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Thomson Paterson. . ^ • >Jf *> ..< • ' ^^ • » ~T^.:'^_ — 'T - * . - ''' •■ ''' _ ■, *'' •■ ' ' ' .. .. * '*• "^^'■^^ ^J^*"^^ ^''^l^i ^~"1|^ ^'"'l^' isj3 1|^ ^^""^^ ^""^^ ^^.« »; ? *; ■* THE GEORGE HI SHOP Engraving and Printing Company, MONTR i; A L. == = 1888. k. ^v ®= PRICE 25 CENTS. =0 EAI) Ol KDWARD P.. TIARPKR. President of tlie Mutual Rtserve Fund life Association, of New York, E*\v York, EAI) Ol KICK OF THK MuTUAL KksERVE FlNI) LiFE ASSOCIATION, , Porter Huilding, Park Row, lieekmain^ Nassau Sts., ■ > New York City. CONTENTS. CHAPTER I. Cost of life insurance ; how determined Page. 7 CHAPTER II. Expenses of life insurance companies j buildings, salaries of officials, agents' commissions, dividends to stock- holders, 6^c., &*c ., lo CHAPTER III. Economy, security, efficiency ; the three combined in the Mutual Reserve. System explained. Importance of the Reserve Fund; how accumulated, utilized and protected , , , 13 CHAPTER IV. Cost of insurance and security in the Mutual Reserve compared with that of ordinary life companies 18 CHAPTER V. Life insurance in the Mutual Reserve tor less than one-half the rates'charged by ordinary companies. The secret explained. Exorbitant commissions to Agents, <2r»c.. 21 CHAPTER VI. $3,000 re'.urned to every i.ooo paid by the insured. Where the money comes from. The history of lap- ses; this feature utilized by the Mutual Reserve.... 27 ■ ^ CHAPTER VII. Page. 1 >•■ Deceptions practised in order to mislead and impose upon the public. Extracts from •♦ Monetary Times" and "Insurance Chronicle. The deception explained.... 36 CHAPTER VIII. Misrepresentations of the rivals of the Mutual Reserve. Adjustment of death claims. Official reports of insurance Commissioners. Report of death claim department. „ 44 CHAPTER IX. Attempts of old line companies to defraud the widows and orphans of their deceased policy-holders. Lapsed policies restored, and thousands of dollars paid to the representatives of the officials of old line companies after they were dead. "Dead co-operators." How the list of 408 is made up. Dead "old liners;" 1,0004 have gone within the last 20 years. British Medical-Misstatement of " Monetary Times." 47 CHAPTER X. Banking in an insurance cjiupany, is expensive and unsafe. From one to two per cent, of the money handled is lost by bad management. Endowment insurance as an investment, 922 out of every 1,000 insured on the endowment plan, fail to realize on their investment.... 5» CHAPTER XI. Objections : "It is an assessment company ; — " It is a Mutual,^' "Member's liable." Concluding remarks. Post Scriptum Charter Oak, $1,000,000 lost Buildings as security, »Sr»c., *5r*c 58 I THE SURVIVAL OF THE FITTEST, OR TRUTH STRANGER THAN FICTION. BY Rev. J. Thomson Paterson, MONTREAL, QUE. PREFACE. In many instances the wife and childrim are dependent on the husband and father for support, and if he is cut down they are left to earn their Hving as best they may. How most efficiently* to provide for such an emergency is a question which engages the attention of every true man. And that this desire may be stimulated and its accomplishment more easily attained is the writer's object in tne publication of this pamphlet The state- ments contained in it are facts substantiated by the most incontestable proof, and no amount of sophistry, however ingeniously applied, can confute them. J. T. P. I. n are and if s best ich an ion of id its Titer's state- I most wever P. CHAPTER I, In any life insurance company the necessary expenditure may be summed up unddr two heads ; — expense of management and amount required for the payment of death claims. If these can be defined, the cost of insurance can easily be determined. That the expense of management can be defined, is self evident. The re- muneration of agens, book-keepers, clerks, etc., in connection with an insurance office is definitely fixed, and if exorbitant, it is clearly the fault of the officials. And that the amount required for the payment of death claims can be, even more accurately, determined is evident from the following facts. The Legislature of the state of New York passed an Act in 1859 compelling all life insurance companies doing business in the state to send in an- nual reports to the Insurance Department, giving a statement of the amount expended in the payment of death losses, the income, insurance in/orce, etc., etc. The statements contained in the re- ports are subscribed and sworn to by the chief agents of the differ- ent companies, and are published at the expense and under the supervision of the Legislature in the Annual Reports.of the Super- intendant of Insurance. Thh following table, compiled from these Official Reports, shows the actual amount per $1,000 required to provide for death losses, at all ages facA year, and the amount received for each $1,000 of insurance in force, as stated in the annual reports of the New York Life, and Mutual Life, covering a perioa of twenty eight years, beginning seventeen years after they commenced business. Keeping these points in view the table will be both interesting and instructive. NEW YORK LIFE. No. I. ORGANIZED 1842. Total I)«'«th Receipts ?> Loaa to eitch for each c s Tears. $1,000 Insur- $1.000111- ance in forc«) surunce in H -s Yearly Cost. forcf. M ISfiO •15 38 36 93 18 1860 12 45 37 13 19 1861 10 83 37 30 20 1862 7 64 40 10 21 1863 11 34 44 37 22 1864 9 16 49 65 23 1866 10 83 61 65 24 1866 8 07 60 96 25 1867 8 16 61 74 26 1868 8 67 52 00 27 1869 7 46 60 91 28 1870 11 35 69 16 29 1871 11 72 63 46 30 1872 12 71 63 07 31 1873 12 23 69 13 32 1874 11 49 66 10 83 187S 18 10 62 08 84 1876 12 70 60 60 36 1877 13 20 69 21 36 1878 14 24 61 08 37 1879 11 66 61 89 38 1880 13 49 66 00 39 1881 14 08 68 08 40 1882 11 32 67 00 41 1883 11 62 66 40 42 1884 10 21 60 31 43 1886 11 09 61 26 44 1886 9 76 61 87 46 Average amount of death claims per 7«ar for each $1,000 of insur- ance $11.40 Average amount of income per year for each $1,000 of insurance in force $60.89 Average excess of income per year over Death Losses on each $1.000 , $49.49 MUTUAL T.IFE, ORGANIZED 1842. Total Death LoHS tn each $1,000 Innur- ance in force Yearly Cost. Receipts I for each $1.0(»0 In- surance in force. 8 • 9 07 41 05 17 8 01 38 30 18 9 61 41 72 19 11 62 43 82 20 12 18 39 70 21 11 22 42 38 j 2-2 8 61 42 00 23 8 45 60 17 24 6 88 59 00 25 6 13 64 10 26 9 68 71 43 27 8 66 no 52 28 10 15 08 04 29 9 10 67 00 30 10 03 74 82 31 9 93 fift 78 32 7 99 66 87 33 10 90 06 43 34 10 44 64 22 35 12 06 61 37 30 12 80 5-) 01 37 14 13 5(5 06 38 14 16 54 60 3ft 14 53 54 40 40 15 08 53 9fl 41 14 64 54 25 42 16 09 64 80 43 14 23 o3 «7 44 Average of death claims per year for each $1,000 of insurance in force ,"fl1.76 Average > f income per year for each $1,000 of in- surance in force $59.59 Average excess of in- come per year over Death Losses on each $1,000. ...$47.83 An examination of the above table reveals the fact that during the last twenty-eight, of the forty-four years, that the New York Life, and Mutual Life, of New York, have done business the average amount required for the payment of death losses at all ages has been less than twelve dollars ($12.00) per year for each $i.goo of insurance in force, and that their income 8 i t t during the tame twenty-eight years has been over sixty dollars ($60.00) per year for each $i,ooo of insurance in force. That is, their income has l)een over five dollars ($5.00) to every one dollar ($1.00) paid in death claims. It is interesting and important to notire that there was only a difference of thirty-six cents (36c.) in the aver.npe amount required for the payment of death losses in the two companies above quoted during the twenty-eight years of which we have official returns. There are at least six other companies that have l)een in busi- ness for over forty years the experience of each one of which coin- cides with and corroborates the experience of the New York Life and Mutual Life of New York, That an average of twelve dollars ($12.00) per $1,000 of insurance in force is more than suihcient to pay th': ileath losses * proved beyond the possibility of a doubt by