The History of Life Insurance and Life Settlements

While life insurance dates back to the early Roman empire with its relatively simple structures for "burial clubs", the practice of monetizing a life insurance policy before maturity began with the 1911 Supreme Court ruling by Justice Oliver Wendell Holmes, Jr.

Life insurance dates back to ancient Roman "burial clubs" that were formed to pay for funerary expenses in the case of an unexpected death of a club member and to assist surviving family members. Life insurance was later banned in the entire continent of Europe, except for England, and it was the British that started the most prominent life insurance companies known to the European countries today. In the middle of the 17th century a group of merchants and shipping lords met at Lloyd's Coffee House to design and transact risk businesses that included life insurance. With the British knowing the basics of life insurance, in 1735 they launch an effort in the U.S. with their first life insurance company on American soil that was founded in the Southern Colony of Charleston, South Carolina.

In 1759, the Presbyterian Synod of Philadelphia sponsored the first U.S. owned life insurance corporation which wrote its first policy in 1761. At that time, many religious groups opposed life insurance because they felt that it would be akin to anticipating one's own death. With the religious fervor in the North American Colonies at the time, growth in the life insurance industry proved to be a challenge.

Growth in the life insurance industry as we know it, accelerated in the 1840’s as resistance from religious groups calmed. The 1900's proved to be an era of growth for the U.S. life insurance industry with participation in two major world wars that prompted many to consider life insurance to secure the future of their families.

Today, the U.S. life insurance industry represents unwieldy economic and political power, with over $5 trillion in total assets. To arrive at this pinnacle of global power, the titans of this industry have been uniquely creative in designing rather complex life insurance products for U.S. consumers. With approximately $20 trillion in estimated coverage, the industry’s inventory of outstanding policies to consumers numbers in the hundreds of millions. The anatomy of today’s life insurance policies can rival the most complex financial instruments of Wall Street … and are far from the original design of the Romans.

Centuries after the risk management product of life insurance was introduced by the Romans, a 1911 landmark U.S. Supreme Court decision set the stage for U.S. consumer rights in allowing owners of life insurance policies to realize value and liquidity by monetizing their policy in a third party sale (discussed in more detail in Consumer Advocate – Justice Holmes).

Though this early 20th century judicial precedent set the stage for U.S. consumers to manage the value and liquidity of a life insurance policy as they would other traditional financial assets such as stocks and bonds, few looked to this resource for liquidity until the plight of terminally-ill U.S. communities in the 1980s. In the early years of discovery, the disease of Acquired Immune Deficiency Syndrome ("AIDS") caused by Human Immunodeficiency Virus ("HIV) plagued U.S. communities and their citizens’ financial resources. Fortunately, a group of socially responsible legal and financial service professionals resurrected the early 20th century solution that Justice Oliver Wendell Holmes, Jr. allowed – the secondary-market sale of a life insurance policy prior to its maturity, now commonly referred to as a "life settlement". Through life settlement transactions, those affected by HIV/AIDS were able to pay for healthcare and hospice up to their finals days.

While the mid-1990s introduction of protease inhibitor-based HAART ("highly active antiretroviral therapy") among HIV/AIDS communities suppressed mortality from this disease and reduced associated activity in the life settlement industry, the monumental financial solution of life settlements had made its way into mainstream America for all senior-aged and terminally-ill that might require the immediate, maximum resources from their life insurance investment.

According to the 2011 Conning Research & Consulting Strategic Series: Life Settlements - An Asset Class Resets, from 2002-2010 the life settlement industry provided liquidity to life insurance policy owners for approximately $54.85 billion in face value of policies. As this represents less than 0.25% of the $20 trillion in estimated outstanding coverage from U.S. life insurance companies, there is meaningful growth opportunity for this financial solution.

Habersham's insurance and financial professionals have been pioneers in developing the life settlement industry. We understand the importance of this financial solution to our senior and terminally-ill communities. We also have a unique understanding of how to dissect the anatomy of the most complex life insurance policies in order to reveal maximum intrinsic value.