In other words, the companies go on requiring the payment of the same premium from the party proposing to insure, one third of which is for claims by death, when income from investments more than pays this important item.
But it may be said that the surplus returns to policy-holders are proportionately larger, when claims by death are more than met by income from investments. This surely is the result that would naturally be looked for, and which should be realized; but unhappily it is not always the case. The writer holds a policy in one of the companies referred to above, and has paid premiums on the same for some twenty-five years. Judge of his surprise when, three or four years ago, he was called upon to pay 20 per cent in excess of the premium he had been paying for years; and when an explanation was asked, the reason given was that the per cent realized from investments was much less than formerly. Yet this same company more than pays its death-losses by income from investments. This is not an isolated instance.
Many readers of this article have, no doubt, enjoyed (?) a like experience. Is not such a system of insurance fairly open to criticism in its practical workings?
But perhaps the most astonishing feature of level-premium insurance is found in the fact that there is absolutely no obligation assumed on the part of the company, and no power anywhere to enforce an accounting for the vast sums entrusted to it, so long as it can be made to appear that it holds securities in the aggregate to meet the legal requirements of a reserve.
These vast sums of money are paid in by policy-holders without any knowledge of, or means of knowing, the uses to which they will be applied. They know, in a general way, that a part of the premium will be used for reserve, a part for expenses, and a part for losses, but how much will go for each purpose they have no means of ascertaining. The company places it all in a common pot, and can put in the hand of extravagance, of avarice, or of dishonesty, and take out any amount for personal aggrandizement, or for expense of management, so long as it can be made to appear that the legal standard of reserve is maintained. There is absolutely no limit put upon the extravagant conduct of the business. There is no separation of trust funds from expense account. No man who insures in a level-premium life company knows whether such company will use for expenses $5 or $25 for each $1,000 of insurance which he carries. He has the vague promise of a dividend,—falsely so called, for it is really nothing but a return of a part only of his own money which he has paid in excess of what he should have paid,—and this vague shadowing of some possible relief of the excessive pecuniary burden he is compelled to assume if he insures, is all that is given him. There is exhibited here the most astonishing credulity, and, too often, as thousands can testify from sad experience, a misplaced confidence on the part of the insuring public, that seems childlike and puerile in the extreme.
The official reports of Level-Premium Life Companies to the Insurance Departments of the several states show that these companies actually use, for expense of conducting the business, from $6 to $25 for each $1,000 of insurance outstanding. A man carrying $10,000 insurance for his family in these companies must pay on the average, for the expense of the business, about $80 per annum, and if it should be twice or three times that amount he has no redress. Should not these companies stipulate, in every policy, a sum for expenses which could not be exceeded? Should they not separate the mortuary and expense account, and contract with every policy-holder to use, not exceeding a specified per cent of the premium paid, for expenses, and to hold the balance a sacred trust for the payment of claims, the surplus above such requirement to be returned to the insured? To what other branch of business would men apply such unbusinesslike methods as to pay two or three times the value of the article purchased, upon the implied or real obligation of the seller to return, at some time in the future, some part of the overpayment, but with no definite agreement as to how much, or at what time it should be returned? What merchant could maintain his credit for any considerable time if he made his other purchases as he does his life insurance? Life insurance is a commodity to be bought and paid for at a fair market price.
In the earlier history of the business, there were no data at hand to fix its value. Experience of fifty years and more has furnished such data, and its value can now be determined with very considerable closeness, and very far within the charges of level-premium companies. There should be some margin charged above probable cost, as shown by the experience of companies; but such charges should not contemplate nor admit of such extravagant expenses as have, and do now, obtain in level-premium companies. The experience of assessment companies has shown that the business can be done for from $2 or $3 at most, for each $1,000 at risk.
Is there any reason why level-premium companies should not be limited to twice that amount? The recent law governing assessment insurance in Massachusetts requires that in every call for an assessment it shall be distinctly stated what the money is to be used for, and no part of the mortuary fund can be used for expenses. Will any man say that assessment insurance is not in advance of other forms of insurance, in these respects at least?
Another important objection to level-premium insurance is found in the fact that it has drifted away from its primal purpose. Originally it contemplated simple life insurance.
Its intent was to offset, to some extent, the loss incurred by the family in the death of its wage-earner. The death of the father involves the family in a pecuniary loss represented by the amount of his yearly earnings, and if this occur before he has had time to accumulate a surplus above yearly expenses, the hardships of poverty are added to the pain of separation from so valued a friend. Life insurance was intended to come in with its benefits at such a time, as the result of forethought on the part of the father in depositing a part of his savings with the life company. If this simple form of insurance had been adhered to, the temptations to unwarranted and hurtful competition would, in a large measure, have been avoided; but with most level-premium life companies this form of insurance is now largely neglected, and their energies are given to other forms, some of them highly speculative in their character. Contrary to the original purpose of life insurance, banking has been combined with insurance, and people have been taught to believe that they can secure better investments through life-insurance companies than elsewhere. It has never been clear to the writer how such results can be reached, in view of the excessive cost of conducting the business. Any suggestion of this kind, however, is at once met by the reply that the company has an immense amount of money invested, from which it derives a large income.