the fa^ts above ' aied which facts ar . fumed by the official returns of at least l. irty com- panies «*xtending over a i^eriod of nearly thirty years tro n which ii appears that the actual cost incurred in the payment -^f death losses, at all ages has averaged less than $11.00 per $1,000. If the cost of life insurance cannot be defined from data such as I have given, it is still an unknown quantity and the business a game of chance and not a science. It does jirove beyond the possi- bility of a doubt, that an average income of $12.00 per $i,coo at all ages exclusive of expenses, will more than provide tor the death losses of a life insurance company tor the first 45 years of its exis- tence, and this is probably longer than the majority of the present generation will require tlie protection of life insurance. That the premiums collected by insurance companies is much higher than is necessary under proper management is becoming more apparent every year. The great majority of men have nei- ther the time nor the inclination to investigate the matter for them- selves, and, though conscious that the premium is too high conti- nue to pay it year by year while their family is depending upon them for support. In order to settle the question let us again con- sult the Official Reports of the Insuiance Commissioners or Super- intendents of Insurance of the United States and Canada, from which it appears that, while the average amount required for the payment of death losses at all ages has been less than $12.00 per J $i,ooo, the average income of these companies has been from $58 to $60 per $1,000. From the experience of the 30 companies already referred to, collated from their own annual statements, attested and sworn to by their own officials, and published in the Reports of the var- ious Insurance Departments, it appears that the actual cost of in- surance, in paying death losses exclusive of expenses, has been $6.58 per $1,000 at 40 years of age. The premium collected by these Companies at that age during the entire period of nearly 30 years was $31.30 per $1,000 or 450 per cent above the actual cost of insurance for death losses. It appears from an examina- tion of the Official Records of the Insurance Department of the State of New York, that out of 1,600 millions of dollars actual- ly received in cash during the last 20 years by old line companies, they only paid out for death losses and matured endowments 408 millions of dollars ; or about $1,000 in death claims and endow- ments for every $4,000 of income. In other words, they received more than one million dollars every week of the entire period of 20 years in excess of death losses and endowments. And over and above all expenses, dividends, losses and every other kind of disbursements, appearing in their accounts, there are 75 mill'ous of dollars entirely unaccounted for. CHAPTER II. In view of these facts it follows that life insurance companies must expend enormous sums of money for other purposes than in the payment of death losses. And that such is really the case is self evident. No other business could stand the enormous expense incurred in the management of "old line" or Level premium life insurance Companies. Buildings that might have stood for centuries are taken down and new ones are erected and equipped regardless of expense. The most costly material and expensive sites are selected. Ash, Elm, or Birch, are good enough for the offices of a manufac- turing or wholesale establishment, however wealthy, but they are too common to be allowed in the Head Office of an Insurance 10 i t 19 'V I company ; Cherry, Walnut, or Mahogany must be used in the conjunction of the Counters, Desks, Shelves, etc., of such impo tant and wealthy institutions. Millions of dollars have betn, and are still being, sunk in this way that have been collected in the name of the widow and orphan, that never have and never will, bring three per cent, interest. Nor is this all. The salaries of the officials of life insurance companies are as a rule, from three to four times higher than those of officials of equal ability in other branches of business. In proof of this statement I quote from the Report of the New York As- sembly Committee of Insurance of 1877, from which it appears th.at according to the statements of their Presidents then made, under oath, the enormous sum of $1,067,565,72 were expended in salaries to officers and othe -s, by the Mutual Life, the New York Life, and Equitable Life, of New York in one year. And from page 39 of the seme Report, it is admitted by one of these officials that his salary and commissions amounted to $264,557,23 in five years, and that in one year he received $77,500.00. Another example of the lavish hand with which the funds of life insurance companies are dispensed is furnished by the sworn statements of their officials, as to the amount of dividends paid to stock holders, and published in the reports of the Superintendent of Insurance. The two largest and oldest stock companies doing business in Canadahavenow apaidup capital of $1,125,000.00, $l,ll6,ooo.co of which were paid by the policy holders; That is the surplus over the payments for death losses and expenses contributed by the policy holders, instead of being handed back to them, or better still, being left in their pockets, has been given to the stock hold- ers, and now they are annually receiving dividends on $1,1 16,000. to which they never paid one cent. From the Report of the Superintendent of Insurance of 1886 it will be seen that the stock holders of those two companies re- ceived in thai year alone $187,500.00 in dividends, t. e. $78,500. more in dividends in one year than the total amount originally paid by them. The dividends etc., etc., appropriated by the stock holders of these two companies alone, during the last six years amount to over $1,000,000.00, a sum which is equal to nearly $500 daily during the entire six years. 11 It is a fact that the average amount expended in manage- ment, etc., by "Old Line" life insurance Companies, for the last twenty years has exceeded $125.00 to each $100.00 paid in death claims. If any one questions this statement, he can easily satisfy himself by consulting the official returns of these com- panies, as published in the annual Reports of the Superinten- dent of Insurance. And yet, notwithstanding all this extravagance the surplus funds of these companies are increasing by the millions. The Mutual Life of New York makes the boast that it could cash a cheque for the whole amount of money in circulation by the Bank of England and still have a surplus. To whom do s this money belong ? It has been taken from the policy holders and belongs to them, but the child is yet unborn who will ever receive any portion of it, unless the State interferes and orders the distribution of it. In the annual Report of the New York Life in 1886, the fol- lowing astonishing statement is made : '•During each of the last thirteen years the interest earnings of the New York Life have been more than sufficient to pay its death losses, the excess since 1883 having been over six million dollars. During the forty-two years of the Company's existence, its interest earnings have exceeded its total death losses by over three and a half million dollars." That is, the New York Life has extorted from its policyhold- ers during the last forty two years, in addition to the amount re- quired for the payment of death losses and every other item of expense, a sum the interest of which amounts to over forty millions of dollars. This fact alone should be sufficient to convince any one that the rates of ordinary life companies are too high. In the discussion of the question so far at least three impor- tant points have been proved : First, that the cost of insurance for the payment of death claims does not exceed $12.00 per $1,000 at all ages. Second, that the income of ordinary life insurance companies averages from $58.00 to $60.00 per $1,000 insured. Third, that the rates of ordinary life insurance companies are at least fifty per cent higher than they need be. ' 12 f manage- , for the > paid in an easily lese