Dennis L Peck. Handbook of Death and Dying. Editor: Clifton D Bryant. Volume 1: The Presence of Death. Thousand Oaks, CA: Sage Reference, 2003.
Legally, life insurance is justified only by the existence of an insurable interest, a reasonable expectation of gain or advantage in the continued life of another person, and no interest in his death.
— Viviana A. Zelizer, “The Price and Value of Children,” 1981
In a discussion of “insurance and the law,” Baker (2001) writes that insurance per se is considered a “formal mechanism for sharing the costs of misfortune” (p. 7588). In casting the conceptualization of insurance in this manner, Baker distinguishes insurance into four categories: technologies, institutions, forms, and visions. Such categories are useful for illustrating the general variety of insurance-related activities, but for purposes of this discussion the fourth category, visions, is most useful for establishing a basic conceptualization of life insurance as a social exchange mechanism.
Visions are inclusive of each of the other three categories. In the first instance, as Baker (2001) notes, technologies enhance our understanding as to the risk involved. Thus “insurance, in the sense of insurance ‘technology,’ refers to a set of procedures for dealing with risk. Examples include the mortality tables and inspection procedures of ordinary life insurance” (p. 7588). Visions, on the other hand, pertain to ideas about or images of a variety of business practices regarding insurance that have led to the development of the technologies, institutions, and forms. Other social visions exist as well.
Despite the fact that all forms of insurance are intended to create a sense of security, perhaps life insurance more than any other form holds a value that is secured in the imagination. Life insurance functions as a symbolic representation of a promise to be there in the future at a time of loss and/or tragedy. As numerous advertisements for insurance companies note, life insurance represents a special future gift, one that is there (or forthcoming) because the giver (the insured) really cares.
As with so many things uniquely American, life insurance emerges out of what some analysts describe as a cult of social conditioning; that is, it is part of a web of traditions, customs, and social attitudes. Such conditioning instills an attitude that money and death converge, thereby symbolizing the connection between money and life. In the words of James Gollin (1966), life insurance as a mechanism of social exchange ensures that “money—our great life symbol—is used both symbolically and in fact to abolish death” (p. 197). That is, life insurance underscores the American social belief that money is life and thus represents one important way of ensuring that death gives way to life. Thus the purchase of life insurance is a part of a symbolic process that provides the means to allow people to think that death can in fact be conquered. Insurance is life; at the very least, it is a living value.
But yet another vision casts some doubt on this imagined and symbolic sense of security if, for example, an insurance company should deny a claim based on suggested fraud or abuse. Moreover, people in other parts of the world do not easily understand this unique fascination with life insurance among Americans. The British and French, for example, may purchase life insurance, but, according to Gollin (1966), their purchases usually occur later in life than they do for Americans and more often take the modest form of insurance intended to cover funeral expenses. In some countries, such as Spain, widows are hesitant to accept life insurance payouts provided by their husbands’ employers because of the deeply held belief that it is improper to benefit financially from the death of a loved one.
Despite these qualifications, among contemporary Americans, at least, the dominant view is that life insurance provides needed financial support for others when the holder of the policy is no longer able to provide or care for their needs. This form of insurance provides needed benefits for widows and orphans; if substantial enough, life insurance may even provide the funds essential to ensure coverage of the costs of college educations for the deceased’s children. Although most individuals purchase life insurance for such assurance, it is also, in the words of one analyst, “the only effective technique of thrift for millions presumed to be too weak-minded, too indolent, or too irresolute to save money in any other way than via life insurance premiums” (Hendershot 1957:11). However, the positive values placed on the advantages of life insurance by most Americans today have not always held sway among the populace.
History of Life Insurance as a Social Exchange Mechanism
The modern life insurance system was born in England, where it eventually made rapid advances. Even up to the 18th century, however, the insuring of life was neither widely practiced nor generally approved in England. As Baker (2001) notes, life insurance was once perceived by the general public to be immoral because “it interfered with divine providence, equated life and money or was a form of gambling” (p. 7588). Such moral thinking had important consequences for the development of laws related to the insurance industry in the United States, as well as for the life assurance sector that had a humble beginning in 1759, obstructing the growth of life insurance as a form of social exchange. Such values later took a dramatic change of direction during the early 1840s.
The New York Life Insurance and Trust Company, founded in 1830, issued approximately 2,000 policies during its first 9 years of existence (Jack 1912:244-45). Although the extent of this activity cannot be considered intense, beginning in 1843 the American life insurance industry undertook a stage of development that has been described as an overwhelming success story. As Viviana Zelizer notes in her book Morals and Markets (1979), there was initially some cultural and ideological resistance to life insurance, and such resistance continues to inhibit the growth of this segment of the insurance industry in most nations other than the United States. Contrasted with other forms of insurance, such as fire and particularly marine insurance, which was a part of the economic structure of many localities dating back in time at least to the 15th-century Italian city-states, the initial American opposition to life insurance was based on a value system that rejected, as Zelizer observes, “a strictly financial evaluation of human life” (p. xi). Life was considered sacred, and Americans in general believed that the value of life—or death, as in the case of insurance—could not be determined as a fixed amount; thus “traditional economic morality and a deterministic religious ethos [in the early decades of the 19th century] condemned life insurance as a sacrilegious speculative venture” (p. xiii).
