Aetna Life Insurance Company

“ France could have effected in her own name an insurance on his life, without its being obnoxious to the charge of a wager policy, the evidence was incompetent to prove the fact sought to be proved by it. The company, when taking the notes in question, acknowledged the premiums to have been received from Chew, and was estopped from going behind its own admission, under the circumstances of the case. The contract of insurance, as correctly construed by the court, was made with Chew ”

“ France, at the time the insurance was effected, was one of Chew's next of kin, prospectively interested in his estate as a distributee. We concur in the construction of the policy made by the court, and in the validity of the transaction. As held by us in the case of the Connecticut Mutual Life Insurance Company v. Schaefer, supra, p. 457, any person has a right to procure an insurance on his own life and to assign it to another, provided it be not done by way of cover for a wager policy ”

“ Such a provision incorporated in a general life insurance policy admittedly would be insurance on life: then why less insurance on life because not coupled with provisions covering loss of life from usual or natural causes as well? ”

“ The question as applied to substituted policies of insurance has not heretofore arisen in this court and apparently has seldom arisen in the state courts. In Dannhauser v. Wallenstein, 169 N. Y. 199, 208, 62 N. E. 160, 162, where a 10-payment life policy provided that after the payment of two or more equal premiums, notwithstanding default in payment of subsequent premiums, the company would grant a paid-up policy for a proportionate part of the original amount of the policy, it was held that such paid-up policy when issued was not an independent contract. ”

“ Theoretically only one is indispensable; the mortality law. This enables the company to foresee, for a long period of years, its annual expenditures, and consequently to make provision for their payment. With this principle alone, however, life insurance would not be an accomplished reality, because its cost would be excessive. The interest element, by making life insurance cheap, brings it within the purview of the poorest citizen. It transforms life insurance from an unutilized theory into a most salutary fact. ”

“ At the beginning, therefore, it is plain why life insurance, in the usual commercial sense, is not an investment. The company puts your premiums at interest, not that it may furnish you a return in addition to the insurance, but that it may accumulate a fund out of which the policy itself is paid. ”

“ But, fortunately for the cause of life insurance, it varies always in one direction. The company's charges, that is, always exceed the actual cost. It almost invariably has fewer death losses than the mortality tables indicate; and it commonly earns more interest than the estimate assumes. That is to say, it pays out each year less than it has provided for; and earns, in interest, more than it needs to pay all claims. A company properly conducted also uses less every year for expenses than the amount provided in the premium loadings. ”

“ There can be no dividend, no profit—no investment—because, even under the most favourable circumstances, the expenses of management are so great. For every dollar collected by a life insurance company, it expends anywhere from eighteen to fifty cents in expenses; manifestly it cannot invest the rest so as to pay you any investment return.
Life Insurance Merely Indemnity—Not Investment Life insurance is one thing, and one thing only. In the social and economic order it performs a single and a simple service. It is the money indemnification for the destruction of a valuable human life. ”

“ In such a wager as this, the most needy, whom life-insurance is especially designed to protect, are pretty sure to be the losers. Besides, the large accumulations which Tontine insurance gathers in the hands of a company, at the expense of those who die, or are unable to maintain their policies during the Tontine period, offer a strong temptation to wasteful expenditure, which, if indulged, must sooner or later bring disappointment even to the survivors of those who play at Tontine hazard. ”

“ The net value of the policy, when the premium becomes due, and is not paid, shall be computed upon the actuaries' or combined experience table of mortality, with four per cent. interest per annum, and after deducting rom three-fourths of such net value, any notes or other evidence of indebtedness to the company, given on account of past premium payments on said policies, issued to the insured, which indebtedness shall be then canceled, the balance shall be taken as a net single premium for temporary insurance for the full amount written in the policy ”

“ The plaintiff is a New York corporation, with its home office in New York city, and has transacted and does transact the business of life insurance on a large scale in all of the states of the United States, and with persons residing in every country of the civilized world. It commenced to transact its business with residents of Montana in 1869, and its business has progressively increased until its total insurance in force in that state amounts to $10,023,445, calling for premiums amounting to $343,664.93. ”

“ Such instalments are clearly not intended as the consideration for the respective years in which they are paid; for, after they are all paid, the policy stands good for the balance of the life insured, without any further payment. Each instalment is, in fact, part consideration of the entire insurance for life. It is the same thing, where the annual premiums are spread over the whole life. The value of assurance for one year of a man's life when he is young, strong, and healthy, is manifestly not the same as when he is old and decrepit. ”

“ If you wish a policy you voluntarily buy it over the counter. Consequently, the New York companies, which do employ agents, have entered England and practically driven this old institution out of business. There is also a powerful actuarial justification for the agency system. Properly regulated, it brings only healthy lives into the company. A man anticipating early death does not need to be persuaded; he is only too glad to obtain a policy. That is the class which voluntarily seeks insurance. ”

