The Story of Life Insurance/Chapter VII

policy-holders have suffered most, not from the dishonesty of their trustees, but from their recklessness and extravagance. The amounts abstracted by underwriting syndicates and high salaries are insignificant compared with the millions wasted upon the agents. The overshadowing evil has been the craze for size. In the last thirty years the Mutual, the Equitable and the New York Life have concentrated their energies upon a single end. They have aimed at leadership, not in providing the safest and fairest and lowest-cost life insurance, but in writing the largest annual new business. They have aimed at quantity, not quality. They have become the most conspicuous illustration of the American passion for bigness. They have thus Barnumized the business. To this one fact the larger evils are directly traced.

These evils, outside of the actual dishonesty of the trustees, are the high cost of life-insurance and its frequently deceptive and fraudulent character. The high cost is explained by outrageous payments to agents, in the shape of commissions, prizes, bonuses, and miscellaneous forms of entertainment; by reckless advertising, rebates, and advances; and by the solicitation of business in foreign countries at the expense of the American members. Such expenditures, like most other details, are theoretically graded on a mathematical basis. Every policy-holder, as already explained, pays a certain "loading" on his premium each year as his contribution to management expenses. At age forty, for example, a $10,000 policy in the Equitable costs $330 a year. Of that, about $247 represents the actual cost of the insurance; and $82 the policy-holder's assessment for management expenses. Theoretically, the company expends as little of this loading as possible, and returns its savings in the shape of dividends—in other words, reduces, by that much, the cost of insurance. The connection between expenditures and the cost of life insurance thus clearly appears. The company which manages its agency system with the greatest economy and thus makes the largest savings from "loadings" will return the largest dividends, or furnish insurance at the lowest cost. How grievously the New York companies have sinned, a few statistics will show. The New York Life, in 1903, spent $11,406,482 on the new business obtained that year. It collected in new premiums $13,784,000. In 1904 it spent $12,005,090 on new business; it collected in new premiums $13,988,186. The Equitable and the Mutual make a showing equally bad or worse. These three companies, that is, have much exceeded their entire loadings in management expenses,—notwithstanding the fact that their loadings are outrageously large. In other words, these companies have annually paid to agents, on new business, nearly ninety cents out of every dollar taken in. In many instances they have greatly overstepped this record. The Equitable, for example, has obtained its large English business by paying $1.25 for every dollar received in new premiums. In Australia it has paid out $1.40 for every dollar taken in.


 * 1 The Equitable, according to its annual reports, has not exceeded its loading, Inasmuch as it has for years regular concealed one of its greatest expenditures, "advances to agents," by transferring them to subsidiary trust companies, the exact facts are not ascertained. In the last eight months all three companies have shown some retrenchment in the cost of new business.

"Deferred Dividends" Wasted on Agents
The conservative business man stands aghast at such extravagance. He cannot understand how such methods have not ended, long ago, in bankruptcy. The explanation, however, is found in the one word "Tontine." The companies have maintained perfect solvency in the face of such pressure because they have largely used the withheld dividends of their policy-holders. They have persuaded the public, by false and unfulfilled promises of enormous rewards, to leave their dividends for varying periods, usually twenty years. They have then largely used them in the hunt for new business. Many of their foreign establishments, had they been independent companies, would have become insolvent years ago. The New York managers, however, have made up the deficits by using the withheld "dividends" of the American members. The New York Life has confessed that, for agents' commissions and other acquisition expenses, it "borrowed," in the years 1903 and 1904, some $13,000,000 of policy-holders' dividends. Richard A. McCurdy has admitted, on the witness-stand, that the Mutual has similarly eaten into sacred trust funds, and has justified himself on the "missionary" principle. It was wiser, he declared, to use dividends in extending the business than in paying them to policy-holders, who, at best, would spend them foolishly.

New business is desirable, but not essential. A solvent company can stop now, never write another policy, pay off all its claims as they mature, and quietly cease to exist. The Equitable could shut its doors to new policy-holders to-day and carry out its contracts to the end. True, it would take nearly a hundred years to do it; but every solvent company, thanks to Elizur Wright's legal reserve law, is thus fortunately situated. A life company exists, however, for the purpose of insuring lives; and, for this reason alone, it necessarily solicits new members. The extent to which such new members may be admitted, like all life-insurance principles, is scientifically ascertained. A certain membership is required to maintain a fair average of mortality. The more lives insured, up to a certain point, the more accurately will the mortality tables upon which the premiums are based work in practice. A company with one hundred lives could not succeed, because all might conceivably die in one year, instead of in the gradual succession anticipated by the mortality table. A company with ten thousand well-selected lives or more, however, need expect no surprises. The big New York companies have more than half a million each; an excess which, merely from the groundwork of mortality average, adds nothing to their strength. They could split themselves into twenty or thirty smaller companies, each as strong and solvent as the parent concern. The other rational reason for an increased size is a logical decrease in management expenses. Obviously, the more policy-holders contribute to the cost of running the company, the smaller should be each one's share of the fixed charges. As long as an increasing business decreases expenses, it is an excellent thing. Quite the contrary has happened, however. The New York companies' increasing business has resulted in an increased expenditure. The new members, that is, have not paid their own way; but have become a burden upon the old policy-holders. Life-insurance is about the only modern enterprise in which competition has increased the cost of the product.

