There is no real or true life insurance but the straight old line regular
life, where the policy is payable only at death. 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. Of course there is a certain
amount of loading in the premiums he pays, but for the purposes of our
illustration, that need not be considered. In this plan, the policy
holder is really insuring himself, and when he dies his beneficiary, or
estate, simply receives back the money he has paid in. The fact that
there are so many life insurance companies and that they have become so
wealthy and powerful, illustrates the power of interest, especially when
it is compounded.
The Royal Arcanum professes to give life insurance at actual cost, which
it does not and never did. It was organized from the top down. Fifteen
persons met in Boston on June 23, 1877, and constituted themselves
the Supreme Council. Twelve of them became officers, and three were
incorporators simply. This body reserved to itself all the power of
legislation and of receiving and paying out the moneys of the order.
Provisions were made for the organization of subordinate and grand
councils of the order, but they were simply wards of the Supreme Council.
Members were received on medical examinations from 21 to 55 years of age
and paid for $3,000 insurance, one dollar at 21 years, and up to four
dollars at 55 years. The rise from year to year was from 4 to 20 cents.
The assessments were to be paid when called for, after the death of a
member. The order grew and prospered from year to year until 1898, when
the management thought it saw the necessity of increasing the rates. It
made 21 at the rate of $1.76 and 54 rate of $7.00. The rise each year was
from 6 to 44 cents. At this time the order had 195,105 members, and the
loss in membership in the order in the next six months was about 10,000.
However the order continued to prosper until after the annual meeting of
the Supreme Council in 1905, when it adopted a new table of rates, which
began at $1.89 at 21 and rose to $16.08 at 65, but from Oct. 1, 1905, all
the members were to be assessed at attained ages, whereas before that
all had been assessed at entrance ages. In other words, on Oct. 1, 1905,
each old member was required to reënter the order as a new member, and
pay at attained ages. New members after that date were to pay at entrance
ages, but all were to pay $16.08 per month on $3,000 when they reached
65 years. At the time of the making of this new rate the order had over
300,000 members. Since then it has lost 50,000 members, and a majority
of its members are opposed to the new rates.
There was no occasion for the new rates, as, under the laws of the order,
additional assessments could have been made, at any time, to provide
for excessive mortality, and the order could have been worked out on
additional assessments until it failed, as it is bound to do.
An organization within the order has been formed to contest the new
rates, and this has brought a suit in the Supreme Judicial Court of
Massachusetts to have them declared invalid. The protestants claim that
when each member entered the order he made a contract to pay assessments
at age entrance, and that while the Supreme Council may call extra
assessments, as mortality may require, it cannot increase the rates,
or compel members to pay at attained ages. Also that the new rates are
unreasonable and will create a surplus of $3,700,000 every year, which
is contrary to the laws of the order and of the State of Massachusetts.
The Supreme Council claims that each member when he entered the order
surrendered all his rights to protest or object to any action of that
body and agreed in advance to approve any action which it might take in
regard to rates.
All of the old life insurance policies of every kind and character are
based on contract, and it was supposed that the rates at entrance in a
fraternal order constituted a contract between the member and the supreme
body of the order. Many of the courts of the several states have so
held, but it was for the Supreme Council of the Royal Arcanum to defy
reason and common sense and to claim that they were the autocrats of the
order. All insurance should be like a deposit in a savings bank, that can
hardly be lost. The Royal Arcanum, however, has depended upon lapses.
Thirty-five is the age usually taken for illustration in insurance. At
that age the average of lapses per 1,000 lives is 37 per cent plus. In
May, 1905, there were 305,083 members in the order. That would mean that
out of 305,083 members if all were of the age of 36, in any year, 111,000
would lapse. The average policy in the Royal Arcanum is $2,231.67 and
out of that there would be lost by lapse, $826.70. If all the members
were 36 years of age, on the whole $680,848,000 insurance in force there
would be lost by lapse, at thirty-six years, $251,923,760 annually. Now
in honest insurance there should be no lapses or forfeitures and in the
insurance of the future there will be nothing of the kind. But on this
plan, no matter how long one has paid, or how much he has paid in, if he
stops paying, he loses all. Misfortune or accident may compel him to stop
paying, but no matter what may be the cause, he loses, and other persons
dying quickly have had the benefit of the money he has paid in. A member
who entered in 1879 at the age of 36 will have paid in on September 1,
1905, about $800, or $30.72 per year. A person insured at the sum of
$3,000 would have to live to the age of 133 to pay that sum out at the
rate for the first 26 years. But assume the insured has paid $800 to
October 1, 1905, and remains in the order. He pays $97.20 the first year
of the new rates, $103.68 the second year and $192.96 the third year
and the same sum each year thereafter. His expectancy is 12.81 years at
63. If he lives out his expectancy, he will have paid into the order,
$3,277.12, or $277.12 more than he will receive. But suppose he should
live till 85 years of age, he will by that age pay in $5,205.72, or about
$2,205.75 more than he can draw out.
