Chapter 5: Disability, Long-Term Care, and Life Insurance

History of Insurance

First Life Insurance Policies in the US

Life insurance in the US began to appear in the mid-1700s. But, back then, a wife could not buy a policy on her own life or her husband's life. At that time, women were not permitted by law to enter into contracts. Plus, women were deemed not to have an insurable interest in their husband's life. It would not be until the mid-1800s that a woman could take out life insurance on her husband.

The burgeoning life insurance industry recognized these issues as significant barriers to market growth. Several prominent companies lobbied state lawmakers for change. The first success was passage of a law in New York in 1840, after intense lobbying by the New York Life and Trust. Several other states soon followed suit.

The New York law made four important changes. First, it gave wives the right to enter into life insurance contracts on their husbands' lives. Second, it limited the ability of creditors to get to the money. Third, if the wife died before the husband, the policy went to the children, still protected from creditors' claims. Fourth, wives could claim insurable interest in their husbands' lives based on their relationship, rather than monetary interest.

The Civil War gave a big boost to the life insurance industry in the US. Most policies stated that military service would void the life insurance contract. However, several companies agreed to cover soldiers for a small additional premium. The life insurance industry earned tremendous goodwill by paying death claims on soldiers. The industry expanded from 43 companies before the war to 150 companies by 1870.