effort to save the premium required from his scanty wages, it has too
often absorbed the products of his toil, and left his children to cry
for bread. Such results have been reached sometimes by extravagant and
incompetent management, and again by dishonesty and gross betrayal of
important trusts. The preposterous claim is frequently made by the
advocates of level-premium insurance, when contrasting it with
assessment insurance, that patrons of the former system may pay their
money with the absolute certainty of securing the benefits for which
they pay, while patrons of the latter are placing their hopes upon a
rope of sand. We do not hesitate to assert that more money has been
actually lost to the people by the collapse of a single level-premium
life company that we might name than by all the failures combined that
have ever occurred in assessment companies in this country; because, in
assessment companies, for the most part, a fair equivalent is rendered
from year to year, while in the former large over-payments are required
upon the promise of future returns. There have been in the United States
some eight hundred level-premium life companies, only about fifty of
which are now in existence. It is unnecessary to recall the disastrous
ending of such companies as the "Continental" and the "Knickerbocker."
It is well known that the former was at one time receiving not far from
half a million of dollars annually in premiums through its Boston agency
alone, and that the latter, in the midst of seeming prosperity,
collapsed so suddenly that millions of dollars of supposed assets
disappeared beyond recovery.
The history of the "Charter Oak," with its more than ten millions of
assets at one time, its subsequent compromise with its policy-holders at
sixty-five cents on the dollar, and its now possible passage into the
hands of a receiver,--that functionary at the tail end of a
life-insurance company that has so often been the "bourne" whence few
dollars have ever returned to the pockets of the unfortunate
policy-holder,--is too well known to require rehearsing here. Yet the
assertion is brazenly made that level-premium companies alone give
insurance that insures; that there is no safety in any other form of
insurance, and that assessment insurance, disbursing its millions to the
families of our land, is but a temporary craze that will soon pass away.
It is a question that may well be asked: What is the explanation of
results so deplorable in level-premium insurance?
That they occur is too well known to admit of question.
That a very large proportion of those who patronize these companies
become dissatisfied, not to say disgusted, with their practical
workings, there is abundant evidence to prove.
That level-premium insurance does not meet the requirements of the
people is shown by the fact that there are only about 600,000
policy-holders in these institutions in a population of about
60,000,000. While lack of confidence undoubtedly deters some from
patronizing them, yet there are many other considerations that tend to
produce this state of things. To insure in them is attended with too
great expense. It is not possible for the average mechanic to save from
his earnings a sufficient sum to carry any considerable amount of
insurance in these companies. The principles upon which the system is
founded are such as to render it needlessly expensive. Experience has
shown that for various reasons a very large proportion of the insured do
not continue to pay until the maturity of their policy by death, or by
limitation of the contract, yet the system requires the payment of a sum
which, after amply providing for expenses, computed at a given rate of
interest, will amount to the face of the policy at the expiration of the
life limit, making no account of gains by lapses nor from a mortality
below the expectancy.
The premium includes three items, viz.:--
_First_, Cost of pure insurance.
_Second_, The amount to be placed in reserve.
_Third_, The expense charge.
The cost of pure insurance is about one third of the premium, or perhaps
a little less. Now, does any unprejudiced person believe that it is
necessary to charge three dollars for the purpose of disbursing to the
families of the insured one dollar? Is not any system of insurance
properly open to criticism that continues to assume and charge a cost
that experience has shown to be so excessively beyond the necessities of
the case? We do not overlook the fact that a part of this overcharge is
returned to the insured upon certain conditions, nor the other fact,
that the proper expense of conducting the business must be provided for;
but, after giving credit for both these items, a very large and needless
overcharge remains to discourage those desiring insurance from assuming
its obligations. This may be more clearly shown in the light of a few
facts.
By examining the Massachusetts Life-Insurance Report for 1884, it will
be seen that several companies report an income from investments largely
in excess of the amount required to pay death-losses. It will be borne
in mind that the premium charge _includes_ the amount required for the
payment of death-claims, and it is supposed to be, and undoubtedly is,
amply sufficient for all purposes in the _absence_ of large
accumulations from which to receive such a princely income.
