Why was Life Insurance Created?
Dan Levenson February 09, 2022
Life insurance is one of those aspects of modern finances that many people find baffling. Why would you pay insurance on your own death? Why would a company pay you money after your death? Of course, we know that life insurance is an important tool to take care of your family and dependents after you’re gone. But it begs an interesting question. Just who was the first to think of and sell life insurance – and why did they do it?
Why was life insurance created? What was the very first reason that a person in the past would put money down for support after their death? If you’re as curious as we were, you’ve come to the right blog. Let’s dive into the origins of life insurance and the original motivation for this special type of financial planning.
Ancient Rome: Honorable Burial Insurance
The very first evidence of life insurance in history goes as far back as Ancient Rome. Ancient Romans valued burial rites for everyone, no matter their social or economic standing. However, not all Roman soldiers could afford an honorable burial at the time of their demise. This led Caius Marius, a military leader in Ancient Rome to create a “burial club”. This club consisted of a group of soldiers and friends who agreed that if one of them died unexpectedly, the other club members would pay for the expense of an honorable funeral.
This was only the first burial club recorded. Soon many more similar clubs arose in Rome and the surrounding regions. Eventually, the burial clubs evolved to resemble what we know as life insurance today; providing a stipend for surviving relatives of the deceased as well as paying for the funeral.
Medieval Guild Masters: Covering Losses and Dependents
There is little mention of life insurance in history for several centuries until the great Medieval guilds and guild masters. In many of the guilds during the European Medieval era, guilds took care of their members in a way that strongly resembles insurance – and especially life insurance.
Guildmasters paid a portion of their profits as dues to the guild. In return, they would be supported in the event of disaster or loss. If a shop was lost to fire or vandalism, the guild would build the affected guild master a new shop or support them until revenue restabilized.
If the guild master died, some of the support would go to their surviving family as part of their guild membership. Why did guilds and guild masters do it this way? Because it had that signature mark of forward-thinking and disaster-readiness that has always played a role in life insurance.
The First Policy
The earliest known life insurance policy was created in 15 century London, but the first company to offer a life insurance policy did not emerge until the 1700s. The Amicable Society for a Perpetual Assurance Office in London sold its members “shares”. Upon the member’s death, a fund was paid to the deceased members’ family based on the number of shares the member-owned.
Presbyterian Synod of Philadelphia: Support for Minister’s Families
One of the oldest life insurers in the world is the first instance of modern life insurance policies in the Presbyterian Synod of Philadelphia. Insurance was already popular, having blossomed by way of maritime venture capital and the recent introduction of fire insurance. However, the Presbyterians offered their ministers a special type of insurance fund just for families. In the event of the minister’s death, the life insurance fund would take care of their family and dependents, ensuring that all they had worked for would remain financially secure if they happened to perish in an untimely fashion.
Soon after, Episcopalian ministers organized a similar life insurance fund for their Protestant clergy.
So why was life insurance first created? Life insurance has been invented and re-invented several times throughout history but the purpose is always the same: to take care of one’s affairs and family in the event of one’s death. Originally a burial fund, now a plan dedicated to family beneficiaries, life insurance has always been a way to plan ahead, just a little further ahead than the last action you’ll ever take.
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