Lecture Material 1 - Life and Health Insurance

LIFE AND HEALTH
INSURANCE
(INS 415/ACS 414)
Lecture Material 1
Prof. A. Ibiwoye &

Dr. O. S. Fadun
Development of Life Assurance
After the lecture, you should be able to:
• explain how life assurance developed in its early
years;
• understand life assurance latest developments;
• describe life offices mortality tables;
• give details of early life assurance underwriting
factors;
• Comprehend advantages of development of life
insurance.
Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 Prepared by: Prof 4
A. Ibiwoye & Dr O. S. Fadun
History of Life Assurance
Life assurance has been transacted in
diverse forms over 2000 years ago.
For instance:
1) A form of life assurance was practiced by
burial societies in Roman over 2000 years
ago.
2) Similar organisation in Britain as Trade
guilds provided which provided funeral costs
for members.
Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 5
Prepared by: Prof A. Ibiwoye & Dr O. S. Fadun
History of Life Assurance (contd)
The first life policy in England was issued on 15
June 1853. The policy was issued to Richard
Martin on the life of a merchant, William Gibbons,
for a period of twelve months. Gibbons died in the
twelve calendar months and the insurer claimed he
was not liable on the ground that the policy was for
twelve months – related to lunar (i.e., shorter)
months. The court decided in favour of the assured
based on the principle of contrar preferentum rule
– i.e. any ambiguity would be construed against
the party that prepares the document.
Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 Prepared 6
by: Prof A. Ibiwoye & Dr O. S. Fadun
Life Assurance Latest Developments
• The number of large life offices has increased
significantly, including Nigeria
• Many life policies are now being used for investment
and protection purposes
• Different types of annuity have been developed, based
on age of annuitants scientifically
• Sums assured has also increased in the century; and
this has improved the practice of reassurance
• Non-insurance Financial institutions (e.g. banks) have
set up life offices
• Conversion of mutual life offices into propriety
companies, i.e., Demutualisation
Early Forms of Life Assurance
The main early forms of life assurance are:
1. Short-terms Assurances: These are policies with limited
period covering risk of death within the period. It was
particularly used for merchants and other voyages or on the
lives of debtors as security against loans.
2. Mutual Assurance Association: These are societies that
were self-insurance clubs whereby members contributed fixed
sum to the scheme. These societies undertook to pay
dependents of the unfortunate dying members, less
administrative expenses, from members contributions.
3. Annuities: an annuity is a form of pension providing an
income for a fixed period or for life. Early annuities were
designed to provide for widows on the death of their
husbands.
Life Assurance Contracts
• Life assurance contract are aleatory in
nature.
• By aleatory, it is meant that a party in a life
insurance contract can receive more in
value than the other party.
• There is an element of chance. This is in
contrast to a commutative contract where
each party in a contract would receive
something of an approximately equal
value.
Scope of Modern Life Assurance
Today, there are diverse types of life
assurance contracts offered by life
assurers which can be classified into four
categories:
• Term Assurance;
• Whole Life Assurance;
• Endowment Assurance; and
• Annuities.
Mortality Table
A mortality table is also known as a life table,
actuarial table or morbidity table. Mortality table
shows the rate of deaths occurring in a defined
population during a selected time interval, or
survival from birth to any given age. The table
shows the probability a person's death before
their next birthday, based on their age. Death-
rate data help determine prices paid by people
who have recently purchased life assurance.

Life Office Mortality Tables
• One of the earliest mortality table was the
Northampton Table which was based on deaths
from 1735 to 1780
• Carlistic Table published in 1815, was based on
deaths in that town (Carlistic town) from 1780 to
1787
• In the nineteenth century, accurate mortality tables
were developed based on population census data.
However, these life tables were based on the
population and not on insured lives, where the
experience might be different.
Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 Prepared by:
Prof A. Ibiwoye & Dr O. S. Fadun 12
Life Office Mortality Tables
(Contd.)
• During the nineteenth century, life offices
started working on construction of mortality
tables based on lives insured by various
offices. Eventually, British Offices Life
tables were published in 1903 based on
data of 48 offices from 1863 to 1893. Since
then, life office tables have been improved
and updated
Early life Assurance Underwriting
• Initially, health and occupation of life assurance
proposers was relevant in that unhealthy lives
and dangerous jobs brought a greater than
average risk to the life fund; thereby attracts
extra premiums
• In the early days, each proposer was required to
be interview by board of directors of the life
office. This is no longer practicable due to high
volume of life businesses

