Omaha daily bee., 1905-09-17

EXCESSIVE COST OF LIFE INSURANCE.
In the avalanche of controversial liter
allure stimulated by the revelations of
graft and extravaganza in the manage
ment of the big life insurance corpora
lions a dispassionate discussion of the
ance contributed by Allan II. Wilett of
Brown university to the current Political
Science Quarterly, is a refreshing and
instructive exception. The information
for the most part out of the 1904 reports
of the insurance departments of Con
necticut, Illinois, Massachusetts, Mime
sofa, New York and Ohio. covering the
business of twenty four companies for a
period of twelve months.
The theory of life insurance is that
the premiums paid by the various policy
holders should on the average furnish
enough money to pay the maturing death
claims as they become due, and the ex-
penses Of management and administra-
ton less the income from invested re-
serves held for the benefit of the insured
and the reasonable profits on the money
actually paid in by the stockholders. The
annual premiums paid on each insurance
policy may be roughly divided into sew
eral parts-One to meet the claims of
those who have died during the year, an
other TO be set aside as a reserve to bal
ance the fiat premium rate and another
representing the loading out of which the
expenses OF running the business must
come. The Investigations of Mr. Willett
disclose the fact, with relation to the
companies under consideration, that the
premium rate is adjusted according to
the American mortality tables; that the
deductions on account of the earnings of
the reserve are calculated on the basis OF
investment at from per cent to 80 per
cent interest, and that the loading for
expenses is simply an arbitrary per-
centage added in, to furnish whatever
sum of money is desired for this pur-
pose.
The experience of American life COM
panies, however, has proved beyond con-
troversion that on the lives accepted as
insurabIe the American mortality tables
are far from accurate and that the vari-
alton is all in favor of the insurance
company, averaging n saving to them
on mortality of over 20 per cent. In the
matter OF earnings from reserve invest
hn 10
fails 10 correspond with the facts, be-
cause the reports show investments to
he on an actual basis Of from per cent
TO 3 per cent giving an excess of inter
est earnings OF nearly, II not quite, per
cent Again, in fixing the premium rate
schedule the effect Of lapsed and sur
rendered policies is entirely neglected.
when the truth is that of thirty-one COM
panies reporting to the Connecticut In
surance department the average number
of policies terminating by lapse. sur
render or change was nearly IS per cent,
of which 60 per cent represented Iapses
and surrenders alone. Although I'm mod
ern life insurance practice the cash sur
render value Of policies thus terminated
is supposed to be returned. payment of
the surrender value still leaves a good,
fat margin Of profit in the hands of the
companies.
Notwithstanding all these excess
sources of revenue, the loading for the
expense account is, as a rule, made 50
as TO require the pollcyholder in his an
nual premiums to pay the entire cost of
management and administration. To
quote the conclusion reached by the
author from his study Of the figures,
''the gain and loss exhibit Indicates that
but for the depreciation of securities
during the year 1903 the insurance Cd.
eratiOns OF that year would have brought
In a profit OF more than $4,000 OO0 e
be returned to the policyholders. oi
| added to the suTpius." with no i'm,