The unquestioned cultural emphasis placed on rituals of reciprocal or gift-type social exchange observed in primitive, archaic societies by anthropologists (see Mauss 1967) also was not uncommon to the experience of early industrial Western societies, including the United States. This orientation also inhibited early acceptance of life insurance as an appropriate mechanism of social exchange. Although Zelizer (1981) argues that “Christianity sacralized and absolutized human existence, setting life above financial considerations” (p. 1037), some analysts have asserted that during this time of urban development, many Americans thought that holding life insurance was potentially detrimental to a person’s physical well-being and might even hasten an individual’s death. For this reason, holding life insurance was deemed to be harmful to society in general. In essence, this early American ideology was based on the premise that it is wicked to insure one’s life. Early efforts by government bodies to sell the idea of life insurance to the American public did little to inspire confidence in such insurance.
Later in the 19th century, however, there were also reasons to support this form of social exchange. In a discussion of problems relating to economic security in late-19th-century Europe, Whaples and Buffum (1991) note that by that time most advanced European nations had adopted some form of “public social insurance” to assist widows, the aged, the sick, and the injured (see also Jack 1912:223-30). This was not the case in the United States, where those in need of economic assistance were dependent on family members, employers, friends, and neighbors. In the rapidly changing urban, industrial environment of the time, which included growing numbers of people of diverse economic, social, ethnic, and ideological backgrounds, such assistance was not always forthcoming for those in need. The growth of industry and a strong economic base eventually led to rising income among an increasingly large and better-educated workforce. Such factors have been identified as important to the creation of ideas that led Americans to recognize a need for and to take the initiative essential to providing some form of assurance to dependent family members in case of debilitating consequences related to accident, sickness, or death.
Although some modest activity did occur in which the lives of individuals were insured under extraordinary circumstance for short periods of time, the founding of what is considered to be the first American life insurance company did not occur until 1759. This organization, known as the Corporation of Poor and Distressed Presbyterian Ministers and of the Poor and Distressed Widows and Children of Presbyterian Ministers, was established in Philadelphia by the synod of the Presbyterian Church to insure the lives of the synod’s ministers and their families (American Council of Life Insurance 1996); this initial effort was followed in 1769 by the establishment of a similar organization to insure the lives of New York Episcopalian ministers (Jack 1912:244).
Despite the enthusiastic reaction to these initial efforts within the business community, it was not until the early 1840s that life insurance policies were issued to any significant extent, and even then the number of policies sold was quite small. Still, this change represented a significant transformation in economic thought (discussed at length by Fogel 2000). According to Zelizer (1978, 1979), this transformation came about as a result of shifts in cultural values and ideologies that occurred along with changes in the definitions of risk taking and gambling. Enhanced actuarial knowledge of mortality and principles relating to life insurance, better insurance rates, and an aggressive sales force first employed by the New York Life Insurance and Trust Company have also been identified as factors that may have assisted in the growth of the industry (Zelizer 1978, 1979; American Council of Life Insurance 1996; Jones [1999] 2002), although some analysts question the importance of these elements.
The Second Great Awakening
During the period known as the Second Great Awakening, with its egalitarian ethic, moral evil was equated with the institutions of the time and the idea of unselfishness was promoted. It is noteworthy that the beginning rise of the American life insurance industry corresponds roughly in time with this historical period (1800-1840), an era of religious fervor and revival (see Fogel 2000). By 1840, the U.S. population had attained a literacy rate of 90% and was witness to an active religious and political agenda intended to encourage abstinence from alcohol, improve the rights of women, redress wrongs against Native Americans, abolish slavery, address an increasing number of social problems attendant to the emergence of the urban environment, and, through education and science, advance the ideal of social justice for the working class. Committed to the broad goal of shaping the moral and political character of the nation, reform-minded religious leaders gradually asserted their influence in all aspects of life (Fogel 2000:84-120). These activities are known to have been most intense in the Northeast, where the establishment of the first life insurance organizations also began. As Zelizer (1981) states: “Gradually, the capitalization of the value of adult life and the monetary indemnation of that value became acceptable. However, the monetary evaluation of death did not desacralize it” (p. 1037).
In light of the above, it may not be coincidental that the life insurance industry really began to develop during this historical period of liberal religious revivalism. Indeed, American society in general became involved in addressing myriad social issues, led in large part by leaders of the reform-minded Methodist Episcopal Church and the emerging influence of Baptists, who promoted the idea of engaging in unselfish acts. These social-reform-minded religious leaders made a commitment to enhance the religious, moral, and political character of Americans. It was during this period that many social organizations, including insurance organizations, were created to assist members of the public in dealing with issues related to the urban crisis and social problems such as poverty, alcoholism, and prostitution. Church-affiliated individuals also became involved in the insurance industry at an early date, and, according to Gollin (1966), even today such ideologically oriented persons continue to dominate the industry at the top levels.
Other factors were operating during this period as well. Between 1820 and 1860, the growth of the U.S. economy had the effect of raising the wages of American workers, sometimes quite rapidly. At the same time the standard of living was increasing, the extent of immigration was also growing; population density intensified, and infectious diseases spread rapidly, especially within the coastal communities. Life expectancy decreased (Fogel 2000:159-63). Thus, as one might expect, early American assurance organizations were half charitable and only half insurance. It was not until 1809, when the Pennsylvania Company for the Insurance on Lives was formed, that the beginning of life insurance on a regular basis in the United States began to emerge (Jack 1912).
