You Bet Your Life

We’re going to turn now to life insurance. Remarkably, it’s an industry that used to be associated with gambling.

The basic premise of a life insurance policy is you pay premiums to a company and the company ensures that your family receives payment upon your death.

SHARON MURPHY: In a way, it is betting on when is your death going to occur.

PETER: This is historian Sharon Murphy.

SHARON MURPHY: Are you smarter to save over the long term because you know you’re going to live 50 or 60 years, or is it smarter to invest in a life insurance policy in case you were to die sooner?

PETER: Murphy says life insurance dates back to 16th century Europe. Back then, it was viewed as a form of gambling because people took out life insurance policies on strangers and bet on when they’d die. Centuries of murder and scandal ensued.

That morbid history followed life insurance to the US. In the early 19th century, American companies were still struggling to make the industry respectable.

SHARON MURPHY: They want to keep their reputation. They’re really worried about being associated with gambling.

PETER: Now, earlier in the show, we talked about how Christians were among the most vocal critics of gambling but strangely, life insurance took off in the 1820s and ’30s just as a huge Christian revival swept the nation. So I asked Murphy whether people reacted to insurance agent as con men peddling bets.

SHARON MURPHY: Yeah, initially there actually isn’t that reaction. That comes much later and it’s only a temporary reaction. Early on, some of the earliest companies were actually for insuring the lives of clergy.

PETER: Hold it, hold it, hold it. It’s up to God, isn’t it? I mean, you’re supposed to trust in God.

SHARON MURPHY: They are supposed to trust God but, you know, the clergy will very quickly turned around and say, God helps those who help themselves,

PETER: OK.

SHARON MURPHY: But this was actually initially a lot of congregations were insuring their ministers because unlike a farmer, who if the farmer dies, the wife still has the farm and the produce and could still work the land. Clergy are very much exposed, that if they die young, their families have nothing to fall back on.

So clergymen are actually very interested in life insurance early on but again, insurance companies were worried about being associated with gambling on your life. And any time you have anyone throwing accusations at them, that they are gambling, that they’re akin to lotteries, that they are promoting murder, any of these types of accusations are going to be countered very quickly by the industry because they don’t want to have any of these associations.

PETER: So Sharon, where are these accusations coming from? And maybe you could give us some detail, the sort of things that would be said about insurance companies to discredit them.

SHARON MURPHY: So one of the odd places where some of the criticism comes from, and I’m not quite sure what to make of this, are from savings banks promoters. Savings banks are, at this time, largely philanthropic institutions for the working poor. So they’re targeting a different market than life insurance. Life insurance doesn’t get into targeting the working poor until much later in the 1870s.

But in the 1850s, you start having some savings banks promoters publishing articles accusing life insurance as being equivalent with lotteries, that at this is gambling, companies are being fraudulent in their marketing. All you hear about is the guy who was 30 years old and seemed perfectly healthy, paid one premium, and within six months he had died suddenly. And if it weren’t for the life insurance policy, his whole family would have been thrown out on the street.

And they’re saying, well, you don’t hear about the guy who starts paying his premiums at 30 and ends up living until he’s 90 and has paid out all this money. And that his family doesn’t get as much in the end and that it’s ultimately the life insurance companies who are making money hand over fist and that you’d be much better off depositing your money in a savings bank.

PETER: OK, OK, I’m a 19th century middle class guy and you’ve come to sell me a policy. What are you selling me exactly and remember, I don’t want to die and I don’t want to talk about dying. I don’t want to gamble because I’m a good Christian, and I don’t believe in Lady Luck. So give me a pitch.

SHARON MURPHY: Well, my pitch would absolutely be the investment side then. The rich, they can buy stocks, they can invest in companies. The poor, they can put their money in savings banks. There’s very few opportunities for the middle class to grow their money in the 19th century.

I mean, life is changing radically in the 19th century, you know, as people are moving into these urban areas. You don’t have family surrounding you. You die and, you know, your family’s going to be thrown out on the street.

So yeah, life is a huge gamble. It’s becoming a different gamble than it was an agricultural society. That’s also a gamble but the risks are changing. And I’d say life insurance emerges as a response to new risks.

PETER: Well, Sharon, you’ve written persuasively about the early years of life insurance but then it goes into overdrive after the Civil War. What happens to change the industry, make it truly a democratic product that people want to buy?

SHARON MURPHY: Well, I think the war does play a huge role in this. The war is a big risk for the companies. If you die in war, your policy is historically voided. And the life insurers are faced with a conundrum. Do we void all these policies and face the public relations backlash that we’re being unpatriotic, that we’re not supporting the war effort? Or do we take on this risk of insuring all these soldiers not knowing what the outcome of the war is going to be?

But the companies are actually very shrewd. They decide to charge an extremely high premium for people to keep their policies in time of war but they allow them to keep it. After the war, the companies are really able to take advantage of this period of heightened awareness of death to their advantage and there really is a take off of life insurance that comes.

But I think it’s partially that they marketed it well.

PETER: So you’ve got a highly morbid population of young men who have survived and who are worried about death. But what a wonderful pool.

SHARON MURPHY: They’ve see it firsthand.

PETER: Well, that’s their reward for having patriotically supported the war, right, is to enjoy this harvest of morbid young man.

SHARON MURPHY: But the life insurance industry’s always kind of haunted by this element of gambling and this taint of just kind of ickiness at times, if I can put it that way.

You know, as you get into more industrial policies targeted at the working class, you start having policies targeted at whole families, children, spouses, and then this question of, oh, do you really have an insurable interest in your baby and is that bringing up areas of risk that we don’t want to get into?

PETER: Well, Sharon, what you’re selling me and I’m willing to buy is a little bit of peace of mind so I might make it through the night not worrying about what’s going to happen. Thanks for that policy.

SHARON MURPHY: Yeah, you’re welcome. Thanks for paying the premium. Keep it up.

PETER: All right. Sharon Murphy is professor of history at Providence College. She’s the author of Investing in Life, insurance in Antebellum America.