IRP23-01: Ordinary Lives: Insurance and Savings in America, 1861 to 1941

Life insurance was the principal method of old-age savings for American households from the mid-nineteenth to the mid-twentieth centuries, a period prior to the advent of OASDI and the popularization of employer-sponsored retirement or pension programs. Despite its historical importance both as a precursor to Social Security and as households’ primary mechanism for savings and investment throughout much of American history, life insurance has been overlooked in the literature. This paper sheds light on the function of life insurance in American households, and provides valuable context for understanding the evolution of American old-age savings from private insurance toward nationalized retirement savings programs such as Social Security. To do so, this paper focuses on ordinary life insurance, the most popular of these life insurance products. It first describes the properties of standard policies, which, though complex, offered customers a range of lucrative and useful options that could be tailored to their particular needs. It then establishes why life insurance was such an attractive option to nineteenth- and early twentieth-century Americans, relative to other savings vehicles, in the low-peacetime-inflation environment of the pre-WWII period and in the absence of formal retirement plans of the kind most Americans rely on today.