In other words, the companies go on requiring the payment of the same
premium from the party proposing to insure, one third of which is for
claims by death, when income from investments more than pays this
important item.
But it may be said that the surplus returns to policy-holders are
proportionately larger, when claims by death are more than met by income
from investments. This surely is the result that would naturally be
looked for, and which should be realized; but unhappily it is not always
the case. The writer holds a policy in one of the companies referred to
above, and has paid premiums on the same for some twenty-five years.
Judge of his surprise when, three or four years ago, he was called upon
to pay 20 per cent in excess of the premium he had been paying for
years; and when an explanation was asked, the reason given was that the
per cent realized from investments was much less than formerly. Yet this
same company more than pays its death-losses by income from investments.
This is not an isolated instance.
Many readers of this article have, no doubt, _enjoyed_ (?) a like
experience. Is not such a system of insurance fairly open to criticism
in its practical workings?
But perhaps the most astonishing feature of level-premium insurance is
found in the fact that there is absolutely no obligation assumed on the
part of the company, and no power anywhere to enforce an accounting for
the vast sums entrusted to it, so long as it can be made to appear that
it holds securities in the aggregate to meet the legal requirements of a
reserve.
These vast sums of money are paid in by policy-holders without any
knowledge of, or means of knowing, the uses to which they will be
applied. They know, in a general way, that a part of the premium will be
used for reserve, a part for expenses, and a part for losses, but how
much will go for each purpose they have no means of ascertaining. The
company places it all in a common pot, and can put in the hand of
extravagance, of avarice, or of dishonesty, and take out any amount for
personal aggrandizement, or for expense of management, so long as it can
be made to appear that the legal standard of reserve is maintained.
There is absolutely no limit put upon the extravagant conduct of the
business. There is no separation of trust funds from expense account. No
man who insures in a level-premium life company knows whether such
company will use for expenses $5 or $25 for each $1,000 of insurance
which he carries. He has the vague promise of a dividend,--falsely so
called, for it is really nothing but a return of a part only of his own
money which he has paid in excess of what he should have paid,--and this
vague shadowing of some possible relief of the excessive pecuniary
burden he is compelled to assume if he insures, is all that is given
him. There is exhibited here the most astonishing credulity, and, too
often, as thousands can testify from sad experience, a misplaced
confidence on the part of the insuring public, that seems childlike and
puerile in the extreme.
The official reports of Level-Premium Life Companies to the Insurance
Departments of the several states show that these companies actually
use, for expense of conducting the business, from $6 to $25 for each
$1,000 of insurance outstanding. A man carrying $10,000 insurance for
his family in these companies must pay on the average, for the _expense_
of the business, about $80 per annum, and if it should be twice or three
times that amount he has no redress. Should not these companies
stipulate, in every policy, a sum for expenses which could not be
exceeded? Should they not separate the mortuary and expense account, and
contract with every policy-holder to use, not exceeding a specified per
cent of the premium paid, for expenses, and to hold the balance a sacred
trust for the payment of claims, the surplus above such requirement to
be returned to the insured? To what other branch of business would men
apply such unbusinesslike methods as to pay two or three times the value
of the article purchased, upon the implied or real obligation of the
seller to return, at some time in the future, some part of the
overpayment, but with no definite agreement as to how much, or at what
time it should be returned? What merchant could maintain his credit for
any considerable time if he made his other purchases as he does his life
insurance? Life insurance is a commodity to be bought and paid for at a
fair market price.
In the earlier history of the business, there were no data at hand to
fix its value. Experience of fifty years and more has furnished such
data, and its value can now be determined with very considerable
closeness, and very far within the charges of level-premium companies.
