Life Insurance


 Life Insurance

Life insurance is a financial policy that pays out a lump sum or regular payment to the beneficiary of a life insurance policy in the event of death. This may be collected when there is no surviving spouse, children, grandchildren, parents and so on. It's also called "annuity" or "endowment". Life insurance usually includes impairment benefits which helps with medical costs and other difficulties associated with death. Insurance companies use many methods to determine risk factors associated with insuring an individual.

To have life insurance, you need to be able to show that you'll probably die young; this is often done by providing genetic information or showing previous rare instances of illness that are likely related to your age-related mortality risk. In addition to physical features, the insurance company will also assess mental health and personality traits.

Life insurance has been subject to intense criticism for several reasons. First, life insurance in general is regarded as a poor investment that provides low rates of return with little possibility of capital growth. Yet this is exactly what life insurance companies sell their policies as having — they don't say that the policy will be paying you less than it costs to obtain it.

Second, arrangements that allow an individual to pass on assets to a pre-approved successor at his or her death are considered by some to be a form of "forced savings" (and thereby unethical) since they illustrate a lack of personal responsibility over one's financial estate. In a sense, it is unfair for an insurance company to get special dispensation from taxing law, when it is required of everyone else.

Third, some critics argue that life insurance companies are too powerful and that they shy away from coverage for individuals with a low risk profile or whose condition may worsen as they age. This is seen as extending risk to those who are unlikely to die early and making money off of them in their later years.

Finally, insurers have been criticized for creating a "death spiral" among some of their clients by offering extremely low premium rates in an effort to get more customers. This ends up hurting the policyholder in the long term as cheaper policies become less attractive to new applicants, since they will be more expensive when they do lapse.

Life insurance has often been criticized as being overpriced and underperforming. Part of this criticism is due to a misunderstanding of its overall value. Life insurance companies have never actually paid out anything but interest since the returns were provided by society through taxation on those who die before they use it up.

Life insurance is very popular. According to the National Association of Life Underwriters, in 2014, life insurance products with a face value of $100 million ($ on average) were sold for about $2.6 trillion. It is projected that this number will rise to about $3 trillion by 2019. 

The world's first "life insurance" company was established in the United Kingdom in 1772 by William Talbot. It was founded as a mutual company, i.e., one without individual premiums based on risk assessment data. Talbot's practice was to take out policies on his own life and death and then pass them onto his friends and acquaintances as a form of "social security". Talbot's company was called the Society of Friendly Adventurers and it paid out one of its first claim, for £1,000, in 1776.

The idea of life insurance originated with the aretai (virtues) that are found in ancient Greek philosophy and culture. Homer thought that compensation to the survivors should be proportional to the worth of a man while Plato believed that only those who excelled in society should be considered for insurance payments. The term "life insurance" was originally used as a euphemism—somewhat akin to "burial policy"—for an arrangement where money is paid in exchange for regular tribute (in lieu of tax). The term was first recorded as "accident policy" in the 16th century. The word "death" was not used in its original use to refer to a premature death, but rather became a euphemism for death generally.

In the late 17th century, Benjamin Franklin and Johnathan Wilds also proposed insurance plans in Virginia; but their proposals were not taken seriously by potential investors. In 1772 Benjamin Franklin suggested that by creating insurance companies based on risk assessment data and issuing policies based on that data; people would be able to calculate their own risks and then invest in companies that insured them at the lowest premiums. In 1774 Franklin suggested that the government should not tax people who lived longer than average and then pay out the proceeds as a pension for old age. The majority of these proposals were never taken up. However, in 1775 a company called the Society of Friendly Adventurers was established and, for 100 years, paid out small amounts of money to its policyholders in return for commodities (very few people were actually insured). In 1809 the company changed its name to the General Insurance Company, and then during 1824–1825 it changed again to Mutual Friendly Society which still survives today as NFU Mutual Insurance Group.

In 1815, Thomas Henry Listers founded a company called the Friendly Mutual Life Assurance Society in London. However, apart from the very first policy being taken out by Thomas Lister, it did not become popular until after his death in 1843 when it became known as the United Friendly Life Association (UFLA). The UFLA was granted a Royal Charter in 1861. In 1967 the UFLA merged with two other societies to form the United Friendly Societies Group which exists today as UFS Insurance Group Limited.

One of the earliest modern applications of life insurance is by Silas Talbot, who was an early steam engine pioneer and built an early steam locomotive called Talbot No.1, which was demonstrated in England in 1803. He applied for a patent on his "System of Life Assurance" in 1805 with the UK government and received it on 22 December 1807. However, it was not put into general use as he encountered opposition from established insurance companies who saw it as a threat to their businesses, and because people at this time were unwilling to take responsibility for their own health. In contrast, the first life insurance company to be established in the UK was the Prudential Insurance Company in London in 1848.

In 1850 The Prudential hired Andrew Wilson as an agent selling "accident" policies (i.e., life insurance policies against premature death).

Conclusion of the Second Opium War by the British in 1858 had resulted in two treaty ports being opened for foreign traders: Guangzhouwan in 1858 and Shanghai in1859. This gave European insurers a practical foothold and led to rapid expansion. By 1866 London Life had branches throughout England, Western Europe and the British colonies.

In May 1865, Prudential opened for business in Canada becoming the first life insurance company founded outside of North America. In December 1867, Prudential licensed its first agent to sell insurance outside Britain, A.C. Gilbert of Melbourne, Australia with his office at 127 Collins St., Melbourne (later Insurance Building).

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