The desire for new business, obtained at this cost, is explained first by the ambition of the particular men in charge. Henry B. Hyde's enthusiasm, as has already been said, was to found "not the best but the biggest life-insurance company in the world." He set the pace which the others felt impelled to follow. The pride of the particular company and the ambition of the men in charge were at stake. To a considerable extent we can sympathize with these officers. In the early '80's it was generally believed that the Mutual Life was on the down grade, simply because its new business, compared with that of its two great rivals, showed a marked falling off. In fact, it was a far better company than either; and, In giving way to the modern manias, steadily deteriorated to their level. In 1891 John A. McCall took charge of the New York Life. Had Mr. McCall attempted to reform conditions and refused to write new business at the expense of the old policy-holders, unquestionably he would have been looked upon as a failure and ejected from office. Jacob L. Greene, who had sufficient force of character to champion and practise reform, was always regarded, by hustling life-insurance men, as a "back number." Unquestionably, the craze for bigness has a more corrupt explanation. The officers have based their demands for high and enormous salaries on their companies' increase in size. Their own importance has vastly grown as their companies' assets have piled up. A man with $400,000,000 or $500,000,000 under his control, with an annual income of $60,000,000 requiring investment, has become a financial giant. Few magnates have been so courted and flattered: few, under a constant pressure of flattery, have become so tyrannical. James H. Hyde, a year or two after leaving Harvard, sent a gorgeously framed picture of himself to the president of one of the largest New York financial houses, with a request that he hang it over his desk. It represented the young man in evening dress; with the pompadour hair, the violets, and all the other now celebrated regalia. The president in question submissively acceded.

Insurance leaders have thus obtained numerous chances to grow rich—and not necessarily at their policy-holders' direct expense. Again, there has developed a great administrative machine dependent upon this enormous new business for existence. If their companies refuse to accept this new business, thousands of agents must lose employment. If they cut commission rates, these agents would also support themselves with difficulty. And, be it remembered, the officers were at their agents' mercy. The agents, in the Mutual and the New York Life, delivered the votes, or proxies, that kept the trustees in power. Manifestly, the larger and more scattered the companies, the more securely they entrenched themselves. A mutual company with 1,000 policy-holders located in the same community could readily combine to put oust unfaithful trustees; one with 600,000 or 700,000 scattered all over five continents could do so only with the utmost difficulty. Thus has developed a series of motives, none of them in the policy-holder's interest, but distinctly opposed to it, all demanding a constantly increasing business, and all inspiring the management to the most reckless and dishonest methods of obtaining it.

Life-Insurance Agents Necessary
Theoretically, no life-insurance company should employ an agency force. He who has dependents and no income except the product of his own toil is as morally bound to carry life-insurance as he is to furnish his children food and shelter. Obviously, he should not be hounded into performing this simple duty. However, that theory seldom works. Experience has demonstrated that men do not insure of their own free will. They must be clubbed into it. The company that employs no agents does no business. The old Equitable of London pays enormous "bonuses" or "dividends"; which means that it furnishes insurance at very low cost. However, it writes only a few hundred policies a year; and, at the present rate, must eventually cease to exist. Both circumstances—its big dividends and its small amount of new business—have the same explanation: the old Equitable has no agents. If you wish a policy you voluntarily buy it over the counter. Consequently, the New York companies, which do employ agents, have entered England and practically driven this old institution out of business. There is also a powerful actuarial justification for the agency system. Properly regulated, it brings only healthy lives into the company. A man anticipating early death does not need to be persuaded; he is only too glad to obtain a policy. That is the class which voluntarily seeks insurance. Indeed, an unsolicited applicant is always regarded with suspicion and subjected to an unusually rigid medical examination. Life-insurance agents, if kept within restraint, perform an indispensable function in the social order. Few men are more ridiculed and maltreated; few, after all, actually accomplish more good. We are annoyed beyond measure at their persistence; but that very persistence has provided millions of helpless women and children with support. The widow who receives the life company's check, after the death of her protector, takes an entirely different view of the insurance agent's importunities from that taken by the husband who had to be hounded into a policy.

Under modern pressure, however, the New York companies have combed every social and professional class, in the search for solicitors. Each, in this country alone, has from 10,000 to 15,000 men. In New York City there are 5,000 life-insurance agents. Apparently, no citizen exists, in the companies' estimation, who does not possess abilities in this direction. They employ men and women, educated and ignorant, high and low born. Broken-down clergymen, superannuated college professors, briefless lawyers, bankrupt business men, cast-off politicians, actors, reporters, artists—they press all into service. Evidently the managers argue that every man has a few friends; and is useful at least until he has exhausted them. "Anyone who has two hands and a hip pocket for a rate book can become an agent,"—so say life-insurance men themselves. The New York companies make a special bid for conspicuous persons. They have colonels and generals in plenty; even ex-governors and congressmen. In addition to regular solicitors, who give up all their time to the work, they have emissaries who solicit in connection with other occupations. There is hardly a tenement-house on the East Side of New York in which the Big Three have not each a representative. In every factory and every sweatshop have deferred dividends been sold. Bakers, grocers, butchers, and fish-cart peddlers have done insurance business on the quiet. Of the 5,000 employees of one of New York's largest clothing establishments at least 1,500, it is said, have carried rate books.

