Life Insurance History

History

All life insurance was originally term insurance. However, because term life insurance only pays a claim upon death within the stated term, most term insurance policy holders became upset over the idea that they could be paying premiums for 20 or 30 years and then wind up with nothing to show for it.

In response to market pressures, actuaries conceived of an insurance policy with level premium payments that were higher than traditional term insurance contracts. These contracts would offer a "cash value", which was designed to be a cash reserve that would build up against the known claim - the death benefit. These policies would also credit interest to the cash value account and upon maturity of the contract (usually at age 95 or 100), the cash value would equal the death benefit.

This produced a benefit to both the policy owner and the insurance company. By guaranteeing the death benefit and the cash value, the policy owner was assured that insurance coverage would be in force when the insured died. The insurance company benefited because with every premium payment made, the net amount at risk, and thus the cost of insurance, was reduced.[1]