Industrial Insurance

Premiums are payable on definite days and unless the policy provides otherwise, the payments must be made with absolute promptness. A grace of thirty days is allowed under some policies, and one month under others, after the first years' premiums are paid. The insured should distinguish between thirty days and one month in this case, as otherwise the policy may be allowed to lapse by failure to make payment on the proper day.

There are two principal ways of disposing of the profits in mutual companies arising under life insurance policies, viz:- annual dividends and accumulation of dividends.

An annual dividend policy is one in which the profits are payable in cash to the insured each year as they accrue. An accumulation policy is one in which the profits are allowed to accumulate for a given term of years usually for the length of time the policy has to run. When dividends are deferred for periods of five, ten, fifteen or twenty years, the option is usually given the insured to withdraw the accumulation in cash at that time or apply it to increase whatever form of surrender value is selected. Under accumulation dividend policies, no part of the profits already accumulated is paid in the event of withdrawal or death during the dividend period. Different companies have different designations for an accumulation policy, a few of which are "tontine," "semi-tontine," "deferred dividend" and "distribution" policies, all of which are based upon the same general principle.

Dividends

Payment of Premiums Dividends

A favorite method of a few companies is to guarantee a certain dividend on a policy and call it a "guaranteed dividend" policy. Another plan of theirs is not to pay any dividends on a policy but to make a definite guarantee of a dividend payable at maturity of the policy. Such is called a "non-participating" policy, meaning that it does not participate in the profits of the company. A guaranteed dividend policy, unless it provides for additional divdends, is in reality also a non-participating policy.

As several elements go to make up the profits of a company, such as mortality, interest rates, lapses, expenses, etc., a life insurance company never makes a guarantee without a loading of the premiums for all contingencies. "Loading" is a certain allowance made and added to the premium in order to cover unexpected losses or expenses before making a guarantee. While guaranteed dividend and non-participating policies have their uses, it should be remembered that any results procured under either would have been received under a dividend paying policy and also usually a considerable amount of profits from the loading of the premiums which a company very seldom has use for, but for which every insurance company must make allowance in order to be perfectly sound and safe under all possible conditions.

While there is a great variance as to the wording of life insurance policies in reference to their restrictions and conditions there is almost as much difference in reference to the relative advantages in case of the lapse of a policy before its maturity. In many companies after a policy has been carried three years or more it has some value, provided the policy is surrendered to the company issuing it within a certain length of time. In some companies a policy would have a value, had only one annual premium been paid thereon.

Some companies provide, in case of lapse, for a paid-up policy for a smaller amount payable at death no matter when the insured should die thereafter, while other companies have a provision that the policy shall run on for a certain period of time for its original amount of insurance, the length of the extended insurance of course being dependent upon the value of the policy at the time of its lapse. Some companies also provide cash values and loans in lieu of paid up or extended insurance. The policies of many companies provide that within a certain length of time a lapsed policy holder may be re-instated, provided he is in good health and pays back premiums with interest to the date of his re-instatement.

When a few years ago the privilege was given the insured of surrendering his policy in exchange for one of paid up insurance, it was called a "non-forfeiture" provision. And when upon failure to pay a premium the insurance is extended by virtue of former payments, this is called "automatic non-forfeiture." Under a nonforfeiture policy it is now customary to permit the insured to resume the payment of premiums at any time before the value of the policy has become exhausted by lapse, the past due premiums and interest thereon being paid in cash or permitted to continue as a loan from the company.

The policies of many of the companies are now made incontestable after a limited period, and one great company issues a policy which is incontestable from the date of issue. Such policies were issued in England before they were introduced here, an extra premium being charged. By this clause the company waives its right to contest the validity of the policy for any reason whatever, and yet it is a question whether, in case of fraud, the company would not have the right to contest.

The policies of many companies provide that after the insurance has been carried two, three or five years, according to the method of each particular company, the company will make liberal loans on the policies as collateral security, at a reasonable rate of interest, usually 5%. Life insurance policies are also frequently used as security for loans from banks or brokers. Debtors are sometimes required by their creditors to take out insurance for the benefit of the latter, so that if the debtor should die, the debt will be provided for.

