Omaha daily bee., 1893-10-01
BoND ~ vHsrMnNr COMPANIES.

ALICE G.. WILLARD.
---
BOND IN YEo IN n COMPANIES.
President Driggs Defends Them Against
Criticisms Made by the Newspapers.
OMAHA, Neb., Sept. 2S.-To the Editor OF
The BEE: Several articles have appeared
in the columns of The BEE during the past
four or five weeks, in which the authors
have endeavored to hold the bond invest
ment business up to the public gaze in the
worst possible light. AS but two of these
articles were editorials (the balance commu-
nications) it would seem that some person on
the outside Is manifesting'a very unselish
interest in the welfare of the people in gen.
eral.
For selfish motives n man will sometimes
lay himself open TO the charge of libel, as
has the writer of the article in the Sunday
Morning BEE, headed, ''scotched but not
squelched, v but it is a rare thing that one
lays himself on the altar of sacrifice solely
in the interest of the public. So rare, indeed,
that we generally look for another motive,
and If one can be found of a personal nature
the people are not slow to recognize the real
reason.
The article referred to in The SUNDAY BEE
contains false statements which lead me to
reply, and in so doing l will, with your per-
mission, give to the public some information
III iSiiy w VI WI tItlIICS lIOUl VIC SUIlle
source, appearing in The BEE during my alb
Sence east.
AS usual with men who have no argument,
ridicule has been thrown at the statement
that the life insurance underlies the opera
lions of bond Investment companies. Let
us investigate insurance a little and make
some comparisons.
Before me as l write is a copy of the re-
port TO its policy holders of the Equitable
Life Assurance society of the United States,
pnup,sin p itS nnn,,nt tpnS fnr tSlC IN ,.n rn Ce
of this report, under the heading, "a Brief
description of the Tontine Policy" |
read: IF the policy holder should
chance to die within n stip-
ulated period Called the tontine
period) the full amount assured is paid to
the beneficiary, but without profits. If,
however, the policy holder does not die he
himself receives a liberal dividend of profits
at the end of the period. Moreover, the
policy holder is not forced to continue it, but
is given the opportunity of withdrawing
from the society on most advantageous
terms at the end of the period" The period
is either ten, fifteen or twenty years, as the
policy holder may select at the beginning.
Following this, on pages 81 to 32 inclusive,
are six examples Ito quote from the report)
''given to show the results accomplished IN
the last twenty years" These examples are
of twenty-year tontine policies, issued in
1873, t%ontine period complete in 1893. At the
age of SO the annual premium charged was
S47.lS. 1t follows, therefore, that every per-
son aged 80 taxing a tontiue policy
with This company in 1873 dying the first
year bequeathed to his beneficiary
s 1000 at a cost of S47. Is, making "a profit on
the investment of over . 1000 per cent. say
investment because life insurance is but an
Investment, the returns of which are pay
able upon the contingent of death. Those
dying the second year leave thesame legacy,
but at double the cost, still with nearly | 900
per cent profit. Those dying the third year,
the same legacy at n profit OF over 500 per
cent, and SO on. Every year of the twenty
the company has been paying these
profits, or playing this something for nothing
game. The question may very properly
be asked, where does the money come from
to do this? Does it come from the company's
pocketsl
AT the beginning of 1873 (close Of 1922
their assets were 49, 95, O53 surplus, 81 ,594,-
746. During these twenty years, until the
close of 1892 lend of the tontine period),
they have increased their assets to sl53, O6O,-
052, or nearly 800 per cent increase. Sur
plus increased to S3l 1898, or over 9, 900
per cent increase. Surely the enormous
profits paid to beneficiaries during these
twenty years never came from the company's
till. Perhaps it was contributed by the sur
viyors, who are privileged to withdraw at
the end OF twenty years on advantageous
terms. Among the examples previously re-
ferred to j find on page 81, policy
No. S0,333 for $1,000, age at issue 20, total
premiums paid S4,7S2, present cash value
SS,OO2. 50, being n return OF Sl61.3 5 for each
500 paid in premiums. On the last page OF
the report l read: Every toDtine policy is
sued by the Equitable society twenty years
ago, whose tontine period expires in 1898,
has a present cash surrender value greater
than the sum of the premiums paid. All
twenty-year tontlne endowment policies
show a return OF the premiums paid with in
terest at rates between q and I per cent per
annum." Surely the profits are not from
this source. Where, then, shall we.look for
this profit If the company has grown rich,
the survivors received all their money bach
with interest, and the payments by the de-
ceased could not possibly earn it,
1t is claimed that as insurance policies are
nonforfeitable after three annual payments
have been made, that the lapses are very
light. Let US investigate. The Equita BILE
company wrote in 1892 500, 400, 3l6 new bust
ness. They show an increase of outstanding
insurance for tho year of $40, 067, 6SS, therefore
a cancellation of Sl54, 422, 62S. Their detailed
report TO the insurance commissioner shows
paid to policy holders SIC, 534, 447, of which
1888, l02 was paid for the surrender of s24,-
lbs, III Insurance., thence the SIG, 534,447 can
celled S36,S3S,9ll, leaving 'Sll7, 500, III can
celled without | cent cost to the COMPANY.
In other words these figures represent the
lapse element In Insurance. The premium
income for 1892, S3i, 046, sos, divided by out
standing insurance, shows an average
premium collected for the year of S4G. If
the lapses above shown had paid this aver
uBc premium DuI once, tne pfOlt from This
source in 1892 was "a, 700, 74S, or nearly one.
half the amount of death claims paid in the
same year, $40, 46l ,9S2.
The combined reports of thirty-one COM
panies for 1892 show total cancellations dur
ing the year of $500 ,345, 652. Total payments
to policy holders by same companies, S9S, $751;
1853; difference or cancellations without cost
to the companies, 1904, 963, S94, or l2% per
cent of the business in force at the close of
the year.
In these figures we find the solution to the
problem, an answer TO the question, where
does the money come from 10 pay these
profits already showu2 H. is argued thar
lapses in life insurance are Offset by the
risk taken. Every policy issued is called a
risk taken. The Equitable company quotes
from DeMorgan; "Other things being
equal, that company is the safest in which
the largest number is iIsured.n Is it not
strange that the greatest safety lies in in
creaslng the risk The fact is there is no
risk. Insurance companies operate upon
the law of averages which has
been determined by past experience.
They can tell in advance how
many deaths will occur in q given time.
among a given number OF people. They
know from the same source how MANY lapses
they can expect and the only problem they
can solve IN advance is the amount they will
lose by poor investments, il they make any.
1 LRaAna thai, a. at, a. 1890, a.. -