’t travel insurance. Travel insurance covers unforeseen events like lost luggage. Life insurance covers your loved ones in the unforeseen event of your death. Travel insurance won’t pay the bills to keep a roof over your loved ones’ heads. Life insurance will.

Moving Overseas with a Current Life Insurance Policy

If you already have a U.S. life insurance policy, verify what is and isn’t covered. Most life insurance policies have no international travel exclusions. But some may—especially if you’re moving to a high-risk area. If your current policy doesn’t provide adequate coverage for a move overseas, buy another one.

Some life insurance companies view living abroad as too big of a risk to cover. Along with age and health, where you live is a key factor in determining your premium. If you end up living in a low-risk area, your chances of enjoying full coverage at a reasonable rate are pretty good. But if you plan to live in a high-risk area like say, the Middle East, you may have to pay higher premiums or forgo life insurance altogether.

Your occupation matters, too. If you are in the military or the work you plan to do overseas as a civilian is dangerous, a life insurance company may think twice before granting you a policy. But another may. It pays to shop around.

No Life Insurance? Buy Before You Say Goodbye

If you don’t currently have life insurance and are considering a move overseas, make sure you buy it before you move. Buying it once you’ve moved abroad will necessitate a trip back to the U.S. to apply for the policy, take a medical exam and sign the paperwork.

And if the insurance company asks about your future travel plans as they review your application, (and they will), be upfront about it. Not disclosing your plans can make a later claim null and void.

The Money Factor

Living abroad is expensive. A costly life insurance premium on top of other financial obligations such as a mortgage or alimony payments can make a policy seem out of reach.

Factor in the costs of repatriation should you die while overseas. Your loved ones’ inheritance taxes may come into play as well.

Consider which type of life insurance serves you best. You may decide the nomadic life isn’t for you. A term life policy that covers you for a set amount of time may be more affordable than an expensive whole life policy that locks you in for life.

If moving overseas permanently is calling to you, make a call to a life insurance agent before you go. Your family will thank you for it as well as for the memories you make together.

If you’ve just begun your search for life insurance, whether it’s an affordable term life policy or a more expensive premium policy, every life insurance application goes through an underwriting process to determine your risk—the odds the insurance company will have to pay out a death benefit.

They assess your life expectancy based on “morbidity” and lifestyle factors according to what’s called a table rate. Once you’ve been classified by one insurance company, that’s your risk profile no matter what insurance company you choose to go with. Life insurance underwriting classes are stagnant. Once you’re ranked, you’re ranked for good.

That is not to say you can’t get a better rate within your classification later if you give up a prohibitive habit like smoking. But your risk classification is stagnant.

How Are Life Insurance Risk Classifications Assessed?

After you’ve applied for a policy, professional underwriters review your health and lifestyle history. They look at your:

• Current physical condition
• Your height and weight
• Your age
• Your family health history
• Lifestyle (smoking, alcohol consumption, occupation, and hobbies)
• Driving record
• Criminal record
• Financial status

They use this information to classify you into five categories from less risk to high risk. The less risk, the less you pay. The more risk, the more you pay. The following describes each underwriting class.

Preferred Best

Also known as Preferred Select, this is the life insurance winner’s circle. As in, it’s a class that only those with a nearly risk-free lifestyle can enter and enjoy the very lowest premium rate.

Below are the qualifications you need to get into this class:

• You’re in excellent health with superb vitals and lab results.
• You’re a normal weight for your height.
• You have no pre-existing conditions.
• Your family history is clear of life-threatening conditions.
• You don’t engage in any risky hobbies.
• If you’ve been a smoker, you’ve been smoke-free for 5 years or more.
• You have no history of cancer.
• You have no history of heart disease.
• Your driving record is spotless.

Preferred

Think of Preferred as Preferred Best Lite. Your risk isn’t the lowest, but it’s better than average, so your rate will be, too.

These are the factors you need to qualify for this class:

• You don’t smoke.
• You have a few minor medical issues such as high blood pressure.
• You’re slightly overweight.
• You’re taking medication as prescribed for any chronic conditions such as a mental disorder or high blood pressure.
• If you’re diabetic, you’re managing it well.
• Your family history contains no more than a few conditions that insurance carriers consider risky.