Cultural and Institutional Change
After the American Civil War, as Zelizer (1979) observes, the adaptation of life insurance was influenced by cultural factors such as liberal ideology, changing religious beliefs, and changed ideologies concerning risk, speculation, and gambling. Other influences included a changed industrialbased society in which the economic marketplace and the urban environment interacted with other cultural shifts to effect change in the family unit. Women and children were no longer considered to be the responsibility of the community; rather, the nuclear family assumed the obligation for their care. The symbolic meaning of life insurance changed, and the “gift of life insurance” offered assurance that future widows and orphans would have their economic needs met. Life insurance had already achieved legal recognition in 1840, when the New York State Legislature enacted a law that provided that the benefits of a life insurance policy with the wife named as beneficiary be paid directly to her, thereby exempting all claims of creditors (American Council of Life Insurance 1996:130). Factors such as these accounted for the increasingly widespread thinking among wage earners that it was the responsibility of the head of the family to ensure the welfare of dependents through the purchase of life insurance.
In 1867, the amount of American life insurance in force exceeded a billion dollars, and by 1870, fraternal organizations and commercial life insurance companies had developed rapidly, offering insurance to club members and to increasing numbers of ethnic, working-class groups whose purchasing power had increased. Rising wages among Americans, including members of the growing middle and working classes, were sufficient to warrant the purchase of life insurance protection for their families, which were experiencing modest increases in affluence. Americans’ rising standard of living continued to be factor in the sale of life insurance for several decades. By 1880, the amount of life insurance in force in the United States had reached more than $1.6 billion, and by 1900, the figure was more than $8 billion (Stevenson 1927:1).
A change in cultural ideology based on an economic shift from self-sufficiency of the family unit to one of economic interdependence, along with the need for a lifetime of money income, led to the view that life insurance could be used in part to buffer the insecurities of a changing economic environment (Zelizer 1978, 1979). Although the reasons suggested for this vary considerably, the unquestioned growth of the insurance industry offers some convincing evidence of this changed view. For example, by 1843, the year often identified as the year of transition in the growth of the industry, the Mutual Life Insurance Company of New York had only 400 life insurance policies in force, equaling a total of $1,480,718. Then, in 1843 alone, the company wrote 470 policies totaling $1,640,718. By 1850, the policies in force numbered 6,242, for a total of $15,886,181 (Clough 1946:371).
The period of 1850-70 was characterized by a rapid expansion of the insurance industry; a near 50% annual increase was achieved by the end of the 1860s. Although growth in the sales of life insurance was much slower during periods of economic depression, sales increased rapidly from the end of the Civil War in 1865 through 1905. From 1864 to 1869, the prosperity of the business of life insurance was such that it has not been equaled since that period (Jones [1999] 2002:84, 116). Again drawing from Clough’s (1946) historical assessment of the Mutual Life Insurance Company of New York, by the end of 1860, a total of 12,591 life insurance policies were in force in the amount of $40,159,123; by 1870, this number increased to 71,271, in the amount of $242,004,489. Then, at the end of the 19th century, the Mutual Life Insurance Company alone had 439,440 life insurance policies in effect, totaling $1,139,940,529 (pp. 371, 373, Tables 47, 49). As noted above, the total life insurance in force at the beginning of the 20th century was in excess of $8 billion. By 1925, this total amount had grown to $79 billion (Stevenson 1927:3). In that same year, the expenditures paid for death losses totaled only $493,391,370. Four and a half decades later, at the end of 1945, approximately $163 billion of commercial and fraternal life insurance was in force among the general population of the United States. As Dublin and Lotka (1946:144-45) note, this was more than twice the amount in force during the mid-1920s, but to this total can be added another $129 billion of U.S. Government Insurance (begun in 1917) and National Service Life Insurance (started in 1940) that was in force for the veterans who had served during the two world wars.
Gift Giving, Social Exchange Theory, and Life Insurance
Gift Giving
In primitive, nonindustrial societies such as those observed by Marcel Mauss (1967) and other analysts, gift giving and gift exchange were instruments of social organization that helped to bind a social group together. In contemporary U.S. society, life insurance fills an economic void, replacing the moral exchange conducted among family members and friends to meet group members’ economic needs. Earlier forms of exchanges, although they serve many functions, such as maintaining personal relationships and fulfilling social obligations, no longer remain viable within contemporary large-scale economic systems (Titmuss 1971:72). However, like the modern forms of social security that Titmuss (1971:209) has evaluated, life insurance expresses cooperation and may also serve as a renaissance of the theme of the gift.
Gift giving and gift exchange may be characterized as representing a number of group sentiments and individual motives. Titmuss (1971) identifies two such reasons for gift giving: The first includes economic purposes intended “to achieve a material gain or to enhance prestige or to bring about material gain in the future,” and the second is predominantly social and moral, in that the gifts are intended “to serve friendly relationships, affection and harmony between known individuals and social groups” (p. 216). The primary function of gift giving and the future expectation of reciprocal gifts in preindustrial societies may not have been solely economic in nature, but such exchange was an important part of the social and moral intent of the members of these societies. In preindustrial societies gifts were much more functional than economic in that they served religious, magical, sentimental, and moral purposes.