A matron of a leading New York hospital was once discovered soliciting life-insurance. One of the Big Three, a few years ago, planned to make every barber in Greater New York a solicitor. The barber enjoys exceptional opportunities for conversation; and, it was thought, could utilize these better in booming a particular life-insurance company than in indulging the usual frivolities. The New York companies have originated what is practically a secret service system. They have what are known to the profession as "boosters," or "helpers,"—men at low salaries, who blaze the way for the real solicitor. The "boosters" hunt up possible policy-holders; get all the essential facts concerning their financial standing and physical condition; and then turn them over to the regular men. An intricate system of espionage has also developed. The Big Three have employed "spotters" or "stool-pigeons" to keep them informed, especially on big risks. Bank clerks, apartment-house janitors, elevator men have "tipped them off" concerning the doings of opposing companies. If yon are solicited for a policy of any size by the Mutual, their rivals at once learn of it, and get hot on your trail. Probably some confidential clerk, for a few dollars, has started them on your scent.

An Opening for College Graduates
A few years ago the Equitable began proselyting among the colleges. Its president visited New Haven, Cambridge, and other university towns, lecturing learnedly on "life-insurance as a profession." It started at the same time its celebrated "summer school" in the Equitable library. On the nomination of several college presidents, some three or four hundred young bachelors of arts were gravely instructed how to sell Tontine policies and gold bonds, by certain adepts in the Equitable employ. The most popular lecturer was the venerable Archibald C. Haynes, who, after borrowing some $850,000 of policy-holders' money, was recently dismissed by President Morton. These university students were given liberal allowances while learning the trade, and then let loose on society. There are only a few now in the Equitable's employ.

For the last thirty years the Big Three have also largely recruited from each other's staffs. How Henry B. Hyde bought off his rival's most successful men has already been described. Indeed, the main rivalry has waged, not over the solicitation of new business, but the solicitation of agents. The New York companies have reasoned that they could sell any amount and any form of insurance if they only obtained sufficiently skilful men. As soon as a successful producer appeared in the Equitable's ranks, the Mutual and the New York Life at once began to tempt him away. They would offer higher commissions, guarantees, and salaries, and frequently actual initial bonuses. Companies less lenient with their policy-holders' dividends have had the utmost difficulty in building up agencies. Twenty-five years ago Mr. John I. D. Bristol began organizing a Northwestern Mutual agency in New York. The Big Three, first of all, attempted to purchase him, and, failing in that, assailed him in every possible way. Mr. Bristol practically ran a training-school for his three big rivals. He would spend several months painfully developing a good agent; and then McCurdy, Beers, or Hyde would at once add him to his staff. Mr. Bristol aimed not at a mob of agents, but a few highly-trained, efficient men. He worked several years and succeeded in developing fourteen who were the apples of his eye. One day Richard A. McCurdy stepped in and appropriated practically the whole lot. He guaranteed salaries ranging anywhere from $250 to $1000 a month. Mr. Bristol found himself all but the sole representative of the Northwestern Mutual in New York; and had painfully to begin work all over again.

The Mutual and its rivals have wasted unnumbered thousands in this fashion. They would pay a man $1,000, $2,000, $3,000, and $5,000 flat to leave his company; and liberal commissions in addition. Frequently such acquisitions would get this bonus and a year's guaranteed salary, produce little or no business, and then return to the old company. Nearly all of Mr. Bristol's agents, on the occasion described above, went back to him in a few months. The Big Three have frequently entered into pacts not to disturb each other's men, but usually have broken them. In 1900, for example, an agreement of this sort existed. In that year, however, the Equitable made a slight reduction in first year's commissions. The New York Life thought this a good opportunity to raid the Equitable's agency force. Vice-President Gage E. Tarbell retaliated in New York. He sent for R. J. Mix, the New York Life's leading agency director, and spent Sunday with him; on Monday morning Mr. Mix and some two hundred of the New York Life's New York representatives were carrying Equitable rate books. The New York Life replied by buying off, with flat bonuses and liberal advances, the larger part of the Equitable's staff in Buffalo.

The home offices have prodded this agency force in every possible manner. They have acquainted their men with the amount of new business expected each year; and have used all kinds of inducements, moral and material, in obtaining it. They have compensated agents in a bewildering variety of ways. They have paid commissions, salaries, bonuses, and prizes. When Hyde started the Equitable, first year's commissions did not usually exceed 10 per cent of the first premium. He soon advanced that to 15, then to 25, then 35, and then 50. In the last few years his rivals have thrown aside all restraint. They have paid 50, 75, 80, and 90 per cent of the first premium. The Mutual Life has paid its New York agency ninety-six cents out of every dollar collected in new premiums. Many smaller companies have followed their example. Such minor companies as the Home Life and the Manhattan have managed their agency forces most extravagantly. The United States Life, though most of its business is on the deferred dividend basis, has absolutely no surplus; it has used it all up in agent' commissions. Two years ago the Washington Life became insolvent. The insurance department discovered that it had paid as high as 200 per cent for new business. In recent years, even several of the Massachusetts companies, once among the most conservative, have spent unwarrantably large sums on the agency force. These commissions have varied according to the particular policy written. The New York managers have paid high for the contracts which they especially desired to write. They have paid low commissions on annual dividend policies; and high on deferred. Again, they have graded these commissions according to the length of the deferred dividend period. They have paid higher commissions on ten-year than five; higher on fifteen-year than ten; and highest of all on twenty. In other words, they have paid the very highest commissions on the contracts which most unfavorably affected the policy-holder.