Standard

This is the class most of us rank for. These aren’t ideal factors, but they will let you into this class, which qualifies you for an affordable rate:

• You’re overweight.
• You have multiple health issues.
• You’ve got a couple of dings on your driving record.
• You engage in dangerous hobbies only a couple of times a year.
• You’ve been smoke-free for at least a year.

Substandard Rated

If you fall into this class, your application hasn’t failed to the point of being declined a life insurance policy, but the factors holding you back from obtaining a higher classification and lower rate are listed below:

• You’re obese.
• You have multiple health issues.
• You’ve got a problematic driving record.
• You engage in dangerous hobbies often.
• You have a history of alcohol or drug abuse.
• You suffer from severe asthma.
• You live with bipolar disorder.
• You’re epileptic.
• You’re living with Multiple Sclerosis.
• You’re Type 1 Diabetic.

Uninsurable

Again, life insurance is based on the odds the insurance carrier will have to pay out a death benefit. Unfortunately, the following factors will result in a declined application:

• You’re currently abusing alcohol or drugs, or have recently been treated for alcohol or drug abuse.
• You suffer from cirrhosis.
• You’re undergoing cancer treatment.
• You’ve suffered a recent heart attack.
• You’re living with HIV.
• You’ve been hospitalized for a mental illness in the past year.
• You’ve attempted suicide in the past year.

If you have been declined, there are things you can do to help you obtain at least some coverage.

Being labeled is distasteful but necessary throughout the insurance industry. It’s a bottom-line issue. The more a life insurance company has to pay out in death benefits, the fewer people they can afford to cover.

Suicide and Life Insurance: How It Works

According to the CDC, there were 45,979 suicidal deaths in 2020. That’s one death every 11 minutes. Were those with life insurance covered?

It’s hard to say definitively. But for the most part, if a policyholder has been fully insured for at least a year and takes their own life, their beneficiaries will receive the death benefit from their life insurance policy.

How Life Insurance Companies Manage Suicidal Deaths

Life insurance companies that do grant suicidal death benefits basically follow the same guidelines.

When a beneficiary files a claim, the life insurance company will ask for the death certificate. If the certificate has no definitive cause of death listed, the insurance company will ask for additional info such as an autopsy report or a report from the medical examiner.

Exclusionary Clauses

Most insurance companies include two exclusions in a life insurance policy: a contestability clause and a suicidal clause.

A life insurance company’s contestability clause outlines that the policy must have been bought at least a year before the death and that all premium payments are up to date.

If the policyholder commits suicide before this exclusionary clause expires, the life insurance company has the right to review the claim. They may investigate the autopsy report and other factors such as mental health history; testimony from family, friends or witnesses; medications, and drug or alcohol consumption, if applicable.

Different states have different laws about life insurance contestability, so a knowledgeable life insurance agent can help you sort out your state’s requirements regarding suicide and life insurance.

A suicide clause stipulates that the deceased policyholder has had the policy for generally three years and that all premium payments are up to date. If so, the death will be covered.

However, if the suicide occurs before this exclusionary period ends, the death benefit may not be paid, but the premiums the policyholder already paid will be refunded to the beneficiaries.

If beneficiaries are denied a suicidal death life insurance claim, they can contest it. This is usually true when there has been a drug overdose that is hard to prove one way or the other.

And any change to the policy restarts the exclusionary clock.

Death is an unpleasant topic and suicide intensifies an already unimaginable situation. The CDC estimates that in 2020 more than 12 million adults reported they had seriously thought about suicide, 3.2 million made a plan and 1.2 million attempted it.

And although males make up 49% of the population, they accounted for 80% of the suicides—four times the rate of females.

If you are in crisis, please reach out for help. There is a suicide hotline that requires only three digits: 988 will connect you to The National Suicide Prevention Lifeline.

Can You Get Life Insurance if You Smoke or Vape?

Many people assume vaping isn’t as damaging as smoking. And there may be some truth to that. However, life insurance companies treat e-cigarettes, vape pens and other vaping device use no differently than regular cigarettes.

That is not to say that you can’t get life insurance for your family if you smoke or vape. But you will pay higher rates for it.

Why Do Life Insurance Companies Treat Vaping Like Smoking?

