HISTORY OF LIFE ASSURANCE

All individuals have a moral right to a decent burial, and many individuals through the ages have been concerned that the burden to pay for their burial may fall on their dependants or close relatives. This right and associated concern is not a new phenomenon and can be traced as far back as the Roman Empire. In those days people got back together and formed burial clubs using the funds they had mutually contributed to pay for the deceased member's funeral. In later years Craftsmen formed Guilds, these Guilds operated a common fund into which all the craftsmen made contributions. The members could access the money for a variety of events but in particular for funeral grants. 

The introduction of the "Poor Law" in Elizabethan times, together with the earliest forms of life assurance, led to the demise of the common funds. Out of the remains of the Guilds a number of mutual societies were formed although the calculation of premiums and benefits was extremely crude. One of these early industrial societies was started in 1705 by John Hartley, a Fleet Street bookseller, who restricted membership to those aged between 12 and 45. A fixed payment (premium) was paid to the society regardless of age and the fund was shared at the end of each year amongst the dependants of those members who had died during the year. This was changed in 1757 when a guaranteed death benefit of ₤125 was introduced. 

A scientific basis for conducting life assurance was developed when in 1756 James Dodson, a mathematics teacher, was refused entry to John Hartley's scheme because at 46 he was too old. He worked out that, according to the age at entry to the scheme, each person would pay the appropriate fixed 'level' premium up to the date of their death at which time a guaranteed sum would be paid to the dependants. This method was then modified so, if required, the premium would be paid for a fixed number if years only and the guaranteed sum would be payable on death if it occurred during that term or at the end of the term. Although Dodson died before his mutual society was launched, it did start in 1762 and was quickly successful. Indeed it was so successful that by 1781 its funds were much larger than would ever be needed to meet claims. 

The society decided to share the surplus among the policyholders thereby bringing about the first reversionary bonus, which is such an important factor in today's life assurance market. After these first ventures many other companies were formed to transact life assurance. Some collapsed, however, through unwise or fraudulent management and over the years, starting with the Assurance Companies Act of 1870, legislation has sought to safeguard policyholders' rights. 

Since then the piece of legislation which had the most dramatic effect on the way in which life assurance is marketed by Life Assurance companies and intermediates is the Financial Services Act (1986). Today the life assurance sector of the insurance market has developed into a prosperous, varied and often complex activity but one of its main functions remains the same to provide financial security and recompose to dependants in the event of death. Until recent times the term 'assurance' was used when referring to the life sector of insurance. The terms 'life insurance' and 'life insured' are now commonly used.