Vermont phÅ“nix. [volume] (Brattleboro, Vt.) 1834-1955, 1881-01-21
Life Insurance and Its Nismanage-
mani.

Under the caption 'Does Life Insurance
Insure ?" a writer in the January number of
Harper's Magazine severely criticses the Or
binary system of life insurance in vogue in
this country. The amount of business trans
acted by life insurance companies in the Unit
cd States, though less than it was few years
ago, is enormous, amounting TO 81, 705, OOO,-
900 on l, 100000 lives-a sum representing
more than one-twelfth of the entire capital
wealth of the Union The question in re-
gard to the system and its management be-
comes, therefore, one of national as well as
individual importance.
In the matter of insurance, the first requi-
site is safety but statistics show that, of
thirty-six companies which have started in
New York state alone since 1861, only four
remain, most of them having failed OF all
American companies, two have failed thus
far, to one that survives while not one of
our surviving companies has yet reached the
critical period of its career-the age when
heavy pressure from death claims might be
expected. But this pressure, it must be add
ed, is not likely to be felt by any of our COM
panies for the reason that the vast majority
of policies are confscated for non-payment
of premiums. This is done generally at an
early period in the so-called investment. The
average duration of an American policy is
only about seven years. OF the multitude of
policies which terminate yearly, only one in
ten natures by death.
The companies make their money in seye-
raj ways: l, They make large profit by
receiving interest at six or seven per cent
and paying their policy holders when they
pay at ALL at four per cent. 2, In computing
risks the companies use tables which give a
death-rate considerably larger than that which
they expect in practice. Having computed
the chances below the average, they then pick
out and insure only lives above the average
3, Every premium on life-policy is compos-
ed of three distinct elements-the net pre-
MUM, calculated more or less equitably from
the mortality tables. This is intended to in
sure the risk of death within the average life
time. Second, the reserve, or self-insurance.
This is the yearly payment which will amount,
at four per cent, TO the face of the policy at
the time of the average lifetime; it repre-
sents the policy-holder's own money, put out
at interest for him. Third, the charge for ex-
penses, which amounts to one-third of the
whole premium. T. Another source of profit
to the companies, in amount far exceeding all
the rest, is the previously mentioned confsca-
ton of the vast majority of policies issued.
In 1876 one New York company confscated
about 2j00 policies-nearly as many as it is
sued OF these, 1854 were absolutely for
feited, the holders getting nothing for them.
In another company, during the same year,
5000 policies were terminated, of which only
about 300 were by death. Another company
issued 5000 policies, and confscated 1900 In
1871, surrender swallowed up SO per cent of
the policies which were terminated in the
New York business.
These are the chief sources of the profits
of ordinary life insurance companies, and it
is plainly to be seen that they are vastly in
excess of equity, and that the cost of insur-
ance is proportionately too great. OF these
excessive profits, the agents promise to return
great part in dividends but only small
part of them is actually 80 returned. The
whole system of dividends to policy holders
is wrong The promised dividends are bait
to the public, and the excessive premiums
which make them possible tend to demoralize
the business by leading TO extravagant expen-
diture and loose management, which too often
end in collapse.
A few facts as to how the receipts are
spent; OF $IOO,OOO,OOO paid annually in
premiums TO all American companies. only