Why do we care for life insurance? Cos we are uniquely Humans!
What differentiates humans from the rest of the creatures in the animal kingdom?
We have cognition and can apply reason.
We take care of our young longer than any other animal.
However, our love of our offspring, spouse, and parents goes beyond our lives. We want their well-being when we are together and when we are no longer around. Other animals may have the trait but we do not know yet.
This is uniquely human.
I believe the need for life insurance was born to address this unique human need to worry about his/her family after they leave.
The Purpose of Life Insurance
Life insurance dates back hundreds of years. It is believed that life insurance contracts came into being in the 16th century.
However, I will draw your attention to a relatively recent times. I particularly like the article in The Annals of the American Academy of Political and Social Science published in 1905.
This provides us with a glimpse of how life insurance shoud be treated.
Insured or the Owner
The man who assumes the responsibility of a family and of engaging in business needs protection, in the event of his early death, for both.
The insured or owner of the contract often derives substantial benefit from the self-denial and formation of the frugal habits acquired by the preparation to meet the periodical payment of premiums
He is also benefited by the consciousness that he is creating an estate to benefit his dependents, which, in the event of his death, becomes immediately convertible into cash without the intervention of administrator, executor or attorney.
Loved ones or Beneficiaries
For the beneficiaries of such contracts it signifies the means of support after the decease of the breadwinners; it means escape from the pittances or charities of the world.
State
To the state life insurance signifies a much reduced poor rate for the maintenance of almshouses and eleemosynary institutions
Life insurers have a noble purpose of serving a deeply human need.
Monetization of human life
The average human life span was far lower 200 years ago. Life was less materialistic too. There was a premium on survival. So it was natural that society sought an award for their loved ones after they were gone.
Life insurance was our first attempt to attribute a financial value to a human life.
The simplest form of life insurance is awarding a benefit against a loss of life. This is called a “Death Benefit” and the product is called a Term Life Insurance.
You approach an insurer to provide for a “Death Benefit”. The insurer ascertains your longevity based on age, health, and occupation. The insurer also ascribes an upper limit for the “Death benefit”. These two variables lead to an insurance offering against a recurring payment or “premium”.
Until you continue to pay the premium, the insurer promises to guarantee the agreed death benefit to your loved one(s) or the beneficiaries.
In short, you are buying an annual subscription to a product called “Peace of mind”.
You stop paying, and the promise ends. You can relate this to your Netflix subscription. So long as you pay, you see the content (enjoy the benefit). You stop the payment, and it ends.
Evolution of Life Insurance
I will talk more in another article on the evolution of modern insurance products. These products have evolved, and have become complex. They are serving ever-evolving requirements and being distributed through an advisory ecosystem.
Please leave a comment and share your perspectives.
