In Brief
There’s No Magic, Only Magicians
Purchasing life insurance has never been, and never will be, fun, Nevertheless, it is important-especially for the high-nel-worth individual who must provide liquidity for estate planning purposes. To put the purchasing decision in perspective, the author presents a brief history of life insurance, explaining the developments that have led to today’s array of products. Their variegated evolution means certain inevitable compromise that an advisor can illuminate and some salesmen may obfuscate.
Purchasing (or advising the purchase of) life insurance involves the careful considerations of current and future financial circumstances and a studied observation of the policy’s provisions. A successful policy benefits both the insured and the insurer. Only by properly understanding all the pluses and minuses of the myriad policies and provisions available can a wise purchase be made.
Most people, especially CPAs and other financial professionals, think they know what "life insurance" is. But what does it really mean? First, it’s not really life insurance. It’s "death insurance." It’s the promise of an insurance company to pay the face amount (the initial death benefit, which may change over time) upon due proof of the death of the insured and the surrender of the policy with a properly completed claim form.
One of the facts of life is that people don’t want to think about death-especially their own-which is why this contractual promise is called life insurance. Today’s life insurance is the product of a long history of continuous change and has become substantially more useful as a result.
Brief History of Life Insurance
"[L]ife insurance as we know it … began in the 19th century … Industrialization-with its cities, factories, money economy, and an urban ‘saving’ class-set the stage for life insurance as a large-scale, national institution. Life insurance, it can truly be said, is a product of modern industrial society. [Davis W. Gregg and Vane B. Lucas, "A Brief History," Life and Health Insurance Handbook (1973)]
The first life insurance company in North America, the Presbyterian Ministers’ Fund, was established in 1759. The Insurance Company of North America, chartered in 1794, was the first commercial enterprise to sell policies; it sold only six policies in five years and discontinued operations in 1804.