History of the Modern Life Insurance Annuity
As a tool for investment and financial security, the life insurance annuity has been around for quite a long time. Annuities first started the ancient Roman Empire. They were a way for Roman citizens to receive a yearly payment for their lifetimes or for several years in exchange for a large upfront payment. Early roman annuities were often given to Roman legionnaires as payment for years of faithful military service. (1) As time passed, the modern life insurance annuity began to take shape.
In medieval times, lifetime annuities bought with a single initial premium became popular among nobles for funding the constant warfare that was a fact of life then. , records show that one of the most popular annuities of the medieval era was called the tontine. (2) In this annuity the participants purchased a share in an annuity pool, and then, in turn, received a lifetime annuity.
The payments were divided among surviving participants of the initial annuity pool. Thus, as time passed, each participant would receive a larger payment. As the participants died off, ever increasing payments would be made to them. The sole remaining survivor would reap the benefits of the remaining annuity principal. One of the oldest and longest lasting tontines was the annuity called the State Tontine of 1693. It was started in the United Kingdom as a way to pay for its many wars with France.
The modern financial system started to develop. Dr. James Dodson of England formed the Equitable Life Assurance Society of London in 1756. This was one of the first companies formed to offer a modern form of life insurance annuity. (3) Dodson founded this company and the annuity that it offered to provide a form of insurance to persons of all ages.
The Equitable Life Assurance Society issued policies based on the assurance of fixed sums on the surviving policyholder’s beneficiaries lives. The company issued policies for any term for which the policyholders wanted to purchase the life insurance annuity. Premiums of this annuity were governed by the age, lifestyle, and health of the policyholders seeking to enter into the annuity. These basic rules laid down the foundation of a distinguished modern life insurance annuity company that still exists today.
In the United States, the Presbyterian Ministers Association first developed annuities as a retirement income for minsters, windows. The Presbyterian Church funded the annuity services of this association. The services were passed from the policyholder to their surviving spouse. The annuity offered by the association also passed on to surviving children if they were under the age of adulthood.
The history of Benjamin Franklin’s annuities are an interesting note in the history of the American life insurance annuity is. Franklin left two annuities to the cities of Boston and Philadelphia on his death. Boston city officials finally ended the annuity he left them in 1993.
The US developed its banking and insurance industries. The states found that banks were selling their own annuities. In the financial turmoil following the First World War, many of these US annuity contracts were found to be unsafe. As a result, many states passed laws allowing only life insurance companies to issue annuity contracts. This began the modern life insurance annuity as we know it in the US today.
The Great Depression of the 1930s came upon us. Then many people were kept financially solvent because they trusted the security that the modern life insurance annuity has come to offer. Thousands lost their entire life savings in the stock market then. At the same time life insurance annuity investors retained a large portion of their savings. Babe Ruth is quoted as saying, “I may take risks in my life, but I will never risk my money. I use annuities and I never have to worry about my money.”
In today’s highly volatile economic climate, perhaps the Babe’s advice is worth listening to. The life insurance annuity of today provides a high level of safety and security for an investor’s money.
That high level of safety and security simply cannot be matched by many traditional investments. Given all of this, one might do very well relying on a modern life insurance annuity for their future economic and financial security.
(2) The Annuity Museum
(3) The Early History of the Annuity by Edwin W. Kopf
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Edwin W. Kopf, “The Early History of the Annuity,” Casualty Actuarial Society
“The Glorious History of Annuities,” Annuity.com
“History of Annuities,” Annuity Museum
“History of Annuities,” Save Wealth Financial