History of Life Insurance

The first recorded form of Life Insurance dates to around 100BC when a roman general founded “burial clubs” that paid for the burial of a deceased soldier and later paid an annuity to the dead person’s spouse.

The fall of the Roman Empire saw the end of these “burial clubs” although some of the many Trade Guilds of the medieval period of England had some form of provision to help pay for burials of its members.

The first recorded Life Insurance policy was taken out in 1588 by a rich merchant who insured the life of a sea captain. The insurance policy was underwritten by a number of brokers in the London Coffee shops that were the origins of modern day Lloyds of London insurance market. This first policy was the subject of a legal dispute about the terms, and was won by the merchant that took out the insurance policy.

Until 1774, a common practice of many of the wealthy merchants who populated the London Coffee Houses was to place bets on the anticipated dates of death of certain prominent people who reported to be seriously ill. In 1774 this form of betting was made illegal by parliament.

The early UK Life Insurance started out simply as Friendly Societies where people would make regular payments and on their death the society would make a payment. There was no specified payment on death. Each year the society worked how much could be paid out as death benefits and then shared out between the families of those that had died.

These early Friendly Societies were the forerunners of the modern day Life Assurance companies that operate a “With Profits” fund. This type of fund guaranteed a minimum payment on death and a share of the profits made by the fund.

In the 1800s more statistical information about deaths became generally available and mathematicians (now known as Actuaries) were able to start calculating the likelihood of the death of people and therefore calculate the premium payable by an individual based on age, health and gender.

The Life Assurance industry has grew dramatically across the world as Life Insurance became more affordable to people with lower incomes by paying a small amount each week to door to door collectors.

In the 1960s a new development in the field of Life Assurance was to introduce “unit linked” funds became more common. The funds were designed to compete against the With Profits funds of the traditional Life Assurance companies. A unit linked fund pools the investment part of an insurance premium to purchase the underlying assets. The fund is divided up into units and as the underlying value of the investments change so do the price of units.

Until 1988 the sale of Life Insurance and Life Assurance policies in the UK was not subject to any form of proper regulation. This changed when the Financial services Act was introduced. Various legislation has been added that created the current Financial Services Authority. In 2013 this will be split into the Prudential Regulatory Authority that will be responsible for the financial regulation of insurance companies and the Financial Conduct Authority that will regulate the sale of insurance.

This article is for guidance only and must not be construed as advice. The contents of this article are aimed at the UK market, although many countries will have similar policies available. If you need advice you should refer to a Financial Adviser.