Social Exchange: The Gift of Life Insurance
Exchange theory is often criticized for its reductionist approach, given that the outcomes of social exchange “are conditioned to reduce society immediately to the interplay of individual interests” (Manis and Melzer 1978:143). The formal ideas attributed to social exchange theory thus hold little utility for the analysis of social organizations and thereby diminish the theory’s usefulness for assessing the complex social processes in which humans participate that lead to the decision to provide the gift of life insurance beyond what is referred to as a “preordained” type of scheme (Lindesmith, Strauss, and Denzin 1988:18-19). Nevertheless, taking the theory in its simplistic form, viewing life insurance as a form of social exchange allows one the opportunity to appreciate the utility of the gift, although the act requires one to imagine how the recipient will conceptualize its worth. Thus the basics of social exchange theory may be useful for explaining some portion of the dynamics involved in the process of an individual’s deciding to provide the gift of life insurance.
If life insurance does emerge as a product of the cult of social conditioning, as former insurance agent James Gollin (1966) has proposed, then a portion of the behavioral psychology advocated by George Homans and B. F. Skinner is present. Reward and punishment stimuli serve as the foundation of an exchange of activity occurring between two people. The reward (life insurance) is predicated on the behavior of only one actor, but the gift giving is not intended as a reciprocal gesture, except, perhaps, for the power that exists in the imagination of the giver.
In contemporary industrial and postindustrial society, gift exchange does not hold the same importance it had in the past, but a gift in the form of life insurance does signify an element of altruism at the same time it represents a calculated form of economic behavior. As Zelizer (1978) observes, during the late 19th century, life insurance was surrounded with religious symbolism, advertised more for that value than for its monetary benefit: “Life insurance was marketed as an altruistic, self-denying gift rather than as a profitable investment” (pp. 599-600). A major difference from the past uses of gift giving is that life insurance does not establish any future basis for reciprocity. Rather, like any altruistic gift, the purchase of life insurance is a response to the perceived social and economic needs of others, providing an advantage for others rather than oneself. The gift provides future security while demonstrating an altruistic motive and fulfilling a moral and social obligation to those who are important in one’s face-to-face relationships.
From 1830 to 1850, life insurance was promoted as a morally accepted means by which husbands could protect the futures of their wives and children. It was within this same time frame, as Zelizer (1981) notes, that “life insurance took on symbolic values quite distinct from its utilitarian function, emerging as a new form of ritual with which to face death” (p. 1037). Life insurance eventually came to be equated with peace of mind, based on the assurance that those who are insured can meet their ends secure in the knowledge that they have fulfilled their moral obligation to take care of their family members.
The Modern Concept of Childhood and Life Insurance
Americans are often described as child centered, in that in U.S. society great concern is generally expressed over the care and well-being of children. But children have not always benefited from this kind of attention. Indeed, the concept of childhood is a fairly recent phenomenon, and its discovery holds relevance for any discussion of life insurance.
Until the Middle Ages, children were depicted in art as though they were small adults, without any of the unique characteristics that we ascribe to children today. Over the next several hundred years, a new concept of childhood began to emerge. These changes are evidenced, for example, by the nursing methods used in 14th-century Italy and by the use of the color white for the burial clothes of children, as a testament of their innocence, practiced in 15th- and 16th-century England. The art and literature of 16th- and 17th-century England depict the special characteristics of children through the use of distinctive costumes and the solicitous behavior of parents toward their children. Finally, a growing literature in the late 16th and the 17th centuries questioned the traditional exploitative treatment of children and their characterization as miniature adults. Increasingly, children began to be viewed as essentially innocent and dependent, in need of social training; they needed to be controlled, guarded both physically and morally, and educated in preparation for adulthood (Empey and Stafford 1991:21-45).
The first European settlers brought the concept of childhood to the American colonies, although the concept eventually underwent considerable change. In essence, the factors that created the modern urban society also were instrumental in producing the modern concept of childhood, especially among the growing middle- and upperclass portion of the developing industrial nation. It was the labor-saving technology introduced by the Industrial Revolution that allowed this change to take effect. For the first time in Western history, children were no longer an essential component of and productive force in the labor market. By the late 19th century, the segregation of society based on age had became a reality (Empey and Stafford 1991).
As children and their parents achieved greater emotional attachment, children’s worth in the marketplace diminished. This process began initially among families of the urban middle class, but eventually the social value of the lower-class child changed as well. This perception of the child was to have important implications for the insurance industry.
Zelizer has thoroughly documented the relationship between the concept of childhood and life insurance. She begins her seminal article “The Price and Value of Children” (1981) with the following statement:
On March 14, 1895, the Boston Evening Transcript stated, “No manly man and no womanly woman should be ready to say that their infants have pecuniary value.” (P. 1036)
The newspaper was attacking the widespread contemporary practice of parents insuring their children. I discuss the significance of this newspaper statement below.
Life Insurance for Working-Class Children
Whereas most life insurance companies directed their attention toward adult males of middle-class families, in 1875 the Prudential Life Insurance Company targeted children under the age of 10 as insurees. What may surprise some is that these were not the children of well-to-do families, but children whose families were part of the expanding working class.
