The Origins of Life Insurance

Did you know that the inception of life insurance was born from the treacherous seas? The vast and unpredictable expanse of the sea has been a source of fascination, adventure, and peril for humankind throughout history. Understandably, to stay protected against the uncertainty of life at sea, sailors needed some sort of “insurance” to safeguard their livelihoods while embarking on their perilous journeys across oceans. However, what you see as “life insurance” today is far from what it looked like back in the early seafaring age.

You can trace the concept of life insurance all the way back to ancient civilizations that engaged in maritime trade and exploration. Realizing the risks involved in maritime activities, societies developed various forms of protection for sailors and their families. Around the 7th century, the Byzantine Empire established a fund called the “Rhodian Sea Law.” This fund was used to compensate shipowners and sailors for losses incurred due to shipwrecks and piracy. While not precisely life insurance in the modern sense, it laid the foundation for the principles of risk pooling and mutual support that would later evolve into life insurance.

Fast forward to a few centuries later in the medieval and Renaissance periods in Europe, the need for more structured forms of insurance became apparent, as maritime trade flourished. This era saw the emergence of insurance contracts that explicitly covered the lives of sailors called the “Bottomry and Respondentia” contracts. These contracts allowed shipowners to borrow money for their voyages, using the ship and its cargo as collateral. In the event of a successful return, the lender received back the principal plus interest. However, if the voyage was unsuccessful and the ship and cargo were lost, the debt was forgiven. This system provided a form of financial protection to both shipowners and sailors, ensuring that families were not burdened with debt in the case of catastrophe, as well as encouraging pursuits of maritime trade and exploration.

The 17th century marked a significant turning point in the development of marine and life insurance. London, then a bustling maritime hub, became the epicenter of this evolution. Marine and life insurance policies began to separate from the broader scope of maritime financing. The first recorded life insurance policy in England, dating back to 1583, was more akin to modern life insurance, as it explicitly covered the life of the insured individual. With time, these policies became more refined, and actuarial calculations helped determine premiums based on the age and health of the insured.

The origins of life insurance for sailors reflect the enduring human desire to mitigate risk and protect loved ones in the face of uncertainty. What began as informal agreements to support seafarers and their families evolved into the structured life insurance we know today. The maritime world, with its inherent risks and adventures, played a vital role in shaping the foundations of modern insurance practices. As we look back at the history of life insurance for sailors, we can appreciate the resilience and ingenuity of those who ventured into uncharted waters and paved the way to ensuring security for our families and close ones.

Some sources to refer to:

1. “The Origin and Early History of Insurance Including The Contract of Bottomry” by C. F. Trennery
   • This book provides a comprehensive historical overview of insurance practices, including maritime insurance and the evolution of life insurance.
2. “A History of Life Insurance in the United States to 1870” by Charles Kelley Knight
   • This academic work focuses on the history of life insurance in the United States and its development up to the year 1870.
3. “Risk, Ruin, and Riches: Inside the World of Big-Time Real Estate” by Jim Powell
   • This book discusses the historical origins of insurance and its importance to maritime trade.
4. “Lloyd’s: A Historical Sketch” by Ralph Straus
   • This book delves into the history of Lloyd’s of London, which played a pivotal role in the development of marine insurance.