The History of Life Insurance

Life insurance in the U.S. didn't really go mainstream until the 1900s, but the concept itself dates back to ancient Greece.

When someone died, the Greeks believed that his or her spirit would leave the body as a breath or gust of wind. Following that moment, they were prepared for a burial that consisted of a series of rituals. To deny someone of that proper burial, the Greeks believed, was an insult to human dignity.¹

As such, a proper burial was to be made available to everyone, not just those who could afford it. This led to the idea of burial societies,² which is a group of individuals pooled together to help cover funeral costs.

Since then, life insurance has, of course, become much more modernized. But "premiums" (the amount you pay for your life insurance policy) still largely resemble that early Grecian concept.

How much do you know about the history of life insurance?

Turn back the pages of time with us to find out.

The First Life Insurance Entity

Established in 1759, the Presbyterian Ministers' Fund was the first life insurance entity in the United States. Its initial purpose was to provide life insurance to widows and orphans of diseased ministers. However, misconceptions about life insurance at the time prevented its growth. Some perceived it as assigning a monetary value to someone's life, as opposed to an aid to help surviving family members in their time of need.

Legal restrictions also made it difficult for the industry to grow as a whole. In many states, women weren't allowed to enter into contracts. Additionally, they couldn't legally inherit an estate. Therefore, a wife couldn't collect the payout from her husband's life insurance policy.

Insurers also put a number of restrictions on policyholders. They could only travel to healthier areas of the country and had to regularly pass health and character checks. Finally, they were prohibited from drinking alcohol.

The Panic of 1837 and Life Insurance

The history of life insurance is also deeply rooted in American history itself. Many of the events in our country's past, such as "The Panic of 1837," led to the evolution of life insurance as we know it.

During his presidency, Andrew Jackson thought the Bank of the United States exercised too much control over the credit and economic opportunities of the average American citizen. As a result, he moved federal funds to smaller state banks, which hurt the federal Second Bank of the United States.

By the time President Van Buren — Jackson's successor — gained power, state banks had printed money beyond their reserves, resulting in bank closings, business failures, and real estate losses.²

States Begin to Regulate Life Insurance Companies

Following the Panic of 1837, insurers weren't able to raise enough capital to form a stock company. Instead, they created "mutual companies," which were owned by policyholders instead of stockholders. It was marketed as a business opportunity, allowing policyholders to be part owners of a company and share in its profits through dividends and reduced premiums.

This generated interest from the public, as well as other insurers that decided to enter the space. As competition increased, so did fraudulent activity. The state of New York addressed this issue by instituting capital stock in 1849 and depository regulatory requirements in 1851. By the early 1870s, most states had followed suite, developing some form of oversight for insurers.

The Life Insurance Industry Grows in Scale

In the late 1860s, the Supreme Court ruling in Paul v. Virginia officially put insurance in the hands of the state. Following this decision, the need surfaced for regulation that would span state lines. That led to the development of the National Insurance Convention in 1871, which later became the National Association of Insurance Commissioners we know today.

These regulations helped to increase consumer confidence in life insurance companies. Shortly thereafter, new legislation led to more positive change. Women became empowered to lawfully purchase their own life insurance policies, as well as to receive their rightful proceeds when listed as beneficiaries.

These changes were fundamental for industry expansion — and making life insurance accessible to all who needed it.