Since its inception in England, the practice of issuing life insurance for children has been fraught with controversy. In an intriguing analysis of this segment of the insurance industry, Zelizer (1981, 1985) traces the effect of the changing cultural definition of children and the relationship of this change to the purchase of life insurance for children, first by lower-class parents and then later by members of the middle class. In evaluating this phenomenon, Zelizer (1981) asserts that “one important variable was the cultural redefinition of the value of children. As children’s lives became economically worthless but emotionally priceless, their deaths became [defined as] a social problem” (p. 1050).
During the mid-19th century, when the children of urban middle-class families were embraced as members of the new, nonproductive world of childhood, the children of working-class families not only retained the economic value they had in the past, but their value actually increased. While middle-class children enjoyed the benefit of formal education in preparation for the future, working-class children’s economic value rose because of rapid industrialization and the new occupations it produced. The children of working-class families became a much-needed component of a productive workforce.
This economic situation, the large number of working-class families and their factory-employable children, and the assertiveness of the insurance industry combined to create an environment that was conducive to the introduction of a new marketing innovation. In 1875, a major life insurance company began to insure the lives of children under the age of 10. In 1879, two other major companies entered into the industrial insurance market. By 1895, $268 million of life insurance was in force; 1.5 million children were insured in 1896, and by year’s end in 1902 more than 3 million children were insured. This was but the beginning. By 1928, more than 37% of the life insurance policies issued by the big three companies were for children.
Such innovative practices did not take root without acquiring detractors. Social and legal encounters between representatives of the “child-saving movement” and the insurance industry emerged soon after the practice of insuring children began. As the Progressive movement, of which the child savers were a part, surged ahead with its social reform agenda directed toward diminishing the exploitation of the children of poor families by removing them from industrial factories and placing them in schoolrooms, state legislatures and major newspapers assailed the practice of insuring children as harmful to the public interest (Zelizer 1981:1040-45, 1051).
Despite the outpouring of public protestations and moral indignation directed toward the practice of insuring the lives of lower-class children as unscrupulous, sordid, profane, speculative, the illegal wagering of life, commercially exploitative, against public policy, potentially dangerous to the well-being of children, and expensive for working-class parent, the commercial interests of this practice were eventually upheld in three major court decisions dating back to the 1850s. With these decisions, the crusade of the moral entrepreneurs was defeated, and the moral and legal rights of parents to insure the lives of their children were upheld. Zelizer (1981:1046) identifies the 1858 court case of Mitchell v. Union Life (45 Maine 105, 1858) as significant in upholding this pecuniary bond between parent and child.
Life insurance for children held a strong appeal among working-class families, and the sales tactics of the insurance industry were effective in thwarting the child-saving component of the Progressive movement. The insurance companies’ strategy was to address the changing value of children by claiming to promote the welfare of children, and they initially marketed this form of insurance as symbolic concern, as a token of love and affection for the dead child rather than as insurance for the working child (Zelizer 1981:1047).
Although Zelizer (1981) acknowledges that one indicator of the changing value of children was the growing public concern throughout the 1800s and early 1900s with children’s deaths and with providing decent Christian burials for children, she also argues that, “ultimately, the debate over child insurance was a debate on the value of poor children, a public assessment of their emotional worth” (p. 1047). The mourning of children became a focal concern among members of the middle class during the period from 1820 to 1875; within this context, Zelizer notes, “The acceptance of children’s insurance suggests that after 1875 lower-class parents adopted middle-class standards of mourning young children” (p. 1049).
Ultimately, sales of child life insurance were destined to increase as a result of yet another change in marketing strategy. In moving from an emphasis on burial insurance to an emphasis on the creation of an education fund, the insurance companies promoted child insurance as an attractive child-centered investment among the middleclass. In the late 19th and early 20th centuries, children’s value as economically worthless but emotionally priceless led to a view of child life insurance as symbolizing respect for the dead child. Later in the 20th century, however, this valuation symbolized an action of love and respect for the living child (Zelizer 1981:1052).
Unequal Opportunity Life Insurance
The Legacy of Minority Life Insurance
The legacy of the American life insurance industry is replete with opportunities for bias against racial minorities, reflective of the social orientations of a past cultural ethos. Racial bias in the history of the life insurance industry is best demonstrated through the backstage insights of individuals who worked within the institution. One such analyst quotes a major insurance corporation official: “We are glad to accept whatever Negro business comes our way. But we don’t go out looking for Negroes to insure” (Gollin 1966:100).
If the above statement appears harsh, it is, according to Gollin (1966), also a reflection of a reality of the insurance industry. Selling life insurance involves risk taking on the part of the insurer, and in this area life insurance companies established norms early on to allow them to avoid insuring individuals considered to be at risk of high mortality rates, whether because of age, occupation, morals, or race/ethnicity. Although such evaluations strongly suggest that white-owned life insurance companies did not curry favor among the black population, some analysts argue that the facts indicate otherwise. Stuart (1940:43) notes, for example, that in 1923 approximately one-sixth of all blacks in the United States were holders of policies issued through the Metropolitan Life Insurance Company of New York.
