How Life Insurance Has Evolved Over Time
At a bakery at Pudding Lane, on 2nd September 1966, a Sunday, a fire broke and spread all over the inner city. This is that very fire known as the Great Fire of London which continued inside the old Roman City Wall and destroyed the city from 2nd to 5th September, 1966 and consuming some 13,200 houses 87 parish churches, the St. Paul’s Cathedral and numerous other buildings of the City. By some luck, it stopped before reaching Westminster district but only after it had consumed many lives and thousands of homes.
The birth of insurance as it is now is mainly attributed to this fire and it effect. It changed life insurance form a thing of convenience to a matter of necessity. The truth is London had some kind of insurance in practice from early seventeenth century itself but it was marine insurance for main part. The present Life insurance system was not popular then.
To say that life insurance is a new concept will be false. Right in 600 AD in Rome a primitive type of life insurance was practiced. There was a group in Roman gentry which did works like taking care of the deceased person’s family along with paying the funeral expenses. There were also other guilds in middle ages with similar objectives. But eventually life insurance lost popularity to other types and got left out because of certain things which will be dealt later on.
Life insurance sale was born in late 1970 in United states of America. Even though a herd of companies started only few could survive because of lack of interest in it. Five is the number of policies which were sold by the first company. The main reason for this was that the system was such that only if the insurer died within the period for which the policy was sold, He would get face value. Since these policies had no cash value, insured got nothing in case he outlived the period.
However as very few people actually die prematurely, most of those who bought life insurance saw that they were not gaining anything out of the premiums they have been paying for so long and so stopped buying life insurance all together. To turn the tide, the life insurance carriers conceived of an insurance policy that offered cash value, which could be taken out by surrendering the policy. Moreover, such policies were valid for whole life of the insured and so whenever, the insured died, his beneficiaries could claim the death benefit. However, such policies had higher life insurance rates. They called the original policy term life and the later edition whole life insurance.
Now, we have different types of life insurance and they can be categorized in different ways.
- Life insurance policies can be classified as protection policy and investment policies. The term life falls in the first category because it offers nothing but death benefit, while whole life, universal life, variable life fall in the second category because they offer investment opportunity.
- They can be classified as temporary and permanent policies. Here again, the term life falls into the first because it is valid for a specified period and the rest falls in the second category because they are valid for whole life.
The investment policies can also be divided into two categories. You can buy ‘with profit policies’. Such policies enable the policyholder to participate in the profits of the company. If the carrier makes a good profit, you also get a good return, but if it makes a loss, you also lose your money. On the other hand, if you buy ‘without/non profit policy’, you will get a fixed return irrespective of the performance made by the insurance carriers.
So life insurance policies have many hidden things in it. One can choose from variety of policies and select one that satisfies the needs. Term life insurance itself can be very unclear sometimes. But Term life insurance is the recommended one by experts, if the policy is for insurance purpose. One must understand the need and then select the policy that meets it.
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