The Scranton tribune. [volume] (Scranton, Pa.) 1891-1910, 1899-10-27
LIFE INSURANCE.

Editor of The Tribune
Sir: In your issue of Oct. 9th you drew
some comparisons in regard to life insur-
anCe as to the cost or expense of man
agement between the Three Giants" as
you were pleased to term them, and the
smaller old line companies. AS the ques-
ton of life insurance is rather a complex
one and one which any layman or out
slider is eXCusable for not thoroughly un-
dcrstanding, / take the liberty Of submit
ting to you the following statistics in
hope that you will give them space in
your paper;
BY a careful study of the expense
tables for 1899, we find that the average
expense rate for the three so-called
Giants is 17ia per cent of their total in
come. OF the forty smaller companies
operating and chartered under the laws
of the United States, we find the average
expense rate was 20 per cent. From the
above facts you can easily see that you
were mistaken in your statement that
the cost of business in comparison with
the smaller companies was excessive in
the larger companies. Well knowing that
the public generally heSitates to go into
figures, / will avoid as much as possible
using the tables or statistics and make
the matter as plain as 1 possibly can by
stating that these ratios of expense are
however, by no means reliable. Both
Taber and Lewis, our authorities on In
SuranCe, tell us that it is impossible to
determine for any company the value to
the insured of a high or low expense rate
For instance, we have among the smaller
companies one company that has the eX-
tremely low expense rate of II per cent
and another of 11l2 per cent. Apparently,
this low expense of management would
indicate a better return to the policy
holder. But does it do so? AS a matter
of fact, experience demonstrates that this
low expense rate has not made the in
surance any cheaper to the insured. on
the contrary, the two companies that
have this exceedingly low expense gate
have not increased their membership to
any appreciable extent in past years. y
stationary membership means an IN
creased mortality; and in those two COM
panies we have a mortality of 81 and 92
per cent, respectively, of the American
expectation of loss. Whilst in the three
larger companies we have a higher eX-
pense rate and a death rate very little in
excess of GO per cent. of the expectation.
You will therefore see that the contract
of the pOlicy-hOlder insured in the larger
companies may cost little more in ac-
tual expense of management, because
those companies are putting large
amounts of new business on their books,
and new business is necessarily expen-
sive. But, on the other hand, the gain
by reason Of this rev business in the low
mortality Of the company would more
than compensate for the extra expense
rate five times over.
l would draw no invidious comparisons
between the larger and smaller COM
panies because L believe the interests of
life insurance are admirably and cheaply
served in nearly all of our legal reserve
companies. But in order that the matter
may be more clearly understood | win
give an illustration of what is really the
component parts of a life insurance con-
tract:
We will take ordinary life for instance
(this means whole life policy payable
annually as long as the insured may live),
at age 80, the premium on which on
per cent. basis would be about $2S per
thousand OF this SOS each company, do
ing a legal reserve business is compelled
to put into the reserve. under the SUPER
vision of the different states, $12.SS. The
allowance demanded by the American
experience of mortality is $S95. These
two amounts which must be collected
Zone to satisfy the laws of the state, the
other to satisfy the laws of nature) to-
gether with $6,2S for expense or emergen-
CY fund make UP the total sum of $2S
The dividend which each company pays
| is the returned portion of the expense
and emergency fund which remains un-
used by reason of economy of manage
ment, and that portion of mortality which
remains unused by reason of a lower
death rate than that expected, together
with the interest earnings in excess of
3 per cent. on the reserve and whatever
| other assets the company may hold.
From the above table we will gather
that the only possible way to cheaper in
surance to the policy-holder would be to
reduce the premium on the policy, such
reduction to come out of the $6.2S of
the expense and emergency fund. This
might be done to a very limited extent
with safety but life insurance cannot
| deal with chance 1t is far safer to keep
! the expense and emergency fund at its
present rate, returning to the policy
holder the unused portion Of this fund.
rather than to take the risk that would
| be necessarily incurred by reduction of
expense in advance.
| would further say that in this table
of expense Of the forty smaller compan-
! les doing business throughout the United
| states, l have counted the expense of
| the industrial companies, or companies
| that do both an industrial and ordinary
! business. This expense rate is unfair to
! those companies, because, necessarily
| their industrial business is more expen-
sive than the ordinary branch, but it
| only serves TO show the fallacy of ratios
of any sort in life insurance.
As life Insurance expert remarked to
me a few days ago; Ratios are the
| most gentlemanly manner of lying eX-
| tant.' The most of cur companies are
mutual companies and thus guarantee
to the insured his insurance at cost The
| stock companies are economical and ably
| managed, and to any one who prefers
| stock insurance TO the mutual plan, a
| cheap insurance is guaranteed.
| We now come to the question of lapses
You assumed in your article that all in
| surance was taken for the sake of pro.
lection, and that a lapse means msfor-
| tune TO the insured. To any student of
! insurance this assumption is manifestly
| untrue All insurance men know that at
| lease 80 per cent, of the insurance sold
Is sold not primarily for protection but
| for investment, In many instances peu-
| pie take policies TO cover a debt. When
the debt is extinguished, having no fur
! ther use for the insurance, they with