In contrast, James Gollin (1966), a former insurance sales agent, argues that minorities long experienced discrimination in the life insurance industry because of agency prejudice. Such discrimination was not necessarily based on concrete actuarial risk factors; rather, the numerical rating point scale used to calculate risk for blacks and other minorities included race as an adverse factor. Although the insurance companies used a standard rating scale, their estimation of risk for minorities, Gollin asserts, was based on racial bias rather than financial risk. Another explanation some analysts offer for the reticence of life insurance companies to sell insurance to blacks is based on the findings of studies of death rates that indicate men employed in occupations associated with lower-income groups have shorter life expectancy (Stuart 1940:55-56; see also Dublin and Lotka 1946).
The eventual entrance of blacks into the insurance arena as company owners was prompted by other factors as well. For example, as Stuart (1940) has documented, when white agents made their weekly visits to the homes of Negro policyholders to collect premiums (known as debits), their behavior was often less than commendable. Stuart notes: “Their haughtiness, discourtesies, and not infrequent abuses of the privacy of the home were resented, but to a great extent tolerated until the organization and entry of Negro companies into this field” (p. 36). The insults, abuses, and violations of the privacy of the homes of black policyholders by white agents, especially in the American South, were well-known in every black community, and such practices helped to stimulate the creation of black-owned industrial life insurance companies.
The distasteful practices of white insurance agencies had important and positive long-term economic consequences for black American entrepreneurs. As Stuart observed in 1940:
There are comparatively few types of business in which the Negro businessman has even a reasonable chance to succeed…. Among the lines of business and personal service in which colored operators and proprietors may be free from extra racial obstacles … [are] barber shops and beauty parlors, food service establishments, journalism, hotels, undertaking and life insurance businesses. (P. xxv)
Stuart lists the names of the 46 Negro life insurance organizations then operating in the District of Columbia and 24 U.S. states. Of these companies, 29 included the phrase life insurance in their names; burial insurance was the major component of 2 of the companies’ names. In 1940, the “Afro-American Life Insurance Company” of Jacksonville, Florida, was one of 26 Negro companies located in the southern portion of the United States. Careful readers may recognize the significance of the wording of the name of this firm.
Growth of a Minority Industry
Black life insurance companies grew out of the church relief societies of the 1787-1890 period and the Negro fraternal benevolent burial associations that flourished in the United States from 1865 to 1915. Consistent with the fact that blacks were primarily involved in the labor-intensive industrial marketplace, most of the insurance sold first through benevolent societies and later through black-owned insurance companies covered the areas of health and accident. In reality, this form of industrial insurance was intended to provide modest benefits for the disabled and a decent burial for the deceased.
As Stuart (1940:37, 40-44) documents, the rapid growth of industrial life and disability insurance among members of the black community can be attributed in part to black insurers’ sensitivity in making prompt payments to claimants. Although in the past ordinary life insurance policies accounted for only one-sixth of the total policies sold by black insurance companies to black Americans, there was rapid growth in this area, as the following numbers show. In December 1920, the total life insurance in force in what Stuart refers to as “the important Negro companies” was $86,039,131. By December 1937, 17 years later, the amount had increased to $340,816,707. Although this figure placed American blacks very high in comparison with the populations of many nations of the world, it represented only a fraction of all the life insurance in force among members of the U.S. black community. Indeed, as noted earlier, during 1937, the Metropolitan Life Insurance Company was said to hold one-sixth, or $690 million, of all black-held policies in the United States. Thus the estimated total amount of black-held life insurance in force at the time was more than $1.3 billion. This figure placed American blacks just behind the nations of Sweden and Australia in life insurance coverage.
During this period of growth for the black life insurance industry, and despite the critical view of some industry analysts, many Americans were beginning to feel that it was important to have some amount of life insurance, no matter how small the policy worth. The first weekly premium policy was issued in the United States in 1873, but such policies found their greatest market in the black community. Clearly, black insurers took what Taylor and Pellegrin (1959) identify as a humanitarian approach; their goal was to service the basic needs of the black community. Indeed, it was through the determined efforts of individuals such as the low-status “debit man,” who serviced the needs of these lowto middle-income families, that this substantial portion of a vast industry was created and nurtured. Since 1983, yearly life insurance purchases in the United States have exceeded $1 trillion (American Council of Life Insurance 2002), and minority-owned life insurance companies represent an important component of this industry.
Economics and the Value of Human Life
Certainly we can’t predict the future. But there are steps you can take to prepare for it. Life insurance is a tool that enables people to guarantee the financial security of those they love. By providing compensation for beneficiaries at death, life insurance preserves the monetary value of a human life when other lives depend on it. (All Quotes Insurance 2002)
Dominant social values often are expressed in economic terms, and, as Starlard (1986) succinctly states, this includes the value placed on human life. This issue is especially important in relation to decisions to insure the lives of individuals whose social value is measured in economic terms relative to the financial needs of others.
The value of a man (or life), as Dublin and Lotka (1946:3-5) note in a book by that same title, may be compounded by practical and tangible qualities as well as by the aesthetic and sentimental values held by family members, friends, and business associates. All of these values represent different ideas, depending on the persons holding them and the person on whom the values are placed. Those who have an interest in the insured’s continued existence, especially family members (such as spouse and children), place a high value on that individual. In this area, the value of a human life may even be considered priceless. Placing such metaphysical issues aside, however, it is the survivors’ financial interest in the life of one whose earnings and role as head of the family provide stability for the family that serves as the very foundation of life insurance. Thus, as Dublin and Lotka note, “A fixed principle of the life insurance business …requires that the person insuring the life of another shall have a financial interest in the continuance of the life insured” (p. 5). It is through life insurance that the economic value of a person on whom family members are dependent is protected (Dublin and Lotka 1946:159).