com- iperinten- i surplus millions, that it rculation lom do s ' holders *vill ever rders the the fol- earnings pay its million cistence, by over cy hold- 3unt re- item of millions me that impor- surance $i,ooo j 3U ranee isured. are at i CHAPTER III. Having followed me thus far, I trustthereader will follow me to the end. My aim is not to destroy but to build up, not to dis- courage, but to foster life insurance. There are few men who appre- ciate the good which it has done more highly than I do. I paid the high premiums collected by Old Line Companies for years, before I found the more excellent way, and would do so still if I could not get it for less. I hold it to be criminal neglect, on the part of any man, who can be insured, to run the risk of leaving his family destitute, when such a calamity can be prevented by a little forethought and the self denial involved in the payment of a life insurance premium. I am now insured in the Mutual Reserve Fund Life Association and have induced many others to do so also. I did not take this step unadvisedly, but after a most careful study and investigation of the question, and the more I know of the As- sociation, its President and excellent Board of Directors, the more I am convinced that my decision was a wise one. Life insurance under any and all systems, consists in collect- ing rom the living to pay the representatives of the dead, and, that this is done as simply, directly and inexpensively by the Mutual Reserve as it is possible to do it, consistent with security, is evident from its past history. It has paid over $4,600,000.00 in death losses within the last seven years at a saving of over $14,000,000.00 to its policy holders, as compared with what the same amount of insurance would cost in old line companies. Nathan Willey, actuary and author of *' Principles anji Prac- tice of Life Insuraece," says : ** Whatever makes a person free from care in regard to want and support, of his family has a tendency to prolong life." Doubtless, this accounts for the fact that the death rate of the Mutual Reserve is lower than that of any other Company having the same number of members and amount of business in force, for who could estimate the care and anxiety of which the members have been relieved in tue saving of $14,000,000.00 in the cost of insurance as above mentioned. In all life insurance companies, in addition to the amount required in caring for the old, there is always an extra expense in connec- tion with the new business. I 1 In order to meet these expenses, the Mutual Reserve Fund Life Association collects an admission fee and $3 of dues per $1,000; the admission fee defrays the expense incurred in get- ting the new business, and is payable in advance once only j the dues are used in taking care of the old business, and are payable annually in advance. The admission fee and annual dues, are the same at all ages, but the amount required for the payment of death claims and the Reserve Fund are graded, according to age and amount of insurance carried. The executive officers are required by the constitution at the expiration of every sixty days, to wit : on the first week days of February, April, June, August, October and December, to call upon the members for a sum equal to the amount actually required for the payment of the approved death claims and Reserve Fund. Seventy-five per cent, of each call is applied to the payment of the death claims, and twenty-five per cent, is set aside in the Reserve Fund. The principal of this fund is invested in First Mortgage Bonds on real estate worth twice the amount loaned, bearing interest at, at least, 4 1-3 per cent., which is paid into the death fund and takes the place of the increase of cost by reason of increase of age,, thus enabling the Association to keep its rates of mortuary premiums the same as at date of entry. The rates are based on the Experience Tables of mortality and provide for a death loss of $17.94 per $1,000 exclusive of expenses, at all ages, which is nearly $6 per $1,000 in excess of the actual cost of insurance, as proved by the experience of companies with a record of forty-five years. And, if in any one year the death losses exceed the maximum amount indicated, the constitution provide^ that the excess may be paid out of the Reserve Fund. The mortuary premiums may be paid every two months, or once a year, as desired. If paid every two months the sum total of the six calls will not exceed the yearly maximum amount per $1,000 indicated lu the tables of the Association ; it paid annually, the amount not required will be allowed on the next year's premium. As the Reserve Fund is the most important and scientific feature of the association a summary of how it is accumulated, pro- tected, and utilized will be of interest. Every member must pay the admission and Medical Examiner's fee, and the annual dues l/t ^i before he receives his policy and this defrays the expenses incurred in getting his business. He must contribute his full share of the amount required for the payment of the death losses, and 25 per tjjg cent, to the Reserve Fund, so long as he remains a member, and when he ceases to be a member of the Association, at any time, 4 within the first fifteen years, it matters not how, whether by death or by lapse, he leaves one quarter of all he paid in assessments for the benefit of those who keep up their insurance. This which at first seems an injury is just and equitable. The interest earnings from the Reserve Fund are used in the payment of death claims, and thus every member receives an immediate benefit. Suppose, E. G.. that on 1st February there are $ioo,cxx) of death claims due, and that, there are $30,000 of interest coming from the Reserve Fund ; the amount that the members will have to pay will only be $70,000 instead of $100,000. This is why the Association is able to keep its rate of mortuary premiums the F'.me as at date of entry. The interest receipts have taken the place of the increase of cost by reason of increase of age. If a member keeps up his policy for fifteen years, he gets back his portion of the principal of the Reserve Fund, which shall be applied to the pay- ment of future premiums or taken as a cash surrender value for the policy, as the policy holder may then direct. If death takes place while his policy is in force, his heirs get from $10 to $20 or $30 for every $1.00 he paid for his insurance. And if he allows his policy to lapse he has had the protection of life insur- ance for about one-half the amount which it would have cost him in an ordinary life company, and as he himself has benefitted from the contributions to the Reserve Fund of those who preceded him, he must in his tarn, forfeit his portion of this fund for the benefit of those who succeed him. The Reserve Fund now exceeds one million, five hundred thousand dollars, ($1,500,000.00), and is increasing at the rate of ♦ over one thousand two hundred dollars ($1,200) daily. This fund is utilized for the benefit of the members as follows : 1st, — In granting extended insurance ; policies in force five years shall be carried six months, policies in force for ten years shall be carried one year for the full amount after the failure to pay assess- ments or dues. This secures to the Policy holder an all but ab- solute guarantee against the possibility of his policy lapsing on 16 account of an oveisig])t on his part. 2nd. — After the expiration of fifteen years from the date of membershii), a member, by giving the company one year's previous notice, has the privilege of surrendering his policy and withdrawing his contributions and tontine profits from the Reserve Fund in cash. This gives a cash surrender value to the policy. Should a mem er, at the expiration of the fifteen years not desire to surrender his policy or terminate his membership, the entire amount of his Reserve Fund accumulations will be placed to his credit and used in the payment of future dues and assess- ments. 