Summer Outings; Bonuses; Gold Watches, Punch Bowls, and Chests of Silver
Several years ago, also, they originated the bonus system. Under this they pay a larger compensation, provided a certain amount of business is obtained in a specified time. An agent, for example, may get 60 or 70 per cent, on all policies written. But if he turns in $100,000 or $200,000 during the year, he will get, say, two dollars a thousand more on the entire annual business. This leads not only to extravagance, but to rebating—of which more presently. The New York Life has expended $500,000 in bonuses in a single year. It and the Equitable have also distributed large sums in prizes. The Equitable adorns its successful men with scarf-pins, watches, and diamond rings in recognition of duty well done. It also entertains them at enormous cost to the policy-holders. Last September, when the insurance excitement was at a white heat, the Equitable spent $50,000 fêting its agents at Manhattan Beach. The New York Life has spent as much as $125,000 on agents' conventions. It has its celebrated $100,000 and $200,000 clubs. Eligibility to the first depends on writing $100,000 of business in a single year; to the second, $200,000. Each has its outing; but that of the $200,000 club is quite a sumptuous affair. The members bring their wives—at the policy-holders' expense, of course; and the jollifications frequently extend through five or six days. They hold forth at expensive hotels in Put-in-Bay, Niagara Falls, Thousand Islands, Virginia Hot Springs, and other noted resorts. Such occasions usually end in a blaze of glory. An elaborate banquet is held, speeches made, songs sung, and good things passed around. Repeating watches, punch bowls, safety razors, traveling bags, fountain pens, and chests of silver—paid for by the widow and orphan—are distributed to the year's "biggest producers." Frequently the high officers grace these banquets. A few years ago singers were hired—again at the policy-holders' expense—to discourse at a Waldorf-Astoria banquet a plaintive ballad especially composed in honor of John A. McCall. Mr. McCall himself sat upon the platform.

Pensions and Death Benefits at Policy-Holders' Expense
The New York Life not only pays its agents well, but pensions them in their old age and, in certain cases, pays death benefits. It treats its agency directors with especial liberality. It has some two hundred and twenty each drawing from $2,000 to $6,000 salary a year. Besides this each gets $100 for each new agent secured. He also receives certain benefits if he remains with the company a certain time, and his widow receives a lump sum if he dies. In one year the New York Life has paid $259,000 to this pension fund. Agency directors get from $2,000 to $10,000 if they die; inspectors of agencies, $10,000; and supervisors $7,500. Under its celebrated Nylic system the New York Life also pensions all agents who reach a certain period of seniority after having done a certain amount of work.

The New York companies pay enormous amounts not only for work actually done, but for work not done at all. They permit the agents to anticipate their earnings, to draw large amounts on commission account, to be paid back when the hoped-for policies are issued. They also permit the agents to draw largely in advance their renewal commissions. The Equitable, at the end of 1904, had thus advanced some $7,000,000. Certain agents had received advances amounting to $400,000, $600,000, and $850,000. The conservatively managed companies made such advances only on a limited scale. The Mutual Benefit, at the close of 1904, had lent only $71,000 to its agents; the Connecticut Mutual only $658. Ostensibly, advances are made that an agent may establish his business or extend it. If he has many policies on the books, all regularly paying premiums, he assigns his interest in these renewal commissions as security for loans. To a certain extent the system thus seems justified. Its weakness, however, consists in the enormous lapse rate. The agents who get the largest advances are usually the largest rebaters. They purchase, with advances, an immense amount of business that does not renew. Thus, to a great extent, even the ostensible security for the loans does not exist. In 1901 the Equitable Life calmly crossed $2,000,000 agents' advances off its books—money, that is, entirely uncollectable. Most state insurance departments no longer recognize these "advances" as valid assets. Single agents have left owing enormous sums, which have never been collected. A. G. Dickinson, the manager of the New York Life's South American department, resigned in 1888 owing $302,000, of which only $68,000 was ever obtained.

"Advance Men" and Life-Insurance Tramps
The general agents, in their turn, have distributed these advances largely among their subordinates—the solicitors in the field. The new agent, especially, having no capital or other means of support, lives on "advances." He gets so much a week—$25 or $50—for several months, in the hope that he may write policies enough to pay back. In recent years almost any man could obtain employment on this basis from one of the three big companies. Consequently, thousands temporarily in hard luck have branched out as life-insurance solicitors. Some entered the business seriously, thousands, however, aimed merely at the salary. These have been technically known as "advance men." Others have referred to them as the "Bread Line." As long as the advances lasted they remained; when the patience of a particular company had been exhausted, they joined the ranks of another, still on "advances." A fine brood of life-insurance tramps has thus developed: men who oscillated from one company to another, living on "advances" and actually doing little or no work. Occasionally, the same man would draw "advances" from one company and turn such business as he got into another; more frequently, the same man would draw advances from more than one company. The same man has even drawn more than one advance from the same company. A few years ago the New York Life discovered that one man was drawing seven advances of $25 a week from seven different New York agencies under seven different names. Indeed, at times it has almost seemed that the best man was not the one who wrote the most insurance but the one who drew the most advances from the most companies at the same time. It is not insisted that this sort of thing has been encouraged; it is simply the abuse of the existing system.

Large Traffic in Deceptive Policies
Probably no institutions devised by man have generated more liars and frauds than the New York life-insurance companies. The agents have lived largely upon the grossest misrepresentations. The companies have demanded only one qualification in agents; the ability to get business. They have not cared how they got it; and have tolerated, year in and year out, men of demonstrated dishonesty. Many agents have been extremely ignorant, and have not precisely realized the the extent of their own deceptions. As far back as 1887 President Beers, of the New York Life, declared that 90 per cent of life-insurance agents made "what some people call misrepresentations," and he confessed his inability to change conditions. The agents have deliberately played upon the ignorance of the public. They have handled a product which few have understood. It is technical and deals in complicated figures. The agents have thus found it easy to deceive. They have gathered in everybody, from the tenement dweller to the captain of industry. One of the humors of the situation, indeed, has been the ease with which the life-insurance agent has gone into Wall Street and transformed the most aggressive bulls and bears into innocent lambs.