Symbolically, life insurance is a gift intended to ensure that survivors are able to maintain a lifestyle similar to that they had during the life of the insured. Life insurance is the purchase of futures. It is planning for the future, albeit a future in which the insured will not share. In receiving the largesse provided through a life insurance policy, family members can avoid the loss of any status achieved for the family by the insured—that is, any status in the community that he or she achieved prior to death. Such status is, according to Starlard (1986), one of inequality, an inequality often based on sex, age, and, as Gollin (1966) and Zelizer (1981) note, race. In addition, as noted above, the use of life insurance by lower-class parents to assure their family welfare in the event of the loss of their working children was at one time an area of considerable controversy in American society (Zelizer 1981).
The inequality of the sexes in terms of life insurance is reflected in the greater numbers of policies sold to men versus women as well as in the amounts for which policies are written. Women are far less likely than men to have life insurance policies, and women who do have life insurance generally have policies that pay considerably less than most men’s policies. Age is a factor in light of life expectancy at either end of the age continuum; those who are younger pay relatively low premiums, whereas premiums are quite high for older insurees. Race is a relevant factor only in the context of groups targeted by the industry as potential buyers of life insurance policies. In this area, many black Americans in the past were similar to today’s French and British, who are inclined to purchase small amounts of insurance for burial purposes only. Working-class American laborers in the past generally held small amounts of disability and burial insurance, paying the premiums weekly to insurance agents who stopped by their homes to “collect the debit.”
The historical debate as to the economic value of human life continues, given that this value orientation now includes notions related to aesthetic and sentimental values. Although the present debate is focused on public policy issues directly related to human health and safety, central to this debate is the valuation of human life. Known as the “human capital approach” to valuing human life, this debate has a long history, dating back to the late 17th century. At present, the debate pertains to risk and cost-benefit analyses used to evaluate programs that attach monetary values of risks to life. In recent years this debate has included arguments concerning the value of lives lost owing to lack of occupational safety and human negligence (see, e.g., Dardis 1980; Landefeld and Seskin 1982; Miller 1990).
Other Dynamic Aspects of Life Insurance
Despite most Americans’ strong acceptance of life insurance, some reservations of the past continue to the present. As one critic notes: “Life insurance can do a great deal of good for the policyholder and his family. But, strange as it may seem, it can do him considerable harm, and his family and beneficiaries as well” (Hendershot 1957:9). Some critics have expressed concern that the industry overcharges for premiums and achieves excessive, nontaxable profits by limiting the amounts of coverage provided; they assert that such practices represent harm to both individual purchasers and the entire society. Gollin (1966), for example, refers to the insurance industry as “the worst-managed Big Business in America” (p. 141). Other charges that have been leveled against the industry in the years since it was established concern the practice of paying high commissions to sales personnel, the use of premiums for lobbying purposes, the presence of nepotism in hiring and internal managerial conflicts of interest, and, during the late 19th century, the writing of tontine policies, a practice that placed policyholders into a form of gambling pool (Jones [1999] 2002:104-5). (Tontine insurance was not a true form of insurance, however; see Jack 1912:196.)
Drawing on one frequent theme promoted at annual insurance conventions, Gollin (1966), who was once a successful life insurance agent, summarizes the industry propaganda in the following manner: “Life insurance is the greatest concept society has ever produced; all life insurance men have a great mission” (p. 139). Taylor and Pellegrin (1959) also identify this theme; they report that advocates of the humanitarian approach to the sale of life insurance hold a religious fervor for the occupation and believe that through their efforts they render a great service to all people, regardless of their socioeconomic class status.
That the insurance industry is successful is not in dispute, but, its acknowledged growth and fiscal vitality notwithstanding, the real reasons for the wealth of the industry may lie elsewhere. Reflecting on the preceding half century, Gollin (1966) offers a personal insider assessment of the reasons for the success of the life insurance industry: “Better medical care, a higher standard of living, and a prosperous economy—not any outstanding effort on the industry’s part—are the real reasons for the industry’s great post-war success” (p. 154).
Despite the fact that state regulation of the life insurance industry began as far back as the 1850s (Jones [1999] 2002:77), it appears that yet another element is critical to the industry’s success. As Gollin (1966) observes:
Life insurance companies are so powerful that they help write the laws under which they’re regulated. As a result the laws don’t regulate them very well. Neither ownership nor customer groups influence management behavior, so the industry is largely exempt from the checks and balances that govern our business industry. (P. 135)
And despite charges of extravagance, inefficiency, and lack of business acumen on the part of industry leaders, the fact that some companies used policyholder premiums to make investments in speculative ventures, and the pressures of certain regulatory mandates, the past failures of the life insurance industry are not necessarily attributed to these problems. Rather, industry setbacks may have been the results of the more general collapse of financial markets experienced during economic depression and caused, at least indirectly, by the passage of the regulatory New York State Law of 1851 (Jones [1999] 2002). One example of such a collapse occurred during the 1870s, when a large number of newly formed companies ceased to exist (Zelizer 1979; see also American Council of Life Insurance 1996:108). Lack of sales was responsible for some of these failures, but it is also probable that some companies failed because they were unable to meet the $100,000 deposit required by the New York State Legislature. In general, these companies were located outside the boundaries of New York State, which led to yet another charge that the large life insurance companies influenced the shaping of industrywide regulations to protect their own interests against competition. Yet another, less controversial, conclusion is that the New York State Insurance Code was passed in the public’s best interest, with the intent of placing the life insurance industry firmly under state regulation (Jones [1999] 2002:119-21).