3rd. — Should the amount required for the payment of death losses exceed the amoui.t indicated by the Experience Tables of Mortality, the excess will be paid out of, the Reserve Fund. This guarantees that the cost of insurance shall not exceed a definite and fixed sum each year. 4th. — Should members fail to respond to their calls, at any time to such an extent as to render it impossible to pay the death claims, then the Reserve Fund > in be used for that purpose. This provides a definite guarai.tea that all death claims shall be paid in full at all times. Every precaution has been taken to protect the Reserz'e Fund against the possibility of its being misappropriated . Experience proves that, it imperils the safety of any financial institution, and demoralizes the officials to place the sole custody of large sums of money in their hands to be controlled by them at will. The Mutual Reserve has by the appointment of a separate corporation as Trustee for its policy holders, [the Central Trust Company, of New York, with over $20,000,000.00 of assets,] removed this temptation and placed the surplus funds of its mem- bers beyond the control of the officials and who can never handle a single dollar of it without first giving satisfactory proof that it is required for one or other of the purposes above indicated. The following extract from the '•Report of the Investment Commit- tee " shows how carefully the Reserve Fund is invested and protected. Extract from Report of Investment Committee. — *'This committee ia composed of five of your directors, and all applications for loans are referred to it. Such as appear dcsitable are investigated by us, not less than three members having personally to examine the property and make a favor- able written report before the matter is brought before your Board of Direc- tors. Applications which are reported favorably are carefully considered by your Board of Directors, and if approved, are referred to Mr. Coleman Chairman of the Board of Tax Commissioners of the city of New York, by whom the property is examined and appraised, if his report is favorable, and the amount a«ked for is not more than 60 per cent, of his valuation, the application is submitted to the President of the Central Trust Co. of New York ; if he advises to make the loan, and it seems in every way desirable, the title to the property is thoroughly examined by the counsel of the asso* elation, and if approved by them, the loan is made. Every dollar of the Beserve Fund must go through the above process before it can be loaned . When a loan is made, the Central Trust Co. takes the bonds and insurance policy before paying out the money, leaving us the mortgages long enough to get them recorded, and then taking tliem also. *' All loans are deposited with the Central Trust Co. and we cannot col- lect so much as the interest upon them, said Company holding power of attorney for that purpose, and having control of the whole matter under the deed of trust giving it by your association. These precautions were not adopted under the advice of authority, or the coercion of law, but are safe- guards which the officers of this association have voluntarily thrown around its Reserve Fund, and are so far as we know, without precedent or parallel. Respectfully submitted, SAMUKLA. EOHINSOX, M.I)., Chairman of Finance Committee on Investments. HENRY J. REINMUND, Comptroller, (Late Superintendent of Insurance State of Ohio.") This fund serves as a guarantee to policy holders that the cost of their insurance shall not exceed the amount indicated by the Experience Tables, and that every just claim shall be paid in full, no matter how many refuse to pay their mortuary calls. In other words, the Reserve Fund of the Association serves every purpose in the way of security and exemption from liability, that the capital ot a stock company does with greater advantages to policy holders. 1st. It is an actual cash asset, and not an asset on paper merely as is nine-tenths of the capital of stock companies, which may, or may not be paid, according to the financial standing of the stock holders when the stock is called. 2nd. The Reserve Fund now amounts to over $1,500,000.00, which is $1,375,000,00 more than the paid-up capital of the oldest stock company on the continent of America^ and nearly $1,000,000,00 more than the paid-up capital of all the ordinary life Canadian stock companies combined. 3rd. The interest earnings of the Reserve Fund, now amounting to over $60,000.00 annually, are paid to the members and not absorbed in the payment of dividends to stock holders ; -'■17 and an equitable proportion of the principle is returned to members after fifteen years membership, instead of being used to pay up the stock for the benefit of stock-holders as is usually done by stock companies. See History of Dividends, dr^c, appropriated by stock holders. In the report of the Superintendent of Insurance for 1886, under the heading of "expenditure in the returns of an old line stock company there appears the following item. ♦•Written off loans on real estate, (mortgage having proved a forgery) $2,000,00." As will be seen from the extract from the '* Report of the Investment Committee," a fraud such as the above mentioned could not be perpetrated on the Mutual Reserve. How such a fraud could be possible, in view of the fact, that this same company paid $8,149.32 for ** Solicitor's Charges*'' and " Valuation Fees" seems a mystery, and is surely sufficient to show the importance of the precaution taken by the Mutual Reserve, CHAPTER IV. Having briefly outlined the plan adopted by the Mutual Reserve I shall now make a few comparisons as to cost security, and cost of management. 1st. As TO THE COST OF INSURANCE. CoST OF $ 10,000.00, LIFE INSURANCE in the Mutual Reserve, and in an ordinary life or old line company respectively. It is assumed that the insured will live out his expectation and pay full rates in an old line com- pany, and the maximum amount each year in the Mutual Reserve, the admission fee and medical examiner's fee being included. Age. 40 60 55 Saving. $4,196.50 $5,122.00 $4,795.20 TABLE No. II. Mutual Reserve. Oil Line Co. $4,567.50 p 8,764.00 $4,314.00 $ 9,436.00 $5,389.50 $10,184.70 It will, no doubt, be argued that old line companies give profits to which I answer so does the Mutual Reserve. The divi- dend in i886 was 33^^ per cent, of y^ of all assessments paid. The interest alone, on the amount saved by insuring in the Mutual Reserve would yield a profit of nearly a thousand dol- 18 lars, during the expectation of life. I shall explain how this is possible, and where the money comes from later on. 2nd Security. (A). The rates of the Mutual, Reserve, though 50 per cent, below old line companies, provide fcjr $17.92 per $1000 for death losses, at all ages, exclusive of expenses* while, as I have already proved, $12.00 per $1000 is more than sufficient. (B). The Mutual Reserve has now over 50,000 members upon each of whom it can call for their proportion of the amount required for the death losses and expenses, up to the American experience Table of mortality and 33"^ per cent, in addition for the Reserve Fund. If any member refuses to pay, his policy lapses and the association is relieved of all liability to him. This is exactly the same as in an old line company except that the cost is 50 per cent, more than in the Mutual Reserve. Every policy holder must pay his premium when it is due, in any company on any plan, or he is cut off and is no longer insured. The great aim of nine-tenths of all who insure is that those who are depend- ent upon them for support, may be provided for in the event of their being taken away in early life. This is the only influence that can be brought to bear on any one to induce him to pay the premium ; there being no law by which any one can be compelled to continue his insurance one day longer than he so desires. And the company or system that furnishes life insurance and good security on the easiest terms, will be the one that will grow in favor and overshadow and supplant companies doing business on a more expensive and less secure basis. This is why the Mutual Reserve has now more business in force at the commencement of its eighth, than the New York Life had in its fortieth year. Its system has only to be known to be appreciated. (C). The Mutual Reserve has $100,000.00 more Government Deposits than the law requires and is prepared to place all the Reserve Fund in the Insurance Department for the security of the members if the Government so desire. (D). The Mutual Reserve Fund Life Association has always on hand in cash securities three thousand dollars for each one thou- sand dollars of unpaid death claims. In other words, it can pay in full every death claim three times over, without receiving a single additional dollar from any of its members. k I I (E). It is the only Life Insurance Company where its assets are placed in the hands of third parties, the great Central Trust Com- pany, of New York (with assets of over $20,000,000.00), and with Government authorities, who hold the same as trustee for the exclusive benefit and protection of the members, and so invested and held that neither the Trust Company or the Officers or Direc- tors of the Association can divest the members of their ritijhts in the accumulated Reserve Fund or misappropriate the same. See Report of Investment Committee on Paf^e 16. 