The agents have taken for granted that the average policy-holder never reads his policy; and signs applications without knowing what they mean. This assumption has usually been justified. The simplicity with which the average citizen purchases a $10,000 or $20,000 life-insurance policy without investigating its merits is part of the psychology of the trade. The agents have not facilitated his education; at best they have furnished bewildering arrays of comparative figures, "ratios," the attempted interpretation of which is sufficient to derange the average human mind. In most cases, the agent has been a particular friend, and has thus been depended upon to give fair treatment. His most obvious deception has been the "estimates" furnished upon Tontine and deferred dividend policies, already described in detail. He has also constantly sold these Tontines as endowments. The agent has repeatedly talked one policy and delivered another. There are many policy forms which sound alike, though radically different in character. There are, for example, twenty-year endowments, twenty-payment life policies, and ordinary life policies,—all having twenty-year dividend periods. The first are the regulation endowments—payable to the insured after twenty years, or to the beneficiaries if death occurs within that period. The twenty-payment is the ordinary life policy payable in twenty premiums; after twenty years, that is, the policy is paid up. The face, however, is payable only to the beneficiary at the death of the insured. The twenty-year deferred dividend is a regular life policy, in which the dividends are paid at the expiration of twenty years. The agents have sold twenty-payments as twenty-year endowments; and twenty-year deferred dividend policies as twenty-payments. The insured, for example, may have negotiated a regular twenty-year endowment with a rival company. In steps a New York agent: "I can give you this at a much lower rate," he says; and quotes prices on a twenty-payment. To the lay mind the things are so similar that he easily accomplishes the deception. The agents have also found abundant opportunities in a certain so-called "instalment policy." Under this, the beneficiary receives the death payment not in one lump sum but in instalments. The premium is less than that of an ordinary life. Many agents, however, have palmed them off as regular policies, They used them especially in competition. "Look here!" they would say, "I can give you the same policy as the other fellow offers, though at greatly reduced rates," and then they would furnish the figures for instalment policies. The widow, after the insured dies, is the first to discover the imposition.

"Gold Bonds," "Consols," and "Debentures"
The agents, however, have not found opportunities enough in the orthodox forms. They have inspired the invention of numerous picturesque, contracts. Under their houndings the actuary's life has become a burden. In reality, there are only three forms of life insurance; the regular life policy, payable at death; endowment, payable to the beneficiary at death and to the insured provided he survives a stipulated period; and the term policy, which insures a man, not for life but for a certain period, ten, fifteen, or twenty years. There are various ways of paying for these policies, and of distributing the dividends; but essentially these are the only three possible forms. For thirty years the actuaries have utilized all their ingenuity in twisting them into something new. The Equitable and the Mutual have had upon the market between two and three hundred forms of policy: all merely changes rung upon these three original types. They have constantly harped upon the "investment idea." "Make the Mutual Life your savings bank," has become the war cry. They have given the semblance of investment frequently by combining one form of policy with another. One thing the policy-holder can always depend upon, however: he pays for everything he gets. The price rests upon certain scientific principles; no company can disregard them without disaster. What one company offers another can offer; and any policy that contains unusual opportunities also carries a premium that completely pays for them. All modern novelties are simply old forms of life-insurance under new names—and usually at greatly increased prices.

In recent years, for example, the New York companies have gone daft over "gold bonds," " consols," and "debentures." They found that the public had tired of life-insurance, and so dropped this business largely in favor of the "gold bond." "I don't want any life-insurance; I've got more than I can carry now," you tell the agent. "But, my dear sir, this is not life-insurance, this is a new issue of bonds—an investment for yourself," he replies. He has the thing pretty thoroughly disguised. You do not sign an "application" for insurance, but a "subscription." You do not become a policy-holder, but a "subscriber." You do not pay a premium, but an "instalment." An annuity becomes a "guaranteed interest"; a paid-up policy, an "extension of the bond"; a death payment, a "mortuary return." In the document you receive, the word "life-insurance" is not mentioned once. It is a very expensive affair: printed in gold leaf, and, in the case of the New York Life, gorgeously surrounded by the colored flags of all nations. After paying for twenty years you obtain the Equitable's bond for, say, $10,000 running for twenty years at 5 per cent, interest and then redeemed. If you die before the twenty years expire, your widow gets $20,000 or a "gold bond" for that amount. Actually, the bond contract is simply a twenty-year endowment policy. Instead of getting your $10,000 in cash, as under an ordinary endowment, the company keeps the principle, pays an annuity for twenty years, and then pays the full amount. The deception consists in the fact that Equitable advertises this as a 5 per cent, gold bond. It does not pay 5 per cent, in fact. The Equitable charges you an "instalment" (i. e., premium) so large that it reduces the income to two, two-and-a-half, or three. It charges for a $10,000 twenty-year gold endowment bond at age forty, $706. Its price for regular twenty-year endowment for $13,000 is precisely the same. That is, if you buy a gold bond, instead of A regular endowment, you pay for a $13,000 policy and get one for only $10,000. In other words, you pay a large premium on your bond, which reduces the investment rate. You get 5 per cent, on $10,000, when you should get 5 per cent, on $13,000, for the latter is what you have paid for. Thus, in this case, your gold bond actually yields 3 per cent, instead of 5. The Equitable, the New York Life, and the Mutual have gulled thousands of capitalists by this transparent trick. Eminent lawyers have examined the gold bond and recommended it as an investment, never once detecting the carefully concealed Ethiopian.