Life insurance companies grant approvals and set premiums based on risk. Underwriters evaluate a company’s risk using mortality rates.
Smokers are more likely to suffer from a heart attack and coronary artery disease. According to the Center for Disease Control, the mortality rate for a smoker is about three times higher than for a non-smoker.

Another study at Johns Hopkins University revealed that in 2020 vaping caused nearly 3,000 lung injuries and resulted in 68 deaths for vapers between the ages of 15 and 75.

But Vaping Is Just Water, Isn’t It?

No. Vape juice contains nicotine, which will show up on the labs you must submit to as part of the underwriting process.

Vape juice may also contain other harmful substances, which studies show can cause cancer. And a history of cancer can affect your ability to get affordable health insurance, regardless of whether you smoke or not.

In addition, vaping has historically been less regulated than tobacco. But the Food and Drug Administration (FDA) has classified e-cigarettes as tobacco products and are subject to regulation. Thus, life insurance companies classify it that way, too.

How to Find the Best Life Insurance to Get if You Smoke or Vape

Although habits that involve nicotine are some of the hardest to break, the best thing you can do to obtain affordable life insurance is to quit. We recommend you wait to apply until you’ve been nicotine free for one year. Even patches used to help you break the habit contain nicotine that will show up in your labs.

In the meantime, consider purchasing a short term life insurance policy which will protect your family should you succumb to a fatal illness or accident. While you may pay a higher rate in the short term, it will provide long-term peace of mind.

And if down the line you do successfully quit, you can convert that term policy to another one with a lower rate.

One final note, although it may be tempting to hide your smoking or vaping habit on your life insurance application, don’t.

Although it may take a while to catch up with you, insurance companies eventually discover misrepresentation. Should you die after obtaining your policy, your insurance company may deny your family your death benefit, regardless of how you died. The best your family can hope for is a partial payment using the premium amount you would have paid if you’d disclosed your smoking habit.

Be honest. Isn’t ensuring your family has the protection they deserve worth telling the truth?

Life Insurance Coverage for Those with a Criminal Record

Can people with a criminal history still obtain life insurance? In most cases yes, they can. If you’ve been convicted of a misdemeanor or lesser crime you can still qualify for a life insurance policy at an affordable rate.

However, it’s a little more difficult to find affordable life insurance if you’ve been convicted of multiple crimes or have recently had a DUI or DWI conviction. In those cases, you’ll have to pay a higher rate.

If You Have a Felony

Having a felony on your criminal record also doesn’t necessarily prevent you from obtaining a standard life insurance policy, either. It just may require a little research on your part because different insurance companies have different post-probation time requirements. And they will cost more.

Some insurance companies will approve a life insurance application with as little as two years post-probation. Others will require up to 10 years’ probation free. A knowledgeable insurance agent can help you navigate through the system to determine which policy suits your needs and your budget.

However, if you’re currently under conviction, on parole, on probation, or incarcerated your odds of qualifying for any insurance policy are slim to none. This is also true if you committed a serious felony, regardless of how long ago your probation ended.

Why Do Insurance Companies Charge More for a Criminal Record?

Life insurance companies determine monthly payment rates according to risk. If you’re in good health and avoid risky habits and activities such as smoking and rock climbing, your premium payments are lower because there’s less chance of the insurance company paying out a claim. And statistics show those with a felony have lower life expectancy rates.

Alternative Life Insurance Options

Term Life: If you have misdemeanors or a recent DUI or DWI, consider buying a term life policy. Term life insurance offers coverage for specific lengths of time like 10, 20, or 25 years. While you may pay a bit more than the regular rate in the short term, you can convert your policy to a lower rate later when you are in a better legal position.

Final Expense: For felons unable to obtain a standard policy, final expense insurance may be a good option. Final expense is a type of life insurance policy that is generally used to cover burial costs. It has a lower payout of around $25,000 but costs a lot less than a standard life insurance policy. And they do not require a medical exam.

Be Honest

As tempting as it may be, if you have a criminal record, don’t lie on your insurance application. Life insurance companies do conduct criminal background checks. Even if you have a minor offense on your record, be upfront about it.

If you are honest, a past crime doesn’t have to prevent you from protecting your family.