Will any man join an order of that kind where he shall forfeit all by
the failure to make a single payment? So long as he can get into a
company which will give him paid-up insurance, extended insurance, or a
cash-surrender value, he will not.
Every man insured in a fraternal association is in the condition of
Damocles. The sword suspended over his head is likely to drop at any
time. The moment confidence is lost the whole matter dissolves like a
rope of sand, and the insurance is gone. Suppose the Royal Arcanum had
ceased to do business on June 1, 1905, $680,648,000 of its insurance
would have terminated at that time, which would have been a loss of
about $2,231.67 to each member. That is, 305,083 persons would have lost
$2,231.67 insurance each. These same persons and their predecessors had
paid in $97,004,175.82 of which $94,790,627.86 had been paid out on death
losses. Since the new rates have been published the order has lost 50,000
members carrying $111,583,500 insurance. Of the sum paid in, $36,090,650
has been paid in by men who have dropped out and the balance of loss is
to be paid by the survivors. Thus it is ever with assessment companies.
They must and will fail as soon as it is demonstrated that the adopted
rates will not carry any organization for a generation. The new rates of
the Royal Arcanum have simply demonstrated the utter worthlessness of
assessment companies, and the value of regular life insurance where each
policy holder contributes a fund to pay his own policy.
The Royal Arcanum is no better than a suicide club, for it is only the
suicides and the weaklings who can have any benefit of the order. The
new rates require the members to pay greater sums in premiums than in
old line companies, and at the same time the company insists upon the
old and exploded system of forfeitures, refuses any paid up or extended
insurance, and any cash-surrender values. Who will sit down to a feast
of this character? No one but an old member who has paid in too much to
stop, and no new man will join the order. The whole scheme of the new
rates was to drive the old members out so that the order would not be
compelled to pay their death losses. The order is an autocracy. There
are twelve life members in the Supreme Council who represent no one
but themselves. Three of these are original charterers and nine are
Supreme Past Regents. There are twenty-nine officers, who as such are
members of the Supreme Council. These thirty-eight by the aid of twenty
representatives can control the Supreme Council, and there is added a
new life member every two years in a new Supreme Past Regent. No one
should be a member of the Supreme Council but some one who represents a
constituency. Yet John Haskell Butler, of 244 Washington Street, Boston,
Mass., controls the entire Supreme body. In this he is ably supported
by W. O. Robson, Supreme Secretary. How these two gentlemen of eminent
talent could be imposed on in the adoption of the new rate, which in
the case of the old member who entered at thirty-six years, compels him
to pay a surcharge of $64.18 per annum more than necessary to carry his
risk, or in his expectancy a total of $1,226.98 more than he should pay,
or 70 per centum more than his equitable share, is more than we can
understand.
The average of the surcharge on all the old members is 67 per centum,
and is 27 per centum higher than the new members pay. Naturally, if the
membership could be held together, these new rates would create and pile
up a surplus, or excess, of $3,700,000 per year over any sum that the
laws of Massachusetts permit the society to hold, which at the present
time is about $30,000,000.
However, the society has never attempted to create any surplus or reserve
over and above about $2,000,000, nearly equal to the proceeds of three
assessments. What kind of financing is this which at one fell stroke
burdens the members with paying sums which will produce $3,700,000 per
year after paying over all mortuary calls? Heretofore the order has
preached for twenty-eight years that the surplus remains in the pockets
of its members and shall so remain. Now it is to be created and placed in
the control of Mr. Butler and his one hundred and fourteen associates who
are souls with a single thought. And what for? What kind of actuaries did
the Supreme Council employ to make these new rates that such a result is
brought about and that the policy of twenty-eight years is reversed at a
single session, without any notice to the members? The members of the
Royal Arcanum, the men who pay the money disbursed by Mr. Butler and his
associates, have no voice in proposing any new legislation for the order,
nor in approving or rejecting any enacted by the Supreme Council. They
must pay whatever the one hundred and fifteen guardians ask of them or
get out of the order.