Life-Insurance "Free of Cost"
The New York companies have also largely purveyed the "return premium policy." Under this, all your premiums, in addition to the face of the policy, are returned at death. This is "life-insurance free of cost," as one New York Equitable agent had the temerity to advertise it. This policy has been brought forth in emergencies. The agents used it to prove finally that they could better any policy written by other companies. The prospective insurant invariably stood aghast. "What! insure my life; then, if I die, pay the policy and return all the premiums I have paid?" Yet it is the simplest thing in the world. The company could afford to return not only all your premiums, but could throw in a steam yacht and give you a house on Fifth Avenue. It exacts only one condition in all three cases: and that is that you pay a premium large enough to insure the risk carried. For even on the "return premium" policy you could not beat the company. On such contracts it always charged two premiums; though they were lumped together in the payment. One covered the cost of the insurance itself; the other the cost of insuring the return of the premiums. The premium charged on such policies, that is, is higher than the ordinary kind. In the old days the New York Life issued a five-year dividend policy. It guaranteed, that is, a dividend, the amount stated in the policy, at the end of five years. It simply charged each year the full premium for the policy; and then added another premium which insured the amount agreed to be returned as a "dividend." "Aha!" declares some especially shrewd policy-holder, thinking he detects the weak spot in the "return premium" policy. "It is not life insurance free of cost, because you don't return the interest on the premiums." The agent can meet even this objection. He adds another little premium—the third—large enough to insure the repayment of the interest.

Rebates: Life-Insurance "Rounders"
The agents have practised discrimination by the wholesale grant of rebates. Rebating it may be explained, is the agent's habit of dividing his first year's commission with the prospective insurant. Frequently he gives more—sometimes 80 or 90 per cent, or the whole of the first premium. As far back as 1879, as we have learned, rebating had become general; in 1887 President Beers, of the New York Life, declared that it was the "curse of the business." From the first, the managements themselves have encouraged it. At the Beers investigation in 1887 it developed that not only the agents, but the company itself, gave rebates. They promised reductions on renewals; and, in many instances, the home office accepted these reduced premiums in full payment. Occasionally, it divided the expense of rebating with the agent. Nowadays, a large policy-holder who pays the full first year's premium is looked upon as an innocent.

The practice is vicious from various standpoints. It discriminates between policy-holders, especially between the rich and the poor. As a rule the smaller policy-holders get no rebate; it is an inducement especially offered for "big men." In other words, the poor pay big prices for their insurance, the rich small. If your premium is $25 a year, you pay the full price; if it is $200, you can usually get anywhere from 50 to 90 per cent off. Discrimination exists not only between the rebated and the unrebated; but between the rebated themselves. The agents throw off just as much, or just as little, as the occasion requires. They sell policies precisely as the old Baxter Street "puller-in" used to sell clothes: that is, they get as much as they can. The marketing of life-insurance policies has largely degenerated into barter. Rather than not deliver the big policy, the agent will give back the whole first year's premium.

Rebating is vicious on other grounds. It brings in an enormous amount of shifty business, and is largely responsible for the prevailing lapse rate. Many, because of the first year's rebate, take larger policies than they can afford; and drop them the second year. Again, it has developed a brood of life-insurance "rounders." A few years ago Harlem flat owners attracted tenants by giving three or four months' rent free. As a consequence, many families kept moving from flat to flat, spending three months in each, and thus living without paying any rent at all. Similarly, many ingenious persons have obtained life-insurance all but "free of cost." This year, for example, you take a $10,000 policy in the Equitable, at 75 or 80 or 90 per cent discount. Instead of paying your second premium you take next year a $10,000 policy in the Mutual—also at a big discount. The year after that you take the same policy in the New York Life. The fourth year you come back to the Equitable; and repeat the performance indefinitely.

Occasionally, a rebated policy-holder becomes physically impaired;—what is known as a bad risk. Then sticks in the company into which he was last rebated. A sick man always hungers for life-insurance. A man who ordinarily could afford a $10,000 policy takes one for $100,000 at 90 per cent off. If he falls sick, his relatives and friends gladly pay the few remaining premiums; and his widow, at death, pockets a neat $100,000. This is paid, of course, out of the funds of the unrebated policy-holders. Rebating, in other words, promotes "adverse selection"; that is, brings into the company unhealthy lives and thus increases the death rate. The Big Three write an enormous new annual business; but do not increase in size proportionately. The explanation is that much of the business is obtained by rebates, and does not renew. "How's business?" a high official of a New York company asked a rival a few years ago. "Same old Hell," he replied, referring to conditions described above.

Presents for Policy-Holders' Wives
The New York companies loudly assert that they warred on the rebaters for years. Mr. Gage E. Tarbell declared, at the recent New York investigation, that in spite of all his efforts at reform, life-insurance policies could be bought, at certain times of the year, for 10 cents on the dollar. A law exists in New York State prohibiting rebates; but the agents have ingeniously circumvented it. They take notes in payment for the larger part of the premium, and make no attempt to collect them. They make presents to the new policy-holder's wife—a silk dress, a watch, a boa. Farmers pay the larger part of their first premium in potatoes; railroad officials in passes; newspaper editors in advertisements. The agents give free fire or casualty insurance policies.