3rd. Management. — The best possible way to test the effi- ciency and executive ability of the management of any Life In- surance Company is to examine its record, and as will be seen from the following, collated from the sworn reports of the various life insurance companies, to the New York Insurance Department, for the year ending December 31st, 1886, the Mutual Reserve Fund Association leads all other companies. 1st. It has the most economical management. — Its expenses to each $1,000 of insurance in force being $2.35, but one-third the averageof all other companies, the lowest being $5.95, and the highest $14.76. Its expenses or each $1,000 ot new business were only $6.20 while the lowest of all other com] anies were $28.13; the expenses of one company running as high as $121.94 for each $1,000 of new business. 2nd. // has the most carefm management^ and as a result of this its death losses are loxver than that of any other company ; its members being carefully selected, and its funds devoted only to the payment of just claims, Its death claims to each $1,000 in force were only $7.65 ; the lowest of all other companies $7.78. 3rd. It has the most energetic management. (A). Its percentage of new business to amount in force being $46.^5, the highest of all other companies $36.66 ; the lowest $5.48. . (B). The in- crease in its surplus was greater than in any other company, being $76. 14 ; the highest of all other companies $18.02, the lowest, four cents. f 4th. // is the sajest company. Its assets to each $100 liability being $230 ; the highest of all other companies $142, the lowest $113. ^ 20 its are Com- ), and for the vested Direc- hts in le effi- ife In- e seen of the nuance >6, the ises to iid the ncl the $6.20 3; the r each suit of ly ; its )nly to 000 in ^78. lentage est of ^'he in- being owest, lability lowest It is self evident, that if the same care is exercised in the selection of risks, the death losses will be the same or nt-ai ly the same under any system, consequently the company, or system which carries on its business on the most economical basis will be the best for the policy holder. 'Ilie following extract from Mr. Tabor's "Three Systems " page 67, will be of interest to the reader. " In looking over the companies lor a series of years it will be seen that their expenses have averaged from $5.00 to $15.00 per annum for each $i,oco of insurance in force." In the Mutual Reserve the expenses are limited to $3.00 after the first year. CHAPTER V. Two questions : — " How can the Mutual Reserve furnish in- surance for so much less than any other company ? " and ♦' How can any company pay $10,000.00 to the representatives of a deceased policy holder from whom they only received $4,314 ? " are often asked; I shall try to answer both, as briefly and cleaily as possible. \st Question. — Extra expense is necessarily incurred in getting new business in any company. In the Mutual Reserve this ex- pense is limited to the admission, and medical examinei's fee, which are paid by the applicant. In ordinary life companies this expense is usually provided for by allowing agents a commission, which varies from 40 to 60 per cent, of the first, and from 7^^ to 10 per cent, of each subsequent year's premium. If this statement is contradicted over the signature, in his offi- cial capacity, of the President, Manager or Secretary, of any ordinary life insurance company I shall Y>^h\\%\\verh(itim et literatim extracts from contracts which will settle the question. The following extracts will suffice for the present. " Some of the most profitable general agencies of our leaili'cj cnmpanios yield a revenue of from $10,000 to $30,000 per annum, and marly all of tliia is from renewal commissions." N. WiiiLKY LiFB Agents' Instruction Book, Page 87. "REBATE INIQUITY." •• Notwithstanding all that has been written on this subject, the evil still continues, and the most glaring cases are of almost 21 ^ If I ■ i daily occurrence. One remarkably outrageous case has come under my notice within the past month. Several agents were in pursuit of a risk for $10,000, until it became a case of who could put the greatest monstrosity in the shape of estimates on paper. All were adepts at this, and all the big companies were on the trail. Until finally an agent named such a rebate that he was promised the risk." "This practice, I hold, is dishonest on the part of the com- pany which allows it, and a simple illustration will suffice as proof. Jones insures for $50,000, premium, say $2, 500 per annum, and receives a rebate of fifty per cent, as in the case just mentioned ; while Smith, insuring with the same company for same amount, pays full premium. Jones has the advantage of Smith in the way of prolits ecjual to $1,250 with its accumulations, and the longer the contract runs the greater the advantage. The general agent who docs this sort of business is acting most dishonorably, and his name should be given to the public." Insurance and Finance Chronicle, Montreal, January, 1888. The Itisnrance Chronicle is an old line journal and will not be suspected of stating the matter too strongly. It is an open secret that a few years ago the Equitable, of New York, paid their Montreal agent $115,000.00, and their agent in Paris, France, $70,000.00, on the condition that they relinquish their contracts, from which it appears that they must have had extra good terms. TABLE No. III. Assuming that, old line companies pay agents a commission of 60 per cent, on new business, and that tne whole of the admission fee is spent in getting new business in the Mutual Reserve, the following shows the saving the first year on $20,000 insurance. Cost of securing $20,000 insurance. Old Line Mutual Re- Saving Age. Premium. Agent's serve Admis- First Commission. sion Fee. Year. 40 $626 00 $375 60 $80 00 $295 60 45 759 40 455 64 80 00 375 64 60 948 60 666 16 80 00 486 16 65 1,198 92 718 80 22 80 00 638 80 TABLE No. IV. The following table shows the saving the second, and each subsequent year on a $20,000 policy. Old Line ,,. Mutual Re Age. Premium. Acenl s Com- . serve (. ost of _: ■ _ Assess- .. ,, ^. Collection, 40 45 50 55 $ r)2(; 00 759 40 94:i <;o I.IDS 1)2 mission, 10 p.c. $ (12 «)() 75 94 91 ;{() 119 H9 NLix. >sess- ments. $2').? 40 299 20 Ml 40 599 00 4 P-c. $10 52 11 9i; 14 OS 2.'{ 5() Saving. $52 OH (\:\ 98 79 M 90 :i2 To the above commission there must be added at least 50 per cent, for salaries, travelling expenses, etc. to Superintendents, In- spectors, etc. ' the employ of old line companies. This as will be seen will more than exhaust the balance of the first year's pre- mium. In order to defy contradiction as to cost of collection under the system of the Mutual Reserve and the Ohl Line plan respectively I tiUbjoin the following extracts taken from the annual statements subscribed and sworn to by the chief agents of the Mutual Reserve, and Canada Life, and published in the report of the Superintendent of Insurance for 1886. MUTUAL RESERVE. "Cost of leveying and collecting $1,547,258.42 of assets ments for the year l886, danl' ami collector's charges and discount allowed $54,707. 