(Contd.)
• Consequently, practice of obtaining
medical evidence from proposer’s doctor.
Later, offices began to appoint their own
medical referees
• As experience improved, offices then
began to dispense with medical reports in
many cases.

(Contd)
• Today, virtually all offices have non-medical
limits and based their decisions on completed
proposal forms. However, offices reserve the
right to call for medical evidence where
considered necessary
• Climatic and geographical considerations were
considered to be an underwriting factors up till
mid-twentieth century. The importance of these
factors has been reduced as a result of world
development and globalisation
Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 Prepared by: 16
Prof A. Ibiwoye & Dr O. S. Fadun
Industrial Life Assurance
• Industrial life assurance has its origin from
the industrial revolution era in the
nineteenth century.
• Features of industrial assurance include:
Premium is payable weekly, and collected
from policyholders at home
Premium is usually very low
Sum assured is small, perhaps intended
for funeral costs.
Advantages of Development of
Life Insurance
1. Enhancing individual financial security. Benefits
of life insurance to individual include:
 Life insurance guarantees to pay a stated sum to
a family on the death of its income earner(s)
 Cash value life insurance can serve as a means
through which individuals save
 Life insurance products, especially annuities,
provide a convenient, if not unique, means by
which individuals can make financial provisions
for retirement
Advantages of Development of
Life Insurance (Contd)
 Life insurance can permit more favourable credit
terms to borrowers (both individuals and
businesses) and can decreases the risk of default.
Life insurance can also minimize the financial
disruption to businesses caused by the death of key
employees
2. Easing the burden of government social welfare
spending
3. Impact on economic development by mobilising
savings and promote development of financial markets

Benefits of Life Assurance
The principal benefits of life assurance is that it
lessens mental disturbance and alleviates worry of
the assured. For, instance life assurance can be
arranged to:
• Fund education of children education, in the
event of parent death;
• Provide for family welfare and old age;
• Ensure availability of fund for future investment;
• Life assurance policy can also be used as a
collateral security to secure fund.

Peculiar Features of Life
Assurance
Features peculiar to life assurance include:
• Long-term contract
• ‘With profit’ policies
• Level premiums
• Surrender values
• Paid-up policies
• Loans – reliable security for loans
• State recognition: tax relief, tax exemption and
investment
Other Characteristics of Life
Assurance
Other characteristics of life assurance that
differentiate a life assurance from other
contracts include:
1. Utmost good faith
2. Valued contracts
3. Adhesion
4. Conditional
5. Unilateral

Bibliography
Dorlan, H. F. (2009). Life insurance. New York: Xlibris
Corporation.
Marshall, C. (2000). Life assurance. Lagos, Nigeria:

Chartered Insurance Institute of Nigeria.
Skipper, H. D. & Black, K. (1999). Life and health insurance

(13th ed.). London: Pearson.
Life and Health Insurance (INS 415/ACS 414), Lecture Material 1

Prepared by: Prof A. Ibiwoye & Dr O. S. Fadun 23
Thank you
Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 Prepared 24
by: Prof A. Ibiwoye & Dr O. S. Fadun

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LIFE AND HEALTH

Prof. A. Ibiwoye &

Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 11

Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 14

Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 15

Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 19

Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 20

Life and Health Insurance (INS 415/ACS 414), Lecture Material 1 22

Marshall, C. (2000). Life assurance. Lagos, Nigeria:

Skipper, H. D. & Black, K. (1999). Life and health insurance

Life and Health Insurance (INS 415/ACS 414), Lecture Material 1

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