Burton J. Hendrick

“ You have paid the full cost of your insurance for the years it has been in force, and have contributed a reserve which, in part, is to meet the expense of later years. If you drop your policy, obviously, justice demands that you take this reserve cost with you. If it is not paid back, clearly you have contributed money for which you have received no insurance equivalent. Inasmuch as a mutual company ostensibly seeks to furnish insurance at its actual cost and give value received for every penny paid in, surrender values are an essential part of its structure. ”

“ If your horse wins, you get your ten dollars; if your card turns up, you pocket your twenty. Any other policy would be an incitement to riot. In Tontine, however, you laid down a specific sum every year; but, even though fortune went your way, you hadn't the slightest idea what the prize would be. It was a blind pool with a vengeance. Hyde guaranteed no winnings. He stipulated in every contract—every policy, that is—that, at the expiration of the Tontine period, each survivor's share "should be equitably apportioned by the company." ”

“ An endowment is a perfectly legitimate, though somewhat expensive, form of life insurance. It guarantees the payment of a particular sum in case of death or the survival to the end of a particular period. The amount, in both cases, is clearly specified in the contract. A Tontine policy specifies the amount to be paid at death; but makes no guarantee concerning the amount to be paid on survival. The Tontine feature had absolutely no connection with life-insurance; it was a special fund, devised as described above, for division among those who remained in the pool. ”

“ In other words, Hyde fed the Tontine fund from the two great life-insurance accumulations: "reserve" and "surplus." The reserve has already been described as the deduction made from the premiums paid in the early years to cover the increased insurance cost of the later. It is the inevitable consequence of the modern level premium system, the only one which has thus far proved practically successful. In order that one may pay the same sum every year and not one annually increasing, the actuaries "average the matter up." At age forty, the usual net price charged per $1,000. ”

“ Barnes, in a letter which Equitable agents extensively used in soliciting Tontine business "seems so natural and applicable to certain classes of policy-holders, that like many important discoveries in science and art, the wonder is how it could have remained so long dormant and undiscovered. Especial credit is due to the man, or men, who conceived the thought of collecting the Tontine tendencies of men and applying this momentum to the development and spreading of Life Assurance." ”

“ Appealing to the "Tontine Tendencies" of Men We must thank William Barnes for one telling phrase, which, in itself, sufficiently explains the Equitable's success. Hyde had "collected the Tontine tendencies of men." He had appealed, that is, to their gambling instinct. Into every hamlet went his agents with their "blue books," selling not primarily family protection but possible prizes in a great insurance lottery. They always tellingly appealed to the individual man. "Take a Tontine policy," they said. ”

“ All "Dividends" diverted to the Tontine Pool Hyde also heaped up his Tontine fund by generally forfeiting "dividends." Again we must keep clearly in mind precisely what this "dividend" is. The word, as explained in a previous article, is an unfortunate misnomer. If it could be eliminated from the nomenclature of life-insurance, the situation would clear immensely. Life-insurance prices are based upon two fundamental assumptions: that a certain number of people will die every year, and that the money laid aside as reserve will earn a certain rate of interest. ”

“ Manifestly the odds stood strongly in favor of the rich. Those who discontinued their payments usually did so through poverty. The richer policy-holders, however, had no difficulty in keeping up their premiums. Obviously, therefore, Tontine was merely a plan by which the more affluent policy-holders could appropriate the insurance of their less fortunate associates. ”

“ The New York Life never published this "endorsement." In public Wright denounced Tontine as "life-insurance cannibalism." "Its sole and only function," he added, "is to make the richer part of the company richer by making the poorer part poorer. It is as if a temperance society should endeavor to promote its cause by establishing a liquor saloon under its lecture-room, or a church should support its minister by a lottery." Others, however, Hyde found more amenable. He early enlisted the support of William Barnes, the New York Superintendent of Insurance. ”

“ The payment of these equities is no more than life-insurance justice; anything else, in a mutual company, is little better than robbery,
1↑ The figures are those paid at present by the Equitable. Family Protection a Stake in a Huge Gamble Under the Tontine plan you forfeited, on lapse, your whole money interest in the policy. This surrender value was usually paid, not in cash, but in insurance. Thus, if forced out, you obtained, in addition to the insurance during the period the policy ran, a paid-up policy which was the insurance equivalent of your reserve accumulation. ”

“ Hyde made this surplus an asset, in order to save the Equitable from insolvency.
This change was made in 1877. That was a terrible year in life-insurance history. Almost every month some company collapsed. The Equitable's policy-holders lived in daily dread. The society was investigated three times in as many months; once by the insurance committee of the New York Senate, once by its own policy-holders, and once by the insurance department. "I can't transact any business," said Hyde, "I spend all my time being investigated." ”

“ Meanwhile, if any member in good standing—if he had regularly paid his premiums, in other words—died at any time, his family received the amount for which he had insured; if he lived until his period expired, he got his share of the Tontine winnings; if he failed to pay the premiums, he got nothing at all. Ostensibly the purpose of arranging ten, fifteen, and twenty year classes was to accommodate the periods to the ages of the insured. A young man might reasonably enter the twenty year class, because of his natural hopes of survival ”

“ Of an adventurous disposition, unlimited personal resource, and unbounded confidence in himself and his schemes, he readily wormed his way into the royal favor, became a confidential secretary to Cardinal Mazarin, a pensioner of the crown and a valued adviser on all financial affairs. ”

“ He especially recommended a Tontine policy to those who had mortgaged homes. Insure, he said, for the amount of the mortgage; if you die, the policy will pay it off; if you live, the dividends will not only pay the interest, but a fair size annuity.
The "Blue Books" of Estimates Even more mendacioua were the famous "blue books" which Hyde placed in every agent's hands. He originated that practice, since become so general, of showing prospective policy-holders' written estimates of "investment" returns. ”