Rebaters demoralise the field for the conscientious, hard-working agent. The New York companies have had certain star producers—"executive specials." These gentlemen make a specialty of large risks. They spurn the little $2,000 or $5,000 man; and smoke out the $100,000, $500,000, perhaps the $1,000,000 policy-holder. They are attached to no office; but have roving commissions to travel from town to town. They live on "advances" in the most expensive fashion. At night they can frequently be found, in evening clothes, in the lobbies of certain high-priced hotels. They entertain lavishly; edge their way into the clubs; frequently even achieve some standing in "society." They enter a field which a careful general agent has perhaps cultivated for years. They write policies, making rebates right and left. Exhausting one town, they drop it and repeat the same performance elsewhere. After their departure the home agent finds it practically impossible to do business. The cream has been skimmed: and the public educated, by the few weeks' visit of the "executive special," to demand policies at bargain prices.

Why the Agents Rebate
The companies are alone responsible for these practices. They themselves encourage rebating. They give away business because they have a mania for a big annual showing. Mr. George T. Wilson, an Equitable vice-president, has frankly explained the root of the evil. Rebating, he declared, at the recent New York investigation, is "an American product devised for home consumption," He openly admitted that the reason the agents gave back so much of the premium was because "they had it to give." That is, rebating is explained, above all, by the high commissions, bonuses, and advances paid in New York. If an agent gets only 25 per cent of the first premium, he cannot afford to rebate, because there will be little left for himself. If he gets 75 or 90 per cent, he can divide with the policy-holder and still have something. Nor are the agents dependent upon their commissions for livelihoods. At any time they can dip into the policy-holders' dividends and take out thousands in the form of "advances." Again, the prevailing bonus and prize system causes rebating. The agent who writes $1,000,000 in a year, for example, may be entitled to a cash prize of $2,000. In the latter part of December he may need $50,000 to make his quota. The premiums on this are perhaps $1,500 less than half of what the agent must turn in to the company. He therefore corrals an acquaintance, gets him examined, and even though the agent pays the whole premium himself, pockets a profit of nearly $1,500.

Career of One Samuel Dinkelspiel
New York methods can perhaps be best illustrated by describing the actual life-insurance career of one agent of continental reputation. Twenty years ago the New York Life's leading man was one Samuel Dinkelspiel. President Beers described him as his "lightning solicitor"; Rufus W. Weeks, the New York Life's actuary, declared on the witness-stand that he regarded him as a "valuable man for the company." There were three Dinkelspiels: one in the New York Life and one in the Equitable, both of whom stood preëminent in the "profession." The third brother, located at New Orleans, was popularly differentiated as the "good Dinkelspiel." "Sam" Dinkelspiel, the New York Life man, was the flower of the family. He made his first appearance as a New York agent in Louisville, in the late 70's. Here he became involved in a disgraceful escapade; some said forgery; President Beers, a "woman scrape." At least he found it convenient to change his name to Lewis and depart for Canada. He represented the New York Life in Montreal for several years, under this assumed name. One day the New York's general agent at Montreal, Mr. Burke, appeared in President Beers' New York office. His anxiety over Dinkelspiel, said Burke, kept him walking the floor nights. His methods, he declared, were outrageous; he wrote business by the grossest misrepresentation and constantly brought the New York Life into disrepute. Mr. Burke declared that he lived in daily terror lest Dinkelspiel do something especially serious for which the home office would hold himself responsible. He demanded the man's dismissal; President Beers acceded. Dinkelspiel, resuming his own name, then came to New York. He consorted with many of the worst people in town; spent a large part of his time at the race tracks; and had an irresistible fondness for poker. He found an opening in the United States Life. He obtained liberal advances and turned in a large amount of business of a certain kind.

He worked three or four years and then left, his financial relations with the company considerably involved. One day a dilapidated creature appeared in the New York Life office. It was Dinkelspiel. He told President Beers that he had lost $4,000 at cards and asked for "advances" to pay the debt. He could get no more money from the United States Life, he plaintively declared. President Beers gave him money and let him loose on the community. He achieved phenomenal success. President Beers gave him hundreds of thousands in advances; at one time Dinkelspiel drew as much as $30,000 a month. With this, he traveled all over the country, making a specialty of rich men. He entrapped them by the scores. His like has never been known. He seemed possessed of some hypnotic influence. He could enter a millionaire's office unintroduced, talk a few moments, and go out with a $5,000 check to cover the first premium. He insured such men as John T. Farwell of Chicago, E. J. Berwind, Walter Gurnee, Percy R. Pyne, of New York, and James Stillman, president of the National—Standard Oil—City Bank. Usually these same millionaires appeared in President Beers' office a few months after obtaining their policies, threatening lawsuits against the New York Life. For Dinkelspiel obtained his business by making huge rebates and promises, the audacity of which was little short of genius. He did not hesitate to put these promises in writing. He would offer a man a trusteeship in the New York Life, provided he took out a large amount of insurance; he would promise him cominissions not only on his own policy, but upon all policies written in his section. Would he rebate? He would make a contract, giving the man 50 per cent off this year, 15 the next, 10 the next, and so on. Checks were sent to the home office, with Dinkelspiel's rebates deducted, and accepted in full payment. He insured one man for $50,000, telling him that in fifteen years he could exchange it for a $200,000 paid-up policy. He promised a Boston man half the commission, on not only his own policy, but on all others written in that city. He reported to the home office hundreds of policies which were never taken. One month he claimed to have written $1,100,000 of new insurance. Of this, only $100,000 was actually paid for. In spite of all this he maintained his hold on the New York Life. Once, enraged because another agent had crossed his path, Dinkelspiel threatened to resign; the New York Life gave him $8,000 to soothe his feelings. At another time he and his brother, William Dinkelspiel, of the Equitable, lost $50,000 in one day at the Saratoga race track. President Beers admitted that the New York Life paid $20,000 of this; and added that he "had been informed that the Equitable paid the remaining $30,000." Mr. Beers rather chuckled because the Equitable had made good the larger share. All these facts about Dinkelspiel were laid before the trustees of the New York Life in 1887; and their answer was to continue him in their employ. When he left, two or three years later, he owed the policy-holders $348,000.

