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Life insurance

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Life insurance is a formal legal contract between two primary parties. The first party is the policy owner, who acts as the guarantor. This person is responsible for making payments to the insurance company. The second party is the insurer, which is the company providing the coverage. The contract centers on an insured person, who is the individual whose death triggers a payment. A third party, known as the beneficiary, is designated to receive the money.

Chart of a life insurance
Chart of a life insurance

To keep the contract active, the owner pays a fee called a premium. This can be paid as a single lump sum or through regular installments. If the insured person dies, the insurer pays a sum of money to the beneficiary. This money, called the death benefit, can cover various needs like funeral expenses. Some contracts also trigger payments for other events, such as serious illness or physical complications. However, insurers often include specific exclusions in the terms. These limitations might prevent payments in cases of fraud, war, riot, or suicide.

Modern life insurance policies generally fall into two distinct categories. The first category is protection policies. These are designed to provide a specific lump-sum benefit when a certain event occurs. A common example of this is term insurance. The second category is investment policies. The main goal of these policies is to help capital grow over time through regular premiums. In the United States, common types include whole life, universal life, and variable life policies.

2005life premia
2005life premia

Humanity has practiced forms of life insurance for thousands of years. In Ancient Rome, people joined burial clubs to cover funeral costs. An archaeological discovery in Egypt revealed a tablet from approximately 133 AD. This tablet detailed the rules for a burial society in Lanuvium, Italia. The earliest known individual life insurance policy was recorded in London on June 18, 1583. In this case, Richard Martin paid 30 pounds to thirteen merchants to insure William Gybbons for 400 pounds.

The modern insurance industry began to take shape in the 18th century. In 1706, William Talbot and Thomas Allen founded the Amicable Society for a Perpetual Assurance Office in London. This was the first life insurance company in the world. The society started with 2,000 members who paid annual premiums into a common fund. At the end of each year, a portion of these contributions was divided among the heirs of deceased members.

Amicable Society for a Perpetual Assurance Office, Serjeants' Inn, Fleet Street, London, 1801
Amicable Society for a Perpetual Assurance Office, Serjeants' Inn, Fleet Street, London, 1801

Mathematical science eventually transformed how these companies operate. In 1693, Edmund Halley wrote the first life table, but modern tools arrived in the 1750s. In 1762, Edward Rowe Mores established the Society for Equitable Assurances on Lives and Survivorship. This was the world's first mutual insurer. Mores pioneered age-based premiums using mortality rates, which created the framework for scientific insurance. He also created the professional title of "actuary" for the company's chief official. Actuaries use mortality tables, which are statistical charts showing expected death rates at different ages. These tables allow companies to calculate risk and adjust premiums as people age.

Today, insurance companies use a detailed process called underwriting to assess risk. Underwriters investigate an applicant's personal details to determine the cost of a policy. They examine medical histories and family health patterns. They may also look at driving records or a person's Body Mass Index (BMI). This process helps ensure the company can meet its financial obligations. Life insurance has also expanded into the broader asset-management industry. Many modern insurers now offer retirement products, such as annuities, to help people manage their long-term wealth.

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File:Life insurance certificate issued by the Yorkshire Fire & Life Insurance Company to Samuel Holt, Liverpool, England, 1851. On display at the British Museum in London.jpg
Life insurance certificate issued by the...
File:Amicable Society for a Perpetual Assurance Office, Serjeants' Inn, Fleet Street, London, 1801.jpg
Amicable Society for a Perpetual...
File:2005life premia.PNG
2005life premia.PNG
File:Chart of a life insurance.jpg
Chart of a life insurance.jpg
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