Life insurance policies may be assigned the same as any other valuable asset. Unless payable to the insured himself or his estate, the beneficiary must usually join in the assignment, but the policies of many companies are so written that the insured may change the beneficiary under the policy at will without her consent or knowledge. Of course the company must consent to the assignment.

The modern life insurance policies on limited payment life and endowment plans are so written, that in case the insured lives to the date of its maturity he will have a good investment. It must of course be understood that strictly investment insurance is written on an endowment plan. Take for illustration a 20-year endowment policy of $1,000 which matures for a little over $1,500 in cash at the end of 20 years, provided its profits will have been allowed to lie and accumulate. Such a policy will have made about 4% compound interest and furnished insurance for 20 years without cost.

Stringent laws in nearly all the states regulate the character of the investments of the policy holders' money and safe guard his rights in so many ways that it is practically impossible for an old line life insurance company to fail. Every company is forced each year to lay aside a sufficient sum of money which compounded at a given and very conservative rate of interest will be sufficient to pay any guarantees contained in its policies. For instance, in the case of an endowment policy the amount laid aside each year must be sufficient when compounded either at 3 of 4% interest according to the rate used to produce one thousand dollars at the end of twenty years. The amount of assets is so enormous that the companies are able to hire the best financiers that are obtainable, each a specialist in his line, to handle and manage their vast interests. These men have a knowledge of how and where to invest money that the poor man or the man in moderate circumstances has no means of knowing. Insurance provides a way whereby the poor man can invest fifty or a hundred dollars a year to as good an advantage as the wealthy. It must not be assumed, however, that those in moderate circumstances are the only ones who invest in life insurance from either an investment or from an insurance standpoint, as our best and wealthiest business men are found to be the heaviest carriers of insurance.

Originally when one failed to pay the premium promptly on the day it was due he divested himself of all rights and equities under his policy. Under the level premium plan, it must be remembered that the insured pays a higher rate during the first part of the term than the insurance actually costs in order to counterbalance any deficit which may arise in case he should live to an old age. Now if for any reason the policy is allowed to lapse, it is apparent that the insured has overpaid the cost of insurance. Out of this condition has grown the doctrine of the surrender values of life policies. In 1861 a law was enacted in Massachusetts called the "non forfeiture" ]aw, requiring all companies to give extended insurance as a compensation to the insured in case of lapse of policies. About this time the New York Life Insurance Company introduced a policy of whole life insurance paid up in ten years and inserted the condition that it could be surrendered after being in force for two years, for paid up whole life insurance for as many tenths of the original amount as full years' premiums had been paid. Other companies adopted the policy of allowing liberal surrender values in the form of insurance. The next step was to make the surrender value payable in cash and this came in 1880. Most policies, after being in force for a period may now be surrendered for paid up insurance, for a cash value or for a life or temporary annuity.

As previously stated, many policies now provide that at their maturity the insured may take an income for life instead of taking cash or paid up insurance. In England and some parts of continental Europe, the custom of purchasing annuities has been in existence for a very long time. In America, however, the custom has begun to grow only within a comparatively short time. An annuity is usually purchased by the payment of a lump sum to a life insurance company. The company issues a contract to pay a certain amount yearly to the annuitant as long as he or she may live, the annuity stopping at the annuitant's death. An annuity is also issued with the provision that if the annuitant dies before receiving the amount of his or her original payment back, the insured balance would be payable to the annuitant's estate. A large amount of insurance in this country is supplied by fraternal or assessment associations upon the plan of assessing all survivors pro rata in case of the death of a member. The success of this plan depends upon keeping the association supplied with constant accessions of new members who are young in years in order that as the policy holders attain greater maturity of years the average death rate may not be increased so as to cause an increase in the frequency of the assessments. For if the death rate increases the effect is to drive out the young members, prevent young and healthy lives from coming into the association and leave only the old and decrepit members who are unable by reason of their advanced years to obtain insurance elsewhere. Some of these fraternal associations are now accumulating a reserve, while others have adopted the plan of a graded assessment, increasing as the insured advances in years, in order to meet the increasing death rate.