There should be some margin charged above probable cost, as shown by the
experience of companies; but such charges should not contemplate nor
admit of such extravagant expenses as have, and do now, obtain in
level-premium companies. The experience of assessment companies has
shown that the business can be done for from $2 or $3 at most, for each
$1,000 at risk.
Is there any reason why level-premium companies should not be limited to
_twice_ that amount? The recent law governing assessment insurance in
Massachusetts requires that in every call for an assessment it shall be
distinctly stated what the money is to be used for, and no part of the
mortuary fund can be used for expenses. Will any man say that assessment
insurance is not in advance of other forms of insurance, in these
respects at least?
Another important objection to level-premium insurance is found in the
fact that it has drifted away from its primal purpose. Originally it
contemplated simple life insurance.
Its intent was to offset, to some extent, the loss incurred by the
family in the death of its wage-earner. The death of the father involves
the family in a pecuniary loss represented by the amount of his yearly
earnings, and if this occur before he has had time to accumulate a
surplus above yearly expenses, the hardships of poverty are added to the
pain of separation from so valued a friend. Life insurance was intended
to come in with its benefits at such a time, as the result of
forethought on the part of the father in depositing a part of his
savings with the life company. If this simple form of insurance had been
adhered to, the temptations to unwarranted and hurtful competition
would, in a large measure, have been avoided; but with most
level-premium life companies this form of insurance is now largely
neglected, and their energies are given to other forms, some of them
highly speculative in their character. Contrary to the original purpose
of life insurance, banking has been combined with insurance, and people
have been taught to believe that they can secure better investments
through life-insurance companies than elsewhere. It has never been clear
to the writer how such results can be reached, in view of the excessive
cost of conducting the business. Any suggestion of this kind, however,
is at once met by the reply that the company has an immense amount of
money invested, from which it derives a large income.
But whose money is it? Who paid it to the company, if not the
policy-holders? Still, if the business were confined to simple endowment
insurance in connection with pure life insurance there would be less
objection, although banking is properly no part of insurance; but the
fact is, a far more speculative business is done, called Tontine
insurance. This form may be fitly characterized as the gambling form,
inasmuch as the only hope of profit to a few is that the many will be
robbed of their savings. Tontine insurance is profitable to the few in
just the proportion that misfortune shall overtake those who participate
in it. No man would risk large payments with the certainty of losing all
if he should fail to make one such payment in a term of years, if he
were not tickled by the hope that others would be the unfortunate ones
compelled by circumstances to discontinue and lose all, while he would
be the exception and profit by their loss.
But he should consider that, even if he persists in paying through the
specified term, he is still at the mercy of the company in the division
of the spoils. They may use as large a part of the plunder as they
please in the expense of the business, and the experience of many will
attest that, while for the company it was "turkey," for them it was
"crow."
President Greene, of the Connecticut Mutual Life, in a series of able
articles, has exposed the injustice of this system, and shown, to the
satisfaction of unprejudiced minds, that it is no part of legitimate
life insurance. Still, some companies are making Tontine and
Semi-Tontine insurance their specialty.
There is one other form of insurance practised by level-premium
companies that demands brief notice here. It would seem that to mention
it would be to call down upon it public reprobation: we refer to what
is called prudential or industrial insurance. The peculiarity of this
form is that its patrons are found among the poorest and the lowest
classes of our population, and, in the judgment of others than the
writer, it appeals to the very worst instincts of those unfortunate
people. The insurance is effected upon the lives of helpless infants and
children to the amount of one hundred or two hundred dollars or more,
ostensibly to provide for suitable burial expenses in the event of the
child's death. While, doubtless, in some cases the motive is a worthy
one which prompts to such insurance, one's thought shrinks with horror
from a contemplation of the crimes which it must, in many cases, suggest
to the minds of the low and depraved. How many children are there in our
large cities whose lives are not worth even one hundred dollars! How
many are there whose death would be hailed as a deliverance from an
expensive and unwelcome burden! The simple suggestion is enough to carry
with it a sense of obligation to lovers of humanity to see that a
premium is not placed upon infanticide and kindred crimes. If such
insurance is to be effected at all, which is extremely questionable, it
should be under the strictest restraints of law.
