Burton J. Hendrick

“ One thing the policy-holder can always depend upon, however: he pays for everything he gets. The price rests upon certain scientific principles; no company can disregard them without disaster. What one company offers another can offer; and any policy that contains unusual opportunities also carries a premium that completely pays for them. All modern novelties are simply old forms of life-insurance under new names—and usually at greatly increased prices.
In recent years, for example, the New York companies have gone daft over "gold bonds," " consols," and "debentures." ”

“ The Equitable and the Mutual have had upon the market between two and three hundred forms of policy: all merely changes rung upon these three original types. They have constantly harped upon the "investment idea." "Make the Mutual Life your savings bank," has become the war cry. They have given the semblance of investment frequently by combining one form of policy with another. ”

“ Obviously, the more policy-holders contribute to the cost of running the company, the smaller should be each one's share of the fixed charges. As long as an increasing business decreases expenses, it is an excellent thing. Quite the contrary has happened, however. The New York companies' increasing business has resulted in an increased expenditure. The new members, that is, have not paid their own way; but have become a burden upon the old policy-holders. Life-insurance is about the only modern enterprise in which competition has increased the cost of the product. ”

“ The same man has even drawn more than one advance from the same company. A few years ago the New York Life discovered that one man was drawing seven advances of $25 a week from seven different New York agencies under seven different names. Indeed, at times it has almost seemed that the best man was not the one who wrote the most insurance but the one who drew the most advances from the most companies at the same time. ”

“ The agents have taken for granted that the average policy-holder never reads his policy; and signs applications without knowing what they mean. This assumption has usually been justified. The simplicity with which the average citizen purchases a $10,000 or $20,000 life-insurance policy without investigating its merits is part of the psychology of the trade. The agents have not facilitated his education; at best they have furnished bewildering arrays of comparative figures, "ratios," the attempted interpretation of which is sufficient to derange the average human mind. ”

“ They employ men and women, educated and ignorant, high and low born. Broken-down clergymen, superannuated college professors, briefless lawyers, bankrupt business men, cast-off politicians, actors, reporters, artists—they press all into service. Evidently the managers argue that every man has a few friends; and is useful at least until he has exhausted them. "Anyone who has two hands and a hip pocket for a rate book can become an agent,"—so say life-insurance men themselves. ”

“ A fine brood of life-insurance tramps has thus developed: men who oscillated from one company to another, living on "advances" and actually doing little or no work. Occasionally, the same man would draw "advances" from one company and turn such business as he got into another; more frequently, the same man would draw advances from more than one company. ”

“ It discriminates between policy-holders, especially between the rich and the poor. As a rule the smaller policy-holders get no rebate; it is an inducement especially offered for "big men." In other words, the poor pay big prices for their insurance, the rich small. If your premium is $25 a year, you pay the full price; if it is $200, you can usually get anywhere from 50 to 90 per cent off. Discrimination exists not only between the rebated and the unrebated; but between the rebated themselves. The agents throw off just as much, or just as little, as the occasion requires. ”

“ Pensions and Death Benefits at Policy-Holders' Expense The New York Life not only pays its agents well, but pensions them in their old age and, in certain cases, pays death benefits. It treats its agency directors with especial liberality. It has some two hundred and twenty each drawing from $2,000 to $6,000 salary a year. Besides this each gets $100 for each new agent secured. He also receives certain benefits if he remains with the company a certain time, and his widow receives a lump sum if he dies. In one year the New York Life has paid $259,000 to this pension fund. ”

“ The New York companies make a special bid for conspicuous persons. They have colonels and generals in plenty; even ex-governors and congressmen. In addition to regular solicitors, who give up all their time to the work, they have emissaries who solicit in connection with other occupations. There is hardly a tenement-house on the East Side of New York in which the Big Three have not each a representative. In every factory and every sweatshop have deferred dividends been sold. Bakers, grocers, butchers, and fish-cart peddlers have done insurance business on the quiet. ”

“ The agents, however, have not found opportunities enough in the orthodox forms. They have inspired the invention of numerous picturesque, contracts. Under their houndings the actuary's life has become a burden. In reality, there are only three forms of life insurance; the regular life policy, payable at death; endowment, payable to the beneficiary at death and to the insured provided he survives a stipulated period; and the term policy, which insures a man, not for life but for a certain period, ten, fifteen, or twenty years. ”

“ The agents who get the largest advances are usually the largest rebaters. They purchase, with advances, an immense amount of business that does not renew. Thus, to a great extent, even the ostensible security for the loans does not exist. In 1901 the Equitable Life calmly crossed $2,000,000 agents' advances off its books—money, that is, entirely uncollectable. Most state insurance departments no longer recognize these "advances" as valid assets. Single agents have left owing enormous sums, which have never been collected. ”

“ That is, rebating is explained, above all, by the high commissions, bonuses, and advances paid in New York. If an agent gets only 25 per cent of the first premium, he cannot afford to rebate, because there will be little left for himself. If he gets 75 or 90 per cent, he can divide with the policy-holder and still have something. Nor are the agents dependent upon their commissions for livelihoods. At any time they can dip into the policy-holders' dividends and take out thousands in the form of "advances." ”

