The Hawaiian star. [volume] (Honolulu [Oahu]) 1893-1912, 1905-07-14

sues the BItdltI IlOItlbll VI llS pOlltltS
on the deferred distribution period plan
Under this system, the excess portion
of the premium is not returned to the
policyholder annually, but is retained
by the society for various stipulated
periods of years Casually twenty years)
and the accumulations then paid in one
sum. The advantage which is held out
to the policyholder under this system is
that he not only eventually receives all
the natural accretions of his own policy
but shares in those which were earned
by the policies of those who were I'M
able to continue them to the end of the
stipulated term. The question as to
the ethics of extending the hope to one
policy holders that his prosperity will
be increased through the misfortune
of another policyholder, is purely aca-
dcmic, and need not be discussed here.
AS each polcyholder understood the
conditions, and accepted them, with the
hope that he would be in the fortunate
class, he would seemingly be estopped
from complaint if events forced him in
to the unfortunate class.
But entirely aside from this question
as between the individual policyholders
there can be no doubt concerning the
at least pOtentiality of evil which this
system Of deferred distribution pos
sesses.
When annual dividends are paid, the
policy-holders has an immediate and
yearly recurring check upon the opera
tons of his company. He is enabled
and is quite apt to compare his results
with those of his acquaintance fnsur-
ed i'm other companies. EXtravagance
in management and errors in invest
ments are at once reflected in decreas-
ed dividends or impaired surplus
On the other hand the holder of a
twenty years distribution period policy
has no knowledge whatever concerning
the earnings of his policy until the ex-
piration of the twenty years. He con-
not make comparisons with the results
in other companies because he does
not know the results in his own case.
He entertains hopes for nineteen years.
and if dissatisfied with the realization
at the end of twenty years, it is futile
FOR him to protest. The incident is
closed.
These conditions are mentioned for
this purpose-to illustrate the possibn
ity of the deferred distribution policy
leading the society into a generally lax
method Of handling its business.
The annual dividend company is held
to accountability every year. The de-
ferred dividend company is never held
to accountability by the whole body
of its policy holders: and is so held by
its individual policyholders only when
their opportunity for action has pass
ed.
This absence of accountability makes
possible the pursuit of rapiditv of
growth at undue cost, because the eff
fort of that cost is not felt by the
policyholders until, as said before. it
is too late for his awaiting protest.
Another embarrassing outgrowth
from the deferred dividend system is
the popular misrepresentation Of the So
called surplus"
The society's published report shows
surplus as at December 81 1904 of
$SO,19i269; and popular sentiment de-
mands that this enormous sum be di-
vided among the policyholders. There
is even seen a discussion of the owner
ship of the surplus-as between policy
holders and stockholders.
As a matter Of fact, the actual sur
plus of the society on December 81,
1904, was $3.50 900 was apportioned for
dividends payable in 1905, and. $G3, 500 900
is merely a reserve against a future
contingent liability. That is. it is the
amount which has been earned by the
total number of deferred dividend po-
licies and which becomes a direct liza
bility as each individual policy ma
lures.
The soliciting agents of these COM
panies which write almost exclusively
deferred dividend policies habitually
state that the superiority of that form
Of policy /" demonstrated by the fact
that the public invariably selects it
in preference to the annual dividend
policy.
As bearing on this statement, it is of
some interest to know that the Equit-
able Society allows its agents commits
sions and expenses of so per cent of
the first premium on deferred dividend
policies, while it allows them but % per
cent on annual dividend policies.
The Northwestern Mutual for many
years wrote almost exclusively deferred
dividend policies. A few years ago it
adopted the system of not requiring
the insured to declare the form of dis
tribution desired, when taking out his
policy; but of sending him at the end
Of the second policy year a statement
of his dividends, and allowing him to
elect at that time whether he would
take his dividends annually or at the
end Of a specified period,
In 1901, the Northwestern wrote 90
233 policies. In 1903 all but 76S Of these
chose to take annual dividends.
In 1902, the Northwestern write 80, $50
policies. In 1904, all but $40 chose to
take annual dividends.
These facts clearly mediate that on
its merits alone the public prefer the
annual dividend policy, and the senti-
ment in favor of the deferred dividend
period is artificial.
From all Of the foregoing we have the
departure from the true principles of