The criticism that life insurance companies make huge profits by investing the premiums paid by clients may hold some salience during limited periods of intense media coverage and public scrutiny of insurance company activities. Such inquiry has periodically led to the creation of state legislative investigative committees. However, with few exceptions—such as the 1869 Supreme Court opinion affirming state regulation of insurance, the New York Insurance Code of 1906, the federally legislated McCarran-Ferguson Act of 1945, and the Tax Reform Act of 1884—the life insurance industry appears to be free of intense regulation. Regulatory efforts generally have only a modicum of success given the effectiveness of the insurance lobby interests in the legislative process (American Council of Life Insurance 1996:130-34; Jones [1999] 2002:102-7). There is little reason to believe the situation has changed during the past half century. As Jones ([1999] 2002:80-126) has noted recently, during the period of 1950-80 a slow and deliberate liberalization of prohibitions previously placed on the industry took place, and many of the strict controls and compliance regulations that were created during the 1920-50 period were removed.
Conclusion
The evolution of the life insurance industry in the United States has included experiences that have differed from dynamics elsewhere in the world, particularly in Western Europe and Scandinavian countries, where the concept of life insurance developed slowly over the period of several hundred years. Perhaps the success of life insurance in the United States can be attributed to the spirit of capitalism (and Yankee ingenuity), as Fingland A. Jack (1912) has suggested: “It is to modern capitalism more than anything else that we owe the insurance fabric as it stands to-day” (p. 245). But if life insurance has become an important capitalist enterprise, it is important to note also that the industry may not have been possible without the new science of life contingencies (Jack 1912:216-22).
Despite the fact that in the past the idea of benefiting financially from the death of loved ones was not culturally acceptable, with the beginnings of life insurance the value of human life became measurable. As this valuation gained general public acceptance, the future of the American life insurance industry was assured.
From its most humble beginning in the late 18th century, and despite the scandals that were uncovered during the late 18th and early 19th centuries, the American life insurance industry represents a story of extraordinary success. In 1759, the first American life insurance company was founded, and it was joined in 1770 by its first competitor. By 1800, the number of extant life insurance companies doubled in size, to total four. Thereafter, the potential for and growth of the industry has been shown to be quite dynamic.
The rapid growth of the insurance industry in the United States is clear from a review of the data. A selective listing of the number of U.S. insurance companies by year and number illustrate the nature of the industry: in 1850, there were 48 companies; in 1870, 129; in 1880, 59; in 1900, 84; in 1925, 379; in 1950, 649; in 1955, 1,107; in 1975, 1,746; in 1985, 2,261; and in 1990, 2,195. At the end of 1995, there were 1,715 insurance companies operating in the United States (American Council of Life Insurance 1996). One of these, the New York Life Insurance Company, founded in 1845, enjoys the status of being a Fortune 100 company (see All Quotes Insurance 2002). Operating revenues of more than $13 billion allow the company to create surplus and investment reserves of more than $8.7 billion. This latter figure represents the funds that finance growth and protect the interests of the holders of the company’s policies. However vast the number, this amount only brings this particular company into standing as one of the strongest in the industry.
The total figures for the U.S. life insurance industry are even more enlightening, if not astonishing. With the acceptance of life insurance among the growing middle class throughout the 20th century, and especially during the second half of the century, life insurance as an investment form has not only served to protect the future lifestyles of policyholders’ family members, it has enhanced the growth of the American economy. For example, in 1900, there was a little more than $7.5 billion of life insurance in force in the United States. By 1950, life insurance purchases in the United States exceeded $28.7 billion. In 1995, Americans purchased approximately $1.6 trillion worth of individual and group life insurance; for that same year there was more than $12.5 trillion worth of life insurance in force (American Council of Life Insurance 1996:10). In 2001, the amount of new life insurance coverage exceeded $2.7 trillion. During that same year, more than $16.2 trillion in individual and group life insurance was in force in the United States (American Council of Life Insurance 2002).
Although some individuals prefer to invest their money in a variety of markets outside the insurance industry, most Americans tend to take for granted the purchase of life insurance as one of the essential aspects of life. Wives expect their husbands and the fathers of their children to plan for the future. A part of this planning includes the provision of the gift of life insurance, a form of social exchange intended to assure that widowed spouses and orphans will remain economically functional should the head of household die.
There appears also to be a legacy involved in the purchase of life insurance. To quote the eminent scholar who serves as editor in chief of this handbook: “The main point of the entry should be: The bad news is you are dead, but the good news is that your heirs get a big chunk of money, and thus, your life had meaning.” Need any more be stated?