Another serious objection to the system is that it necessitates nearly
double the cost of even regular level-premium rates, from the fact that
weekly collections of five and ten cents must be made by agents employed
for the purpose.
Of course a large part of these collections, wrung from the poor, are
absorbed in agents' fees, the balance going to the company. The lapses
also must be very numerous, and but little benefit is ever realized by
those who part with these pittances from their scanty earnings. It is a
well-known fact that companies realize very large profits from this
business, and in some instances the writer has been credibly informed
the expenses of the general business are met by the profits of this
branch. This article is written in no spirit of hostility to
level-premium insurance; it is simply a criticism upon its defects and
its abuses. Properly administered, there is an ample field for the
prosecution of its business. There will always be those who will prefer
to pay the larger price, for what to them may seem the better form of
insurance; but there will be large numbers, as now, who will prefer
assessment insurance in reliable companies.
There is an ample field for both assessment and level-premium companies
to prosecute their work. There need not and should not be antagonism
between the two systems. Each will and should be criticised, but always
in a spirit of fairness. To some extent modifications in both systems
may be desirable, and doubtless a healthy competition will bring such
changes to pass. Perfection is a quality of slow growth, but it _should_
be the aim of those who administer the far-reaching and sacred trusts of
either system of life insurance.
Such companies can undoubtedly be made permanent by providing for the
entrance of new members at any time in the history of the company at a
cost for mortuary assessments substantially as low as in the earlier
history of the company. This may be accomplished in either of two
ways:--
1. By advancing the rate of assessment with advancing age, by what is
called the step rate process, or,--
2. By the accumulation of funds to meet the increased assessments beyond
a fair or normal rate.
To say that a company which does not adopt the first of these systems is
necessarily "doomed," as was asserted by a recent writer in your
columns, is to make a very extravagant claim at least, and one to which
the writer of this article would beg to demur. The objection to the plan
of step rates is that it is not popular with the people who are the
purchasers of insurance.
The company adopting the plan says, "We shall get rid of our undesirable
risks, those who are getting old, _because the rate of assessment_ will
be so high they _cannot afford to pay it_." The individual says, "I
don't like a plan by which I am to be increasingly burdened as I grow
older, and by which it is altogether probable I shall be compelled to
sacrifice the savings of years, and lose my insurance at the last."
This practical _freezing-out process_ has never yet been made popular;
perhaps it may be in the future.
It is objected to the second method that some will pay more for the same
value received than others, and it is therefore inequitable. But there
is some inequity in any plan of insurance, and this last has not the
element of injustice that would compel the aged and unfortunate to lose
the entire savings of years because of unavoidable increasing cost.
Assessments in most companies are graduated so that 800 or 1,000
policy-holders responding to a mortuary call would make a $5,000 policy
good for its face, and the income from $2,000,000 at five per cent would
pay twenty losses of $5,000 each.
Is it then an absurd statement that an assessment company properly and
honestly administered, with that amount invested, can be perpetuated for
all time?
Long before the reduction of membership to a number insufficient to pay
the face of the policy from direct assessments, the income from the
reserve would so lessen the cost that members could not afford to lapse
their policies, and new blood could always be secured.
ELIZABETH.[D]
A ROMANCE OF COLONIAL DAYS.
BY FRANCES C. SPARHAWK, Author of "A Lazy Man's Work."
CHAPTER XXIX.
ON GUARD.
It was nearly two weeks from the unsuccessful attack upon Island
Battery, the fifth and most disastrous that had been made. The morning
after it the soldiers, sore over their defeat, had listened sullenly to
the shouts of victory from within the French lines. Since then the
combined attack by land and sea, planned and eagerly wished for by the
two commanders, had been deferred from day to day. But Pepperell was not
idle, and he was unable to understand despair. To him a repulse was the
starting point of a new attempt. But now, with half his camp in
hospital, with French and Indians threatening him in the rear, and the
great battlements of Louisburg still formidable, he dared not risk an
assault that, if unsuccessful, would further dispirit the army, and
might be fatal. He had sent to Governor Shirley for ammunition and
re-inforcements, and he had still the resource of sounding away with all
his guns, for which, by borrowing, he could find powder and balls. He
availed himself of this privilege with a persistence that after the city
had surrendered he was able to see had not been useless.