“ Any merchant who knew just what his expenditures would be through a long series of years, and who had the power to adjust his income so as to equal them, could not possibly fail. That is the position of the life insurance company. Any accurate mortality table, common honesty, and good executive judgment—with these as capital no life insurance company could possibly collapse. Fire, marine, and other forms of insurance are not thus scientifically based. These companies cannot figure in advance their future losses. No natural laws regulate the burning of houses or the destruction of ships. ”

“ Two Scientific Bases of Life Insurance—Mortality Law and Interest Rate The application of this mortality law to the cost of life insurance may now be illustrated in its simplest form. Let us take 1,000 men, all aged 40, who desire to insure their lives. They might take out policies in some existing company, but not necessarily—they can carry their insurance just as well themselves. So they enroll themselves into what may be called a life-insurance association. They agree that $1,000 shall be paid to the widows of all that die. ”

“ Term life insurance, so called, is simply banking for the benefit of the company which takes the risk. In regular life insurance the insured has a certain expectancy at the time of taking out the policy. Payment for the amount he is to receive at death is spread out over his expectancy, less four per centum interest compounded, and he pays it in annual, semi-annual, or quarterly installments, as may be agreed upon. If he lives out his expectancy, he will have paid in all he is to receive at death, either directly, or by the interest carried on his premiums. ”

“ Theoretically devised to ameliorate human suffering, its very structure is a constant temptation to the vicious. Ostensibly the life-insurance company merely collects certain sums from its members, invests them at compound interest, and pays them back as contracts mature. ”

“ The difficulty is that, absent some guarantee of fixed income, the variable annuity places all the investment risks on the annuitant, none on the company. [12] The holder gets only a pro rata share of what the portfolio of equity interests reflects which may be a lot, a little, or nothing. We realize that life insurance is an evolving institution. Common knowledge tells us that the forms have greatly changed even in a generation. And we would not undertake to freeze the concepts of 'insurance' or 'annuity' into the mold they fitted when these Federal Acts were passed. ”

“ The phrase 'required by law' includes only reserves that directly pertain to life insurance. Other reserves, even though required by state statutes regulatory of the business authorized to be carried on by life insurance companies, are not included. Under these policies the company's liabilities on account of the investment funds are independent of those attributable to life insurance risks. The right to participate in the investment funds is not dependent upon death of the insured. The company's liability is the total of contributions to the fund plus the interest agreed to be paid. ”

“ With certain limitations, which will be detailed subsequently, life insurance is a science. It is scientific because it deals with one of the few certainties of human experience—that is, death itself. If a company contracts to pay a certain amount at death it knows that it will have to fulfil that promise ”

“ It might as well undertake to release the assured from the payment of premiums altogether as to relieve him from forfeiture of his policy in default of punctual payment. The company is as much entitled to the benefit of one stipulation as the other, because both are necessary to enable it to keep its own obligations.
In a contract of life insurance the insurer and assured both take risks. The insurance company is bound to pay the entire insurance money, even though the party whose life is insured dies the day after the execution of the policy, and after the payment of but a single premium. ”

“ The year after that you take the same policy in the New York Life. The fourth year you come back to the Equitable; and repeat the performance indefinitely.
Occasionally, a rebated policy-holder becomes physically impaired;—what is known as a bad risk. Then sticks in the company into which he was last rebated. A sick man always hungers for life-insurance. A man who ordinarily could afford a $10,000 policy takes one for $100,000 at 90 per cent off. If he falls sick, his relatives and friends gladly pay the few remaining premiums; and his widow, at death, pockets a neat $100,000. ”

“ Such a system would require the consumer of to-day to pay for an assumed operating expense which has never been incurred and which may never arise.
The depreciation charge is frequently likened to the annual premium in legal reserve life insurance. The life insurance premium is calculated on an agreed value of the human life-comparable to the known cost of plant-not on a fluctuating value, unknown and unknowable. The field of life insurance presented a problem comparable to that here involved. ”

“ As a condition to selling decedent each life insurance policy, the companies involved required decedent also to purchase a separate, singlepremium, nonrefundable life annuity policy. The premiums for each life insurance policy and for each annuity policy were fixed at regular rates. The size of each annuity, however, was calculated so that in the event the annuitant-insured died prematurely the annuity premium, less the amount allocated to annuity payments already made, would combine with the companion life insurance premium, plus interest, to equal the amount of insurance proceeds to be paid. ”

“ For the last thirty-five years a constant warfare has waged in the United States between the good and the bad in life insurance. On one side have ranged honesty, economy, and fair and liberal treatment of the insured; on the other, dishonesty, extravagance, and absolute disregard of policy-holders' rights. Certain companies have treated life insurance as a great beneficent institution, organized for the purpose of protecting the weak and the dependent against adverse fortune ”

“ Life-Insurance Agents Necessary Theoretically, no life-insurance company should employ an agency force. He who has dependents and no income except the product of his own toil is as morally bound to carry life-insurance as he is to furnish his children food and shelter. Obviously, he should not be hounded into performing this simple duty. However, that theory seldom works. Experience has demonstrated that men do not insure of their own free will. They must be clubbed into it. The company that employs no agents does no business. The old Equitable of London pays enormous "bonuses" or "dividends" ”

“ 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." ”