“ They also prohibit subsidiary banks and trust companies, investments in stocks, and participation in speculative syndicates by trustees and directors; and demand publicity concerning salaries and other details. They attempt also to limit agents' commissions and the cost of new business. But the greatest evil they do not, and cannot, touch. That is the control of these enormous institutions by dishonest men. There can be no complete reform, whatever laws are passed, so long as the men who enforce them are untrustworthy. ”

“ In recent years almost any man could obtain employment on this basis from one of the three big companies. Consequently, thousands temporarily in hard luck have branched out as life-insurance solicitors. Some entered the business seriously, thousands, however, aimed merely at the salary. These have been technically known as "advance men." Others have referred to them as the "Bread Line." As long as the advances lasted they remained; when the patience of a particular company had been exhausted, they joined the ranks of another, still on "advances." ”

“ The agents give free fire or casualty insurance policies.
Rebaters demoralise the field for the conscientious, hard-working agent. The New York companies have had certain star producers—"executive specials." These gentlemen make a specialty of large risks. They spurn the little $2,000 or $5,000 man; and smoke out the $100,000, $500,000, perhaps the $1,000,000 policy-holder. They are attached to no office; but have roving commissions to travel from town to town. They live on "advances" in the most expensive fashion. ”

“ As a consequence, many families kept moving from flat to flat, spending three months in each, and thus living without paying any rent at all. Similarly, many ingenious persons have obtained life-insurance all but "free of cost." This year, for example, you take a $10,000 policy in the Equitable, at 75 or 80 or 90 per cent discount. Instead of paying your second premium you take next year a $10,000 policy in the Mutual—also at a big discount. ”

“ The New York companies pay enormous amounts not only for work actually done, but for work not done at all. They permit the agents to anticipate their earnings, to draw large amounts on commission account, to be paid back when the hoped-for policies are issued. They also permit the agents to draw largely in advance their renewal commissions. The Equitable, at the end of 1904, had thus advanced some $7,000,000. Certain agents had received advances amounting to $400,000, $600,000, and $850,000. The conservatively managed companies made such advances only on a limited scale. ”

“ One day a dilapidated creature appeared in the New York Life office. It was Dinkelspiel. He told President Beers that he had lost $4,000 at cards and asked for "advances" to pay the debt. He could get no more money from the United States Life, he plaintively declared. President Beers gave him money and let him loose on the community. He achieved phenomenal success. President Beers gave him hundreds of thousands in advances; at one time Dinkelspiel drew as much as $30,000 a month. With this, he traveled all over the country, making a specialty of rich men. ”

“ The explanation, however, is found in the one word "Tontine." The companies have maintained perfect solvency in the face of such pressure because they have largely used the withheld dividends of their policy-holders. They have persuaded the public, by false and unfulfilled promises of enormous rewards, to leave their dividends for varying periods, usually twenty years. They have then largely used them in the hunt for new business. Many of their foreign establishments, had they been independent companies, would have become insolvent years ago. ”

“ They have aimed at quantity, not quality. They have become the most conspicuous illustration of the American passion for bigness. They have thus Barnumized the business. To this one fact the larger evils are directly traced.
These evils, outside of the actual dishonesty of the trustees, are the high cost of life-insurance and its frequently deceptive and fraudulent character. The high cost is explained by outrageous payments to agents, in the shape of commissions, prizes, bonuses, and miscellaneous forms of entertainment; by reckless advertising, rebates, and advances ”

“ Large Traffic in Deceptive Policies Probably no institutions devised by man have generated more liars and frauds than the New York life-insurance companies. The agents have lived largely upon the grossest misrepresentations. ”

“ Whether the present disclosures will end in lasting reform, or whether the previous experience will be repeated, depends largely on whether the policy-holders take charge of their own property, and cast out the men whose carelessness and dishonesty have been demonstrated, and put in new trustees who will seek no interest except that of the insured. ”

“ Life-insurance agents, if kept within restraint, perform an indispensable function in the social order. Few men are more ridiculed and maltreated; few, after all, actually accomplish more good. We are annoyed beyond measure at their persistence ”

“ Bristol found himself all but the sole representative of the Northwestern Mutual in New York; and had painfully to begin work all over again.
The Mutual and its rivals have wasted unnumbered thousands in this fashion. They would pay a man $1,000, $2,000, $3,000, and $5,000 flat to leave his company; and liberal commissions in addition. Frequently such acquisitions would get this bonus and a year's guaranteed salary, produce little or no business, and then return to the old company. Nearly all of Mr. Bristol's agents, on the occasion described above, went back to him in a few months. ”

“ The desire for new business, obtained at this cost, is explained first by the ambition of the particular men in charge. Henry B. Hyde's enthusiasm, as has already been said, was to found "not the best but the biggest life-insurance company in the world." ”

“ The home offices have prodded this agency force in every possible manner. They have acquainted their men with the amount of new business expected each year; and have used all kinds of inducements, moral and material, in obtaining it. They have compensated agents in a bewildering variety of ways. They have paid commissions, salaries, bonuses, and prizes. When Hyde started the Equitable, first year's commissions did not usually exceed 10 per cent of the first premium. ”