The Learning, Earning, and Yearning Years

In the financial planning of our lives many factors play individual roles in that planning. Where one wants to live, what kind of lifestyle to live, how one wants to occupy one’s time, with whom one wants to associate, what kind of estate one wants to leave for posterity, and when one wants different events to happen are factors to consider. The outward simplicity of “living off the grid” void of so many of society’s pressure is very appealing to some, where the hum of Times Square draws people to it like some unquenchable thirst.The success or failure of either of these extremes requires appropriate planning by the participants.

In any event, our financial plan needs to cover the “learning” years of our lives, the “earning” years of our lives, and the “yearning” years of our lives.

Needless to say, each of these cycles brings challenges unique to itself but each has some underpinning of a financial nature.

In the learning years of our lives, we are using financial resources to help us gain education and work experiences which will greatly influence our capacity to earn an income during the earning years of our lives.

During the earning years of our lives when we make our economic dreams come true, time becomes a factor. Sufficient time allows our plan to come to fruition while insufficient time will wreak havoc on any well-designed plan. It is a note worth remembering that the difference between an old man and an elderly gentleman is how well he prepared for the future. The graphic of a young man standing at a mailbox putting in an envelop while an elderly gentleman stands at the other end of the same mailbox taking something out tells the whole story of the yearning years becoming the golden years of our lives.

The Importance of Time

Time is a factor which has to be dealt with in any financial planning. It is the dimension which allows us to grow our estates and accomplish our dreams. Some have the rare fortune of being able to accumulate an estate in a short period of time and to enjoy the fruits of it over much of their mortal existence where others of us have to spend a major portion of our mortal existence accumulating it with the hopes we will have sufficient time in the winding down scene to experience the joy of our labors.

One instrument in our financial planning which addresses the issue of time is life insurance. It is the only financial instrument which immediately upon purchasing it, qualifying for it, and paying the first premium creates an estate of the size of our own choosing. Nothing short of a miracle! How is this so?

Through the concept of spreading the risk or sharing the risk, people band together by pooling an asset called a premium–or at the beginning referred to as an “amicable contribution”–which is actuarially calculated to cover the value of each participant’s potential estate. Not everyone is going to die at the same time and not everyone is going to live for the same amount of time, so payment of premium and time allows this miracle to occur.

Life Insurance History

According to Stephen Anzovin in Famous First Facts, H.W. Wilson Company p. 121, and Amicable Society, The charters, Acts of Parliament and By-laws of the Corporation of the Amicable Society for a Perpetual Assurance Office, Gilbert and Rivington, 1854, p. 4, “The first life insurance company known of record was founded in 1706 by the Bishop of Oxford and the financier Thomas Allen in London, England. The company, called the Amicable Society for a Perpetual Assurance Office, collected annual premiums from policyholders and paid the nominees of deceased members from a common fund.” The first plan of life insurance was that each member paid a fixed annual payment per share from one to three shares with consideration to age of the members being twelve to fifty-five. At the end of the year a portion of the “amicable contribution” was divided among the wives and children of deceased members and it was in proportion to the amount of shares the heirs owned. It is interesting to note the Amicable Society started with 2000 members.

The first life table was written by Edmund Halley in 1693, but it was only in the 1750’s that the necessary mathematical and statistical tools were in place for the development of modern life insurance.

A mathematician and actuary James Dodson, after being refused admission to the Amicable Life Assurance Society, tried to establish a new company that issued premiums aimed at correctly offsetting the risks of long-term life assurance but was refused a charter by the government.

He continued to pursue the charter, but he died in 1757, upon which his friend Edward Rowe Mores continued to petition for the new company and was finally able to establish the Society for Equitable Assurances on Lives and Survivorship in 1762. It was the world’s first mutual insurer, and it pioneered age-based premiums based on mortality rate, laying “the framework for scientific insurance practice and development and the basis of modern life assurance upon which all life assurance schemes were subsequently based,” according to “Today and History: The History of Equitable Life.”

In the late 1760’s the sale of life insurance crossed the Atlantic with the Presbyterian Synods of Philadelphia and New York founding the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers. The Episcopalian priests created their own relief fund in 1769. Between 1787 and 1837 more than a dozen life insurances companies were started and became the foundation for the industry today.

With the establishment of the life insurance industry the buying public began to demands policies which they felt met their particular needs. Temporary policies called term insurance sprang up because they were cheap at their inception. This type of policy was intended to cover just the risk of unexpected or premature death. They also were used to provide coverage for problems of a temporary nature, i.e. a 20 year mortgage on a home, a vehicle loan, a start up loan for a company, etc.–in other words, an issue of a set period of time. It is suggested in some of the literature that less than 2% of term policies issued ever pay out a death benefit due to their limited life span (most term policies expire within the first 7 years of their existence.) Much of the attraction to term insurance is the relatively low premium at inception, while one of the major arguments against it is the ever increasing mortality charge which causes the premium to go up over time.

The workhorse of life insurance is a policy of a permanent nature. It is designed to provide coverage for an insured’s whole life with a premium that is level based on one’s attained age when the policy is issued until age 100 (many policies are now being quoted to go beyond 100 due to the number of people living beyond life expectancies.)

Death benefits, contractual cash values, and premiums are guaranteed by contract. (More complete narrative of these two types of life insurance along with universal life, modified life, and annuities can be found at another location on this website.)

It is quite obvious life insurance in some form plays an important role in financial planning; and the statement by famous cowboy author and commentator Will Rogers in reference to the value of life insurance . . . “a person deserves to die once without it” is just as appropo in 2017 as it was in 1935.

The best kind of life insurance is the kind in force on the day you need it the most. With all of the other financial problems it can solve, this is the most poignant to me–a little child sitting down to a table to eat does not know or care if the proceeds used to provide that meal came from term or whole life. All he or she knows is Mom or Dad cared enough to plan for their security.