14 " less than 4 per cent. CANADA LIFE. "Total outstanding and deferred premiums $44^,441.95 deduct cost of collection at lo per cent. $44,334 19." The cost of collection is set down at 10 per cent, in the annual statement of every company reporting to the Superintendent of Insurance. And if any one doubts it he has only to turn up any of the Reports in order to see for himself. In addition to the expenses already stated there is wliat are usually called '* office expenses," which include salaries of officials. President, Manager, Secretary, Clerks, printing, advertising, etc., etc., and in stock companies, dividends to stock holders. In old line companies these expenses are regulated to suit the circumstances and wants of the officials ; there being no limit to what may be expended in this way. Old line companies usually 23 T ;i: I add 40 per cent, for expenses to the amount required for the pay- ment of death losses, as indicated by the mortality tables, the direct effect of which is to compel old and middle-aged members to bear a disproportionate share of the burden. An examina- tion of table No. VI, page 26, showing the elements of which a level i^re.nium for $1,000 is composed, will enable the reader to understand the matter fully. According to this table a member nged 60 has to pay nearly four times as much, as one aged 25. I conmiend this table as worthy o{ special attention. The columns under the heading of *• Reserve Element " and ' ' Expense Element " are particularly interesting when studied and compared with the same columns under the same heading in table No. V, The *^ mor- tality element is the same in both tables, being based on the same mortality tables. No. 5, however, is based on the mortality tables only ; No. VI is based on the same tables and 4^ interest. This accounts for the apparent difference. The injustice of com- pelling old and middle aged members to pay so much to expenses is still more forcibly illustrated \n table No. Ill, page 22, where, as will be seen, a person insuring at age 55 for $20,000.00 has to pay $343,20 more to the a ^ent who writes his application than his neighbour who happens to be 15 years younger. This glaring injustice is corrected in the Mutual Reserve by an equal loading of $3.00 for each $1,000 insured, and an admission fee to cover initial expenses, which is the same at all ages. It co<5ts no more money, time or trouble to keep the accounts of a metnber aged 55 than une aged 25. 24 TABLE No. V. Table shOAving the elements of which the Premiunfi for $1,000 Insurance is eoimposed after Ist year, based on the American Tables of Mortality, worked by the Mutual Reserve Fund Life Association of New Vork. « Maximum Reserve Maximum Mortality Maximum Expense Maxiiinim amount wliich can be collected annually. Element. Element. Element 25 $ 2 69 $ 8 07 $3 00 $13 76 26 2 71 8 13 3 00 13 84 27 2 73 8 20 3 00 13 93 28 2 76 8 27 3 00 14 03 29 2 78 8 35 3 00 14 13 30 2 81 8 43 3 GO 14 24 31 2 84 8 51 3 00 14 35 32 2 87 8 61 3 00 14 48 33 2 91 8 72 3 00 14 63 34 2 94 8 83 3 00 14 77 85 2 98 8 95 3 00 14 93 36 3 03 9 09 3 00 15 12 37 3 08 9 24 3 00 15 32 38 3 H 9 41 3 00 15 55 39 3 20 9 59 3 00 15 79 40 3 17 9 80 3 00 16 07 41 3 i« 10 00 • 3 00 16 33 42 3 42 10 25 3 00 16 67 43 3 51 10 52 3 00 17 03 44 3 61 10 83 3 00 17 44 45 3 72 11 17 3 00 17 84 46 S 86 11 57 3 00 18 43 47 4 00 12 00 8 00 19 00 48 4 17 12 51 8 00 19 68 49 4 37 13 11 3 00 20 48 50 4 59 13 78 3 00 21 37 51 5 11 16 34 3 00 23 45 52 5 67 17 03 3 00 25 70 53 6 23 18 72 3 00 27 95 64 6 80 20 40 3 00 30 20 65 7 36 22 09 3 00 32 45 56 7 92 23 78 3 00 34 70 57 8 48 25 47 3 00 30 95 58 9 05 26 15 3 00 39 20 59 9 61 28 84 3 00 41 45 60 10 15 30 53 3 00 43 70 per $1,000 ^ «> * *•' $13 45 $3 00 $20 94 Members desiring tc make payments annually in advance can do so at the above rates (to thp Home Office,) and the amount not required during the year will be applied to reduce the next annual payment. 26 J r TABLE No. VI. -:o:- Table showing the elements of which a ievel premium for $1,000 insurance is composed, based on the American Tabies of IMortality, and 4^ per cent, interesti and worl a Si 1—1 0) * - d d 5^ 1 1000 00 174 00 8 CA 2 817 45 78 49 7 50 3 731 47 57 05 7 02 4 667 38 45 38 6 67 5 615 33 35 07 6 43 6 573 82 26 39 6 27 7 541 15 26 51 6 17 8 508 46 18 30 6 10 9 484 05 12 10 6 12 10 465 83 13 50 6 17 11 449 14 11 15 6 24 12 428 74 6 76 6 38 13 41', 60 6 65 6 51 14 402 44 8 04 6 65 13 387 74 3 48 6 86 16 377 38 3 77 7 10 17 366 50 3 66 7 36 18 355 47 1 06 7 65 19 346 75 6 11 7 95 20 335 69 3 35 8 25 21 324 08 2 91 8 55 22 312 60 1 56 8 98 23 302 14 1 81 9 24 24 291 08 2 91 9 58 25 278 59 2 78 9 89 26 265 90 2 65 10 21 27 253 03 a 53 10 52 28 239 98 2 40 10 81 29 226 76 2 26 11 05 O 5 o fd 8 7 7 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 8 8 8 9 9 9 10 10 10 11 540 •")()0 020 670 4:?0 270 170 100 120 170 240 380 510 C5(> 860 100 360 650 950 250 650 890 ; 240! 580 890 210 520 810, 050 ' 30 31 32 33 34 3-) 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 56 O U o ^ u e 6C 6C 52 18 213 44 200 05 186 50 172 95 159 146 132 93 119 97 107 31 95 13 83 48 24 43 63 76 53 86 43 80 35 96 28 80 22 66 17 45 13 11 9 59 6 71 4 2 1 43 n 67 94 o Total 13 00 86 73 59 46 32 19 07 95 83 74 03 53 43 35 28 22 17 13 09 06 04 03 02 01 5 77 o S O O cS 11 11 11 11 11 11 11 11 11 10 10 9 9 8 7 6 5 4 4 3 2 ,2 1 1 423 00 $ $423 000 29 It m i i TABLE No. VIII. be < No. of Policies in force. i P. A Death Losses. ® tie No. of Policies in force. S 09 eS Death Losses. 25 26 27 28 29 30 31 32 33 34 35 36 1000 917 840 774 718 6(i!) C25 589 555 522 491 463 75 69 59 50 43 38 31 29 28 26 24 23 8 8 7 6 6 6 5 5 5 5 4 4 37 38 39 40 41 42 43 44 45 46 436 410 386 363 341 321 302 284 267 251 22 20 19 18 17 16 15 14 13 4 4 4 4 3 3 3 3 3 649 100 Neither of these tables take into account the surrender poli- cies which make up nearly one third of all policies terminated. These tables were never intended for the public. An inspection of them will explain the cause of the wealth and prosperity of insurance companies, on other grounds than those given by the "Independent" (?) In Table No. VII, for example, it is admit- ted that the rates are high enough to enable the "Manufacturers" and all other line companies, to pay $1,000,000.00 of insurance, but that they never exf)ect to be called upon to pay more than $423,000. And if the surrendered policies were deducted from the $423,000, the amount to be paid would be reduced by at least $150,000. Table No. VII reveals the fact, that 649 policy holders will lapse and only loo will die out of 1,000, in twenty. one years, and that the lapses are even greater than indicated by these tables is evident from the following extracts from the writings of several well known old line actuaries. Nathan \Mlley, says on page 9, ** Life Agents' Instruction Book" that r'}C loss of insurance during the past few years, equal to 70 and 'I .