In the preceding articles have been detailed the causes of the recent life-insurance upheaval. The explanation, it is clear, strikes deeper than the popular imagination has supposed. One-hundred-thousand-dollar French balls, the control of an enormous property by a reckless spendthrift, even the struggle of selfish Wall Street interests for supremacy—these things do not explain the present crisis. They merely happened to be the particular incidents through which the actual facts became public property.

The actual disease, however, had been long seated. The personalities of Hyde and Alexander, picturesque and interesting as they may have been, were not the real issues. Whether this or that particular financial clique should control the Equitable, the Mutual, the New York Life—that, after all, was not the main point; but whether a thirty years' Saturnalia, the very life-insurance idea itself had been prostituted should end.

The real theme, in these articles, has been the rise and downfall of one of the greatest of American institutions. It has been shown that life insurance, though its principles had been theoretically worked out in England, was first reduced to honest and successful practice on a large scale in the United States. Elizur Wright, already distinguished as an Abolitionist, found the system in England the cover for the grossest frauds. His mathematical genius at once detected the cause; his moral enthusiasm inspired him to the long and thankless task of reforming it. By his legal reserve law he made certain the absolute solvency of life-insurance companies. By his non-forfeiture laws he made life insurance fair. Because of these two principles American life-insurance companies received a great popular impetus and became a national force making for solidity and good citizenship.

We have then discovered how, after Wright had accomplished this great task, Henry B. Hyde, by founding the Equitable, proceeded largely to destroy the structure. He added to life-insurance a gambling device long discredited in Europe; which, under various names. Tontine and deferred dividend, became its prevailing idea. Instead of paying "dividends" annually, or annually returning to the policy-holder his over-payment, Hyde accumulated such over-payments, with the values of lapsing members, in a huge fund which he called surplus. Ostensibly, he proposed to divide this, after the expiration of twenty years, among all members who had paid their premiums regularly and still lived. He entered into no written contract to do this, however. In fact, he distributed a considerable part of this fund among his agents in the form of commissions and among himself and his favored trustees in the form of plunder. He and his rivals who adopted his ideas used this fund in paying themselves enormous salaries, in corrupting the legislatures and the press, in building up large financial institutions for their own advantage and at the policy-holder's expense, and in engaging in certain forms of Wall-Street speculation. At the end of long deferred dividend periods they returned to the deluded policy-holders such portion of this Tontine or deferred dividend fund as they had not thus wasted or stolen. They were able to perpetrate this fraud because they handled a product which the average citizen did not understand, and upon which it was easy to mislead him. They did it by making the grossest misrepresentations about Tontine profits; and by engaging, by the use of that very Tontine fund, a huge army of agents who have spread broadcast these falsehoods. Such, in brief, is the story of a great financial hoax which must inevitably take its place in history side by side with the Mississippi Scheme and the South Sea Bubble.

Is the end yet? Much, indeed, has been accomplished. Above all, the laws passed as a result of the New York investigation absolutely prohibit deferred dividend policies. Thus they remove that opportunity for plunder which has corrupted so many men. They also prohibit subsidiary banks and trust companies, investments in stocks, and participation in speculative syndicates by trustees and directors; and demand publicity concerning salaries and other details. They attempt also to limit agents' commissions and the cost of new business. But the greatest evil they do not, and cannot, touch. That is the control of these enormous institutions by dishonest men. There can be no complete reform, whatever laws are passed, so long as the men who enforce them are untrustworthy. In the New York Life and the Mutual the leading trustees, under whose control all the abuses described above have developed and flourished, now ask their policy-holders for a vote of confidence. In the Mutual Life men who have taken profits in underwriting syndicates at their policy-holders' expense now stand for re-election. In the New York Life men who have tolerated falsification of records and the wildest agency extravagance ask a new lease of power. That there have been other exposures of insurance dishonesty, has been shown in the foregoing articles. In 1870 the Superintendent of Insurance uncovered much dishonesty in the Mutual Life. The Mutual Life bought him up and succeeded in suppressing the official document which described its shortcomings. In 1877 and in 1885 the true nature of the Equitable was partly laid bare; but the Equitable succeeded also in suppressing the facts. The last three chief executive officers of the New York Life have retired from office in disgrace; Pliny Freeman in 1863, William H. Beers in 1891, and John A. McCall in 1905. Whether the present disclosures will end in lasting reform, or whether the previous experience will be repeated, depends largely on whether the policy-holders take charge of their own property, and cast out the men whose carelessness and dishonesty have been demonstrated, and put in new trustees who will seek no interest except that of the insured.