The West gate had long since been demolished, the citadel more than once
injured by shot, and as to the city itself, streets of it were in ruin.
But Island Battery still held its own and kept the fleet away from the
city, the soldiers sickened, and the French governor held out. The
incessant cannonade went on until sometimes the men wondered how it
would seem not to hear bursting shells. There had been sorties and
repulses, and though not much fighting, enough to prove the temper of
the men. One day Elizabeth, looking across at a fascine battery where
the enemy's fire was hottest in return, discovered Archdale standing in
the most exposed position, watching and giving orders with an
imperturbable face.
So the siege went on, with brave resistance on one side, and on the
other with that invincible determination that makes its way through
greater obstacles than stone walls. The weather was magnificent in spite
of the fogs at sea that sometimes made it impossible to go from shore to
ship. Edmonson lay tossing on his bed in the hospital. He had been badly
wounded in the attack, and his feverish mind retarded his recovery. As
had been said, he had learned of Katie Archdale's engagement, not
through Lord Bulchester, for that was the last thing that the nobleman
would have told him, but through a correspondent in Boston to whom he
had made it worth while to keep him informed of his lordship's
movements.
Edmonson's wound was painful, and his compensation did not come. Nancy,
not Elizabeth, was his nurse. Occasionally the latter spent half an hour
beside him when her maid was resting or was busy with others, but then,
although she ministered to his physical comfort, her mind seemed always
elsewhere, often where her eyes wandered, to some private whose
suffering was greater than his.
"I wish I had been the worst wounded man here," he said to her one day.
"Why?" she asked bringing her eyes back to him. And then before he could
answer, she added: "Your wound is bad enough; you will not get well
until you are more quiet. Be a little more patient."
"Patient!" he cried, half raising himself and falling back with a groan.
"You are cruel. Patient! with the vision of delight always floating
before me, never turning back to look at me or smile upon me. Patient!
in torment. Perhaps you would be. Submission is not a constitutional
virtue of mine."
"It's being a virtue at all," returned Elizabeth, "depends upon whether
we submit to men or to God." If any other lips had spoken the Divine
name, Edmonson would have sneered openly. As it was, he lay silent,
looking out at the speaker through half-veiled eyes. This tantalizing
woman always turned his words into impersonalities. Her power had roused
his will to its utmost to make her feel his own. How far had he
succeeded, that she would condescend to stay with him when there was no
one else to do it and he needed attention? It was because the surgeon
would soon be here to look after his wounds and would need help, that
she was sitting now, fanning him gently and glancing toward the door of
the tent.
"You are very impatient to have Waters come," he said.
"Yes, a great many others need me."
"Not half so much as I do," he began. "Your presence soothes me," he
added hastily.
"It is the sort of effect that a nurse ought to have," she answered.
He was silent again. He would have given half the expected years of his
life to know if ever so little of her indifference were feigned. He gave
himself an impatient toss. Why had he come to this siege at all? He was
not sure now that if he had accomplished his object, or should yet do
it, the reward would come. He had known women that in Elizabeth's place
would like to show their power of torture; but she scarcely deigned to
glance at him, and tortured him a thousand times more. Why had Archdale
thrown his arm about so clumsily and saved his life? So good an
appointment was not likely to make itself again; he must have a hand in
framing the next. And if worst came to worst as to absence of chance, he
could still pick a quarrel over the clumsiness by challenging it as
intention. Yet he was afraid that Archdale was too much of a Puritan to
think of duelling.
"Don't tire yourself fanning me," he said. "Talk to me a little."