■> -r cent, of the new business in lapses surrenders and not I t,\ '-^ ,'oiicies suggest the importance of reform." That is for ^ .i .' =; > mndred new policies issued each year, eighty policy holders I refuse to continue their insurance any longer, preferring to lose I what they have paid rather than to continue to pay such exorbi- I tant rates. Some years the lapses and surrenders were over loo 30 •I " i ® « s i ° 4 4 4 4 3 3 3 3 3 per cent, of the business as may be seen from the following, '.aken from the reports of the Insurance Commissioner of the State of New York. The Mutual Life had 13 tnillioHS less insnrance in force in 1871 than it had in 1870; it had 14 millions less insurance in force in 1878 than it had in 1875. The New York Life had nearly thtee tnillions less insurance in force in 1878 than it had in 1877, and less insurance in force in 1879 than it had in 1876. The Equitable had Hventy seven millions less insurance in force in 1878 than it had in 1873, ^"'^ more than eighteen millions less in 1877 than it had in 1875. The North Western of Milwaukee, had nearly five millions less insurance in force in 1878 than it had in 1871, and nearly six viillions less in 1879 than it had in 1876. As these are four of the largest and most wealthy insurance companies, it is fair to presume that if the lapses were great in them they would not be less in smaller companies. If the busi- ness of the Mutual Reserve fell off like what it did in the above companies, it would be heralded in all the old line journals as a sure indication that the end was not far distant. But a decrease of twenty-seven millions of business in lapsed and surrended poli- cies in an Old Line Co. in less than five years, seems to be looked upon as an event which was of common occurrence, and therefore unworthy of notice on the part of Old Line Insurance Journals, such as " The Monetary Times ^^^ q{ Toronto, and ^'■Insurance Chronicle y''^ of Montreal. On page 69 '* Principles and Practice of Life Insurance" by Nathan Willey, he says that, — "The combined statistics reti'med by fifteen life offices in England shows that the average life time of a policy in those companies up to the year 1843 ^^^ ^^^^ \)ci2lVl five and one half yearst In the Gotha Life of Germany, it was a little over eight years : and in the Equitable Life, of London, twelve and a half years. " In the seventeen life offices, the average duration of life, after insuring, of the policy holders who died was 6413 years. In the Massachusetts report for 1861 we find that on 2, [80 poli- cies which had been forfeited in companies doing business in that state, 7,646 premiums had been paid, making the average duration of each lapsed policy 3.51 years," 31 I Ili' On page 69 ** Three Systems of Life Insurance " by M. Tabor, he states that, "the lapse alone of fifteen companies, from 1872 to 1 88 1 inclusive, were from 15 to 87 per cent, of their entire new business written during that time, the average being over 43 per cent. "The new business in round numl)ers was 1,730 millions of dollars. The amount of lapsed insurance, ►.herefoie, was 744 millions of dollars. We have compared the lapses with the new business, but it must not be inferred from this, that the lapses were from the new business. A very small percentage of them weie from the new business. If the policies averaged $2,000 each, 372,000 policies lapsed during the decade named in only fifteen companies." The careful examination of official s^tatements shows that the amount of insurance issued by all the Old Line Companies : — In New York from 1863 to 1883, was.. .$6,696,494,686 Amount of losses paid 408,610.120 Whole amount of Insurance lapsed and surrendered 41834, 198,320 Atnount of insurances terminated 5,242,808,440 Amount of insurances in force 1,453,686,246 In other words that nearly seven thousand millions of insur- ance were issued ; that eighty-five per cent, terminated ; that only six per cent, was paid ; that seventy-nine per cent, lapsed, and fifteen per cent, only remained in force. From 1870 to 1S80 the active old line New York Companies had 3061 death losses, and 29,431 lapsed policies, i. e. liX P^r cent, by defection and ij/i per cent, by death. During the same period the Tontine Companies had 5,516 lapses and only 506 deaths, i. e. ii 78-100 per cent, by lapse and I 5-100 by death. And during the last five years the lapses have averaged 47 per cent, of the entire new business done. The ratio of lapses to new business in a number of the Cana- dian Companies has been even greater than that of the New York Companies. During the last five years there was 9,791 lapses and surrenders and only 572 deaths or 18 lapses and surrenders to each death in six companies. The rates of ordinary Life Companies are based on the assumption that every one who insures will continue his policy until it becomes a claim, when in reality not more than one in ten do so. 32 The Hon. Elizeer Wright, one of the most celebrated actu- aries of the ninaeetith century, says, that, " In the be>t of old line companies the lapsed and surrendered policies outnumber those remainin<^' in force, and are about ten times the number of those matured by death or endowment." A review of the history of lapses, as given in these pages, covering a period of more than fifty years, collected from official statements, and the writings of old line actuaries, demonstrates the fact that the certainty of death is nut more real than the certainty of termination for other causes. This, and not "wise management and admirable investment," accounts for the vast sums of money, life insurance companies spend and accumulate as if by magic. In formulating the system of the Mutual Reserve this factor was taken into consideration, and utilized so as to be a benefit rather than an injury to those members, whose circumstances compel them to continue their insurance. See Reserve Fund, how accumulated, page The guarantee that a member has, that his claim will be paid by the Mutual Reserve is unequalled liy any other compnny, on any plan in the world. 1st, He has the pledge of every member of the Association, any violation of which will immediately cancel his insurance and interest in the Reserve Fund. 2nd, Should every member refuse to pay, then there is over $1,500,000.00 in the Reserve Fund that can be used for that purpose. 30!, Should every member lapse except say ten, those ten would hold a deed and would really own the whole of the Reserve Fund and all that they would then have to pay for their insurance would be one call not in excess of the Mortality Tables as each one of the ten died ; and when all died except the last, he would have his insurance for nothing, because there would be no death losses to pay, and his claim would be paid out of the Reserve Fund. The substance of what I have stated may be briefly summed up as follows : 1st. That the experience of life insurance companies, cover- ing a period of at least 45 years, proves that the cost of insurance, exclusive of expenses, does not exceed $12.00 per $1,000 at all ages. 2nd. That the extravagant expenditure of money in the pay- ment of salaries, commissions, bonus, waves, dividends to stock- holders, and in the erection and equipment of costly buildings, is 88 " prima facie evidence that the premiums of ordinary life insurance companies are too high. 3rd. Tliat tlie rates of the Mutual Reserve though 50 per cent, below those of ordinary life companies, provides for, at least $5,00 per $1,000 exclusive of expenses, more than either the Mutual Life or New York Life required during the 45 years of their existence. The Association is, therefore, on a safe basis. 4th. That the Reserve Fund of the Mutual Reserve ena.l)les the Association to guarantee that the cost per annum shall not exceed the Mortality Tables, and that every just claim shall be paid. 5th. That, the ReserTe Fund, being invested and the securi- ties held by a separate corporation as Trustees for the benefit of policy holders are safeguards which are not found in any other company, and is a guarantee that the trust funds of the Associa- tion shall not be misappropriated by the officials. 6th. That, the fact that the Mutual Reserve has now more business in force in its 8ih year than the New York Life had m its 40th year, is an evidence of the superiority of its system over all others. 7th. That, the expenses of the Mutual Reserve are less than one-sixth of the average expenses of ordinary life conmanies. 8th. That, the death losses of the Mutual Reserve are lower than that of any other company. 9th. That, there are from ten to twenty policies terminated, in ordinary life companies for other causes, for everyone that is terminated by death. loth. That, there are fewer policies terminated for other causes than that of death in the Mutual Reserve than there are in any other company on any plan with the same amount of business m force. The representatives of old line companies make considerable capital out of the cash surrender or paid-up insurance feature of their system. The insurant is informed that if at any time he is unable to make his payments or wishes to discontinue his insurance he will not lose anything, as in that case the company will give him a pa'd up policy or cash surrender for all he has paid. Let us examine this statement. 