Page:The New International Encyclopædia 1st ed. v. 12.djvu/251

* LIFE INSURANCE. 229 LIFE INSURANCE. the entire benefit of the original selection is lost within live or six years. The original selection of risks was made chiefly on the results of the medical examination, which the company aims to have conducted with great thoroughness and caution. The medical ex- aminer is required to ascertain from the appli- cant personally all needed facts relating to family and personal history, as well as to present physi- cal condition and evidences of past disease, and also to judge of the risk. Among the facts to be elicited are the following: age and occupation of the applicant, residence, and all previous places of residence, as well as facts concerning expected removal to a new locality ; whether or not he has been rejected or postponed because of illness or risk : use of liquors and of tobacco ; service in army or na-y. or rejection by recruiting officer; height and weight; race and sex; presence of hernia, or results of accident or injury: heredi- tary intluences, as inferred from age and condition of health of parents and of fourgrandparents, if still alive or at time of death, with cause of death in each case; similar facts regarding brothers and sisters; existence of pulmonary tuberculosis or insanity in any part of family; all diseases from which applicant has suffered, with date, duration, severity, and result in each case, as well as name of attending physician; present condition of physical health and evidence of tendencies toward disease. Moral hazard must be considered as well as physical condition. From this informa- tion the examiner is asked to judge of the risk, as if personally insuring the applicant, for a par- tial guide for the medical director. TERjifiNATioN OF POLICIES. There are five ways in which life-insurance policies may be termi- nated : by maturity, by death, by expiry, by lapse, or by surrender, the method of settling endow- ment policies at maturity is simple and presents few points of interest. The payment of death claims is hedged about with more formality. Formerly companies were disposed to take ad- vantage of technicalities in order to avoid pay- ing claims, but at the present time reputable companies show commendable willingness to set- tle on receipt of proofs of death. In the nature of things the chief reliance for such proof is on medical testimony. L.iPSES .yv SiRBEXDEBS. A policy is said to lapse when the insured fails to pay a premium at the stipulated time. A policy is surrendered w hen the insured gives formal notice to the com- ])any of his desire to terminate the policy and receive its surrender value. The proportion of policies surrendered or allowed to lapse is very large. During the decade 1891-1900 the regular life-insurance companies reporting continuously to the Xew York Insurance Department issued policies on which the first premiums were actual- ly paid which carried insurance to the amount . of seven and three-fourths billions of dollars; during the same decade they wrote off their books more than five billions of dollars. The amount terminated by lapse or surrender during the decade exceeded three and one-half billions of dollars. The lapses and surrenders were there- fore 4.5 per cent, of the total amount written. 70 per cent, of the total amount terminated, and nearly twice as much as the amount terminated in regular ways, that is. by death, expiry-, or ma- turity. The blame for this unfortimate state of things must be laid at the door of commission- seeking agents. Further evidence of their exces- sive zeal is seen in the fact that of the total amount of insurance written by the companies considerably more than 10 per cent, is never issued becau.se the applicants fail to pay even the first premiums. Surplus and Resee'e. If all insurance were pure insurance without any endowment element, and if it were alwajs paid for on a natural- premium plan, the question of lapses and sur- renders would have comparatively little signifi- cance. Under .such conditions the premium for each year would pay for the insurance of that year, and if the insured allowed his policy to lapse he would already have received in the form of protection the equivalent of the premiums he had paid in. But even on the natural-premium method the premiums must contain an element of loading intended to cover expenses and con- tingencies. It is clearly neither practicable nor desirable to estimate the loading so closely that there shall never be any excess. When income from the loading is more than enough to meet the demands on it, the excess left in the hands of the company is known as surplus. If the com- pany is a stock company, this surplus constitutes the profit of the business and is clearly the prop- erty of the stockholders. In a mutual company, on the other hand, where the insured are at the same time members of the company, the surplus belongs to the members, and each individual in- sured has a claim to a part of it. The question then arises whether a person who withdraws from the company is entitled to take out any part of the surplus. This question becomes still more important in connection with the reserve fund. Whenever level premiums are substituted for natural premiums, a reser-e must be accumulated out of the excess of the early payments to make good the deficiency of the later payments. Whenever insurance is paid for more than a year in advance, as in case of single-payment or limited-paj-ment life poli- cies, a reserve must be accumulated to cover the cost of insurance for the years after the premi- ums cease. For an endo^vment a reserve is necessary which at the end of the endowment pe- riod shall be large enough to meet the maturing obligations. The insured stands in his relation to the re- serve in a position quite different from his rela- tion to the surplus. Whether a person is insured in a mutual company or a stock company, he clearly has an equitable title to his reserve as long as the insurance is in force. When the pol- icy terminates naturally, whether by death, by maturitv. or by expiry, the reser-e is used for the benefit of the policy-holder according to the terms of the insurance contract. When the policy is allowed to lapse, on the other hand, the ques- tion arises as to what disposition shall be made of the reserve on the policy. Xox-Forfeiture L.ws. Down to the middle of the last centurv a policyholder who allowed his policv to lapse forfeited both surplus and reserve. At that time most of the insiirance was term or straight life insurance, and the question of re- serve was comparatively unimportant, and not at all understood by the insuring public. It was in the case of limited-payment policies and en- dowment policies that the policy-holders came to see clearlv that they had rights in the matter. If ten or twenty annual payments are to be enough