Life insurance company

“ Here you may find out just how much the body politic is willing to bet on the chances of life and death of its people. The government has been in the life-insurance business for fifty years, but it has never forbidden the private companies to operate, and competes with them right along. Indeed, it is said that the latter are getting most of the new business because they put more life and energy into selling insurance than the state institution does. The government life insurance company uses the postmasters as its agents, and thus has offices at every crossroads. ”

“ 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" ”

“ For as to the business of life insurance, savings banks, and trust companies, it is somewhat more, or surely somewhat other, than mere business. And so those who practise it and profit by it profess that it is. A life insurance company is a grand combination philanthropico-financial corporation whose motto is, "Cast thy bread upon the waters, and after many days thou shalt receive it again." ”

“ 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. ”

“ 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. ”

“ It must be borne in mind that the cost of insurance proper, that is, the provision to meet current death claims alone, is quite as high in the best assessment company as in a regular life insurance company, for this cost depends on the careful [pg 414] selection of lives. The difference in the two institutions is that the former dispenses with the investment element, while the latter exacts it in connection with all their contracts. Hence the price to be paid is greater. ”

“ The Ætna Life Insurance Company.—In mentioning this Company we must reiterate the well-known fact that it stands at the very head of the list of life insurance companies. For thirty years it has stood the storms of financial fluctuation, and now remains the strongest life insurance company in the country. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ The mutual insurance plan contemplated the creation of a safety fund of $1,000,000 from membership fees. In addition to this there was to be a mortuary fund, raised by graduated assessments levied on all the members for use in payment of death claims. These assessments were levied periodically and provision was made that in fixing the amount to be levied an allowance should be made 'for discontinuance in membership.' It so happened that the lapses were not so numerous as had been estimated, and consequently each assessment realized something more than was needed to pay the matured claims. ”

“ 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." ”

“ A policy of life insurance is a peculiar contract. Its obligations are unilateral. It contains no undertaking of the assured to pay premiums: it merely gives him an option to pay or not, and thus to continue the obligation of the insurers, or terminate it at his pleasure. It follows that the consideration for the assumption of the insurers can in no sense be considered an annuity consisting of the annual premiums. ”

“ 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. ”

“ 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. ”

“ The business of life insurance is of such a peculiar character, affects so many people, and is so intimately connected with the common good, that the state creating the insurance corporations and giving them authority to engage in that business may, without transcending the limits of legislative power, regulate their affairs, so far, at least, as to prevent them from committing wrong or injustice in the exercise of their corporate functions. ”

“ 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? ”

“ 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. ”

“ A policy of life insurance, without restrictive words, is assignable by the assured for a valuable consideration equally with any other chose in action, where the assignment is not made to cover a mere speculative risk, and thus evade the law against wager policies ”

“ 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. ”

“ 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. ”

“ The more lives insured, up to a certain point, the more accurately will the mortality tables upon which the premiums are based work in practice. A company with one hundred lives could not succeed, because all might conceivably die in one year, instead of in the gradual succession anticipated by the mortality table. A company with ten thousand well-selected lives or more, however, need expect no surprises. The big New York companies have more than half a million each; an excess which, merely from the groundwork of mortality average, adds nothing to their strength. ”

“ 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. ”

“ If no such request for paid-up insurance is made, the net amount that would have been payable as a death claim on the date to which premiums were duly paid will automatically continue as term insurance from such date, for such time as said excess of the reserve will purchase according to the Company's present published table of single premiums for term insurance, and no longer. ”

“ 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 ”

“ The bill also alleged that the company had recently decided to discontinue writing insurance on the assessment plan, and was endeavoring to induce members to surrender their certificates and to take out ordinary life policies in the company's stock department. By reason of this change of policy and the consequent decrease in membership in the Safety Fund Department and the increase in assessments the bill alleged that the present certificate holders, who had created the mortuary fund, were entitled to an immediate distribution of the moneys therein. ”