84 No insurance company, on any plan, can return that portion of the premium which lias been used in the payment of death losses and expenses ; the reserve or bankitij; part of the premium is all that is available for this purpose. And if the reader will turn b-ack to page 26 and examine the elements of which a level premium is composed he will see that the reserve is less than one- third of the amount paid. Hut, as will be seen from the following extracts, no ( onipany returns the full amount of the reserve even. In " Life Af^eiits Instruction Uook," page 121, by N. Willey, Actuary, he states that "The surrender charge of 25 per cent, on the res('>-^>e is as low as the most liberal companies adopt, many com- panies charging y?/?i' per cent. In " Three Systems," pace 70, by M. Tabor, Actuary, there appears the following intf^resting chapter on surrender values and paid up policies : "A policy holder in a certain company asked for the cash surrender value of his policy. His reserve and sur- plus amounted to $I 15.99. The company offered him $26.38 ! "Another gentleman who was insured in another comjiany, asked for the cash surrender value ot his policy, and was offered $ 1,876.52. His resen>e and surplus amounted to $5,400.00. The amount paid by 29 companies doing business in the State of New York, for the year ending Dec. 31, 1884, foi" lapses and surrendered policies, was $9,503,530. Assuming that they paid an average o{ one-quarter of the reserves, the whole reserves amount- ed to $38,014, 120 I If these policies surrendered were all ordi- nary life policif^s, issued at an average age of 35, and had been in force an average of four years, their cash surrender value, accord- ing to the Massachusetts Standard, zvas $23,948,896, — sixty- three per cent, of the reserves. The differenco between what they ]")aid and ivhat they might have paid — according to Massachu- setts law — ruithout impairing their vitality, was $14,445,366. The last amount, therefore, was the net profits in cash surrenders values, for one year, of only 29 of the 50 regular life companies doing business in America I "The amount of cash paid for surrender policies from 1875 ^o 1884, inclusive — 10 years — by the companies reporting to the Massachusetts Insurance Department, was $92,099,599. As- suming that an average of one third of the reserves was $276, 298, 36 policies, anf] issued .it an average age of 35, and liad been in force an average of four years, their cash surrender value l>y the M.issa- chusetts Standard rvas $174,068,242! 'I'hese comi)aniis could have paid this last amount without impairing tlieir vitality. Sub- tract what was paid [$92,099,599], from what might have safely heen paid [$174,068,242], and we hai'e $81,968,613 as the nrt profit in one decade^ in cash surrender valuer, by considerably less than the whole number of life companies doing business in this country at that time. •' Had these policies been on the ten year life plan, instead of on the ordina.iy life, as assumed, the nei profit tvould have been viore than 162 millions of dollars! "'' In the Mutual Reseve the whole of the Reserve Fund and its accumulations to the credit of members whose policies have been in force for fifteen years, shall be used in granting extended in- surance or paid as a cash surrender value. CHAPTER VII, Having proved that the Mutual Reserve is furnishing life insurance for less than one-half the cost, that the security is in many respects superior, and that the system is more scientific and equitable than that of old line companies, I shall now expose a few of the deceptions and misrepresentations that arc constantly made use of in order to mislead and impose upon the public. Deceptions. — One of the mos^t common forms of deception practised is to publish through the columns of ** Insurance^* Journals, '■^Finance'^ Chronicles " etc., cooked statements intended to prove that the cost of insurance increases indefinitely as the company advances in years. A sample of the false reasoning resorted to will be found in the "Monetary Times" for 25th June and 2nd July, 1886. In order to prove that^ the premiams collect- ed by old line companies are not too higV. the following remark- able statements are made : ** In England a great many carefully conducted companies are now paying out each and every year very much larger sums than they are receiving from premiums. In a number of cases the reserves are being annually drawn upon to meet the yearly deficit, and yet these companies are pushing on successfully in insuring new lives. We need not, however, go so far away as the old country to find proof that the ordinary pre- miums are none too high to provide . or current death claims when 36 new members cease to come in rapidly and olil ones have grown older. Several life insurance companies, formerly doing a con- siderable business in Canada, have ceased at one time or another since 1878 to solicit new risks, and the consequence is that though their membership and insurance carried are decreasing, their death losses are growing heavier and heavier as the years go by. Take the first year of the last dtiide, 1876, and we find that eleven companies received in that year premiums amounting to $388 456, and their death losses were then only $209,910, showing a gain to the funds of $178,546- But coming down to the last year of the decade, namely 1885, we find the figures nearly reversed. The premium receipts were over a third less, and the losses nearly a half greater, as follows : — Premium received by II companies $201,588 Losses incurred in 1885 296,531 Showing a loss in the year of 94,943 '* Dividing the decade into first five years we find the follow- ing to be the receipts and claims of the following companies during each period, as found in the Blue Eo.jks issued Irom Ottawa :— FIRST FIVE YEARS. Name of Company, Premiums, Losses. Briton Medical $ 188,030 $ 121,357 Edinburgh Life 108,905 48,015 Life Association, Scotland 558 830 313, 382 Mutual, of Hamilton 194,460 49,661 North British 139,208 110,687 Queen, of Liverpool 54,570 31,662 Reliance Mutual 128,965 42,683 Scot. Amicable 100,162 73,965 Scot. Provident , 25,665 6,813 Scot. Provincial 152,402 129,183 37 $1,643,197 $ 927,310 m SECOND FIVE YEARS. Name of Companv. Briton Medical $ l.Ti.dl.'} E(linburfi[h Life Life Association, Scotland Mutual, of Hamilton North British Queen, of Liverpool Reliance Mutual Scot. Amicable Scot. Provident Scot. Provincial Premiums. Losses. $ i.u(;i3 $ 207,727 8:5,491 7:5,275 ;5S8,588 880, 58S 180,015 98,0:57 120,489 115,54!> 49,754 52,;54(; 77,944 00.90:5 60,8()2 1:50,44 ^ 19,4:56 1:5, 2:59 127,192 187.904 $1,241,954 $l,:V28.i:50 "Glancing up and down these fii^ures it will be seen tliat in eve'/ instance the death calls of the second five years were very much heavier than during the first five years. In several cases they are nearly double, notwithsiaiiding that in all cases the income, and, therefore, the amount of insurance in force, has decreased. Looking at the footings we find the following result: Periods. Preriinnis. Losses. First five years ....$1.01:5,197 $ 927,:510 Second five years 1,241,951 l,:528,i:50 "With $401,243 less premiums, death increased $400,836." In the issue for 2nd July, 1886, the discussion of the sul)ject is continued and the experience of the companies above mentioned, from 1875 ^° '885, inclusive, is again quoted to prove that old line rates are not too high : " If we add 15 per cent, to death claims, for expenses, we find that an annual premium, or an assessment call of $11.70 per $1,000 would answer at the be- ginning of the period, while for 1885 $48 per $1,000 would be called for. In a society of 1,000 members always kept full, each paying twelve assessments of $ i each year, with no expenses to meet and having no deaths until the full $2,000,000 is made up, each individual must live more than 166 years after joining before $2,000 could be paid each member, if no money is put out at interest. Assuming 24 assessments annually each man aged 30 at joining would be 113 years old before all could be provided for. A man aged 40 has 27 years of life ahead, on the average. 