Ordinary Life Insurance: The Best-Performing Financial Asset of the 1930s

From 1900 to 1940, ordinary working- and middle-class families saved for retirement and contingencies via ordinary life insurance policies. These policies combined insurance and savings in a single financial instrument that paid its face value to insured individuals who survived until maturity and to beneficiaries if the insured died before the maturity date. The popularity of these policies peaked before WWII when a substantial share of all households and most of the middle class invested in them. This paper explains why these policies were the most popular savings vehicle of their day. Ordinary life policies were well suited to the early twentieth-century economic environment. They had good returns; low risks; tax advantages; and little correlation with returns of competing investments, like bank deposits, building and loan shares, postal savings deposits, real estate, or stocks. The policies protected households from poverty in old age, from the premature death of their breadwinner, and from other risks including disability and deflation. Understanding how households saved in the past has implications for a wide range of literatures in the social sciences.