Life Insurance Provides More Than Money – It Provides Security

What did people do before they could buy life insurance?

Have you ever wondered where the whole concept of life insurance came from? Why do we need this product and why do so many people own it? Many times in my career I’ve heard people say, “I don’t believe in life insurance.” And for that one person the product might not be necessary or make sense, but about 75% of Canadians own some form of life insurance (either a personal policy and/or through their group benefits).

So, if life insurance is so common and so important, why do we need it today, in our modern society and we never needed it before? These are questions that an insurance guy with a history degree tends to ask (OK, so now you know I’m a history buff). The answer to this question lies in the fact that life insurance is much more than a financial product. It is an artificial financial construct to replacement the socially responsible “village” of our past.

How the village managed risk

Let’s go back in time, say 300 years, to an early modern village in Europe. This was a place where everyone had a role to play in society – often a life you were born into as your parents were your teachers. Imagine your village, where you have 10 brothers and sisters, parents, grand-parents, aunts and uncles, cousins, nieces and nephews all living together in your village or in neighbouring villages. Families were much larger (birth control was invented in the 1970s) and your “kin” were probably married to or related to almost everyone in the village. It was a truly interwoven society.

So, when tragedy struck, and it struck often back then, how would the village handle it? The interwoven society, all relying on one-another, all involved in each other’s business, would step up to feed and care for those who had lost their parents or providers. We’ve all heard the old saying, “it takes a village to raise a child.” This is the kind of society that you could rely on your neighbour to help raise your kids, because they were probably also your relatives.

The modern industrial revolution changed everything

It was the industrial revolution that started almost 200 years ago now that changed how our society works. Industrialization brought us the factory, mass production, and efficient transportation. Less people were need on the farms because machines could now do the work of many people. The factories needed workers, so they centralized in the cities. The great human migration from the land to the cities began. People went where the work was, leaving behind their families and the close knit societies of the village.

This was a turbulent time in our human history. Things were not great in the cities if you were a poor factory worker. There was no health care, housing was bad, and schools had not yet been invented so children often worked in the factories too. The industrialists took advantage of the workers who left behind their social safety net and were now very vulnerable in the cities without a financial or social support system to fall back on.

It took most of the last century to sort through the problems that industrialization brought to human society. We had revolutions in Russia and Germany (communism and national socialism – think Nazis). There was the rise of the labour union and ultimately the America Civil Rights movement to give the poorest of the poor workers in the USA, the ex-slaves, rights in their society. I don’t think our societies have got it all figured out yet, as we can see by the current state of the world. But we have made a lot of progress in the Western World towards a safe and secure society (the problem now is the developing world wants what the west has, and there just isn’t enough to go around).

So where does life insurance fit in?

I hope the very brief history lesson didn’t bore you. I just wanted to paint a picture before jumping into how life insurance has risen as one of the foundational products for personal risk management today. Most people know what risk management is. It is a way to manage your personal financial risks from a very high potential loss downwards using financial products and strategies. Life insurance isn’t the only way to manage risk, but it is the easiest and most convenient way in our society today.

Life insurance has become a tool to help the average Canadian manage their risk. Fundamentally, life insurance isn’t about money. It’s about providing a life and a lifestyle after a breadwinner is gone. Your neighbours won’t take in your children in and none of us want to burden our extended family with the responsibility, at least not without the resources to go along with it. Our society has not done a good job of institutionalizing social responsibility. Look at the foster care system and how many problems can come out of that. Many disadvantaged people slip between the cracks of our social system where as the village of the past would have banded together to care for the less fortunate and give them a place in society. So, life insurance has become that societal safety net for families when we can’t depend on the system or our neighbours to provide for those we love.

Even the governments got in on the life insurance business. The Canada Pension Plan, which started in the 1950s, included $2,500 of life insurance for every Canadian worker. Unfortunately the Canadian government never increased the death benefit, so today it is still $2,500, which doesn’t pay for much. There are monthly benefits called the Orphan benefit and the Spousal benefit which provides a monthly income for children and non-working spouses through the Canada Pension Plan if a working spouse dies. Companies began offering life insurance as part of their employee benefits package to attract and keep workers too.

The first personal life insurance policies in Canada were sold about 140 years ago. Back then all that was offered was permanent whole life insurance, and it was mainly for the middle class and rich people. There wasn’t a product well priced for pure risk protection for lower income Canadians. Fast forward to today and we have some of the most competitively priced term life insurance policies ever. It costs Canadians less per thousand dollars of life insurance today than ever before. For instance, a 40 year old male non-smoker can get life insurance for as little as $0.45 per $1,000 per year!

So, as the need for life insurance has grown, a global industry has risen. There are not only life insurance companies in Canada today, but international re-insurance companies that consolidate life insurance risks from around the world, and are able to bring the prices down (the larger the group of insured lives, the lower the potential risk). It has never been more cost effective to protect your loved ones with life insurance than it is today.

If you don’t have personal life insurance, Life Guard Insurance can help

Feel free to contact Life Guard Insurance to be put in contact with a local life insurance broker who can show you how to provide your family with the financial security you need.

The article was written by Mitch Reynolds+. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about life insurance, a history lesson would also be very much appreciated.

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