The $3,700,000 surplus exacted the first year, under the new rates,
is not to be used for paid-up or extended insurance or cash-surrender
values, but is simply to be kept on hand as a reserve. The reserve, which
has heretofore been carried in the pockets of the members, is now to be
transferred to the pockets of the Supreme Council. Why are the members
of the order, who have carried their insurance at great sacrifices, to
have an additional burden placed on them? Why must this great reserve be
created unless for the same reasons it was created in the three great
companies in New York City? What is the object of creating a reserve
when there is no paid-up or extended insurance and no cash-surrender to
be made, and when assessments are required to be called for as needed
to pay death losses? Why should any assessment company have a reserve
beyond a few assessments ahead? What kind of actuaries did the Supreme
Council have to make tables to produce such results? What fit guardians
of 250,000 people are the one hundred and fifteen members of the Supreme
Council who would adopt a table of rates producing such results? The
control of the funds must have driven these one hundred and fifteen
people mad to have produced tables which will so work. Would it not have
been better to have called extra assessments from time to time under the
authority of the laws of the order and of the State of Massachusetts,
until the order was compelled to fail, than to have adopted the new
rates, which are more expensive than old-line insurance and which if
approved in the legal contest now pending will insure the failure of the
order at once?
The only true assessment insurance is to pay the death losses as they
occur, by assessments, and which must include a fund for management and
control. When the assessments become too great the company dissolves and
that is the end of it. All those who have not died during its existence,
or who have lapsed in the same time, have lost their bets, and those who
have died have won.
I am not able to give the number who have been members of the order since
its origin. It could not have been more than 400,000. Of this number
35,000, or one-twelfth, have died. Over 33 per cent., or 133,333, have
lapsed, and if the institution fails, as it certainly will, 367,000 have
lost every dollar they have put in, in order that 35,000, or one in
twelve, might draw prizes.
Such institutions are contrary to public policy and should be suppressed.
Each state insurance department should require such statistics as will
show all the facts any one might wish to know.
If I had the exact statistics, I am satisfied the proportion of those who
pay in and lose would be much higher than I gave it.
The laws of political economy must be evolved just as we evolve those of
nature, and they are as certain when we know them, but any institution
which requires a party to live beyond his expectancy in order to pay
in the amount of his benefit certificate is a fraud. At 21 a man’s
expectancy is 45 years. Now a man at 21 who entered the order June 23,
1874, would have paid in to December 31, 1905, $404. It would take him
over 166 years to pay in the $3,000 at the same rate. As he can never do
that, his death loss must be paid by some one else, and consequently his
insurance by others is a fraud and a gambling transaction.
As eleven persons must contribute to pay the loss of the twelve and then
lose everything themselves, the whole scheme is an imposition contrary
to the interest of society. Eleven men contribute and lose $250 each
that one man’s beneficiary may gain $3,000, and these eleven men lose
every dollar they put in. After twenty-eight years of preaching to the
public that they had found the El Dorado of Insurance, that they were
furnishing insurance at cost and that the members carried the reserve in
their pockets, Messrs. Butler, Robson & Company now come to the front and
admit that all this time their scheme has been a fake and a failure. They
say the unclean spirit departed from them in May last, but I think he
returned to them with seven others worse and they have turned the Arcanum
into a madhouse.
I do not have the personal acquaintance of all the seven, but two of
them might be called Landis and Barnard, because the condition of the
Arcanum is worse than before. Now every member must pay in his $3,000 in
the period of his expectancy, and if he lives beyond it he must pay till
he dies. The new rates indicate that members must die before reaching 65
years, and if they decline, then they must be fined $192.96 per annum for
their refusal to do so.
Any man who enters the order now, in view of what he must submit to at
and after the age of 65, ought to have his sanity inquired into. It is
high time the State should intervene and protect the public from the
schemes of these fraternal orders. The fraternity is humbug, and for
every loss paid there are many more losses to society from which it
should be protected. The correct scheme of insurance has not yet been
discovered or announced, but when it is it will not be gambling or
commercialism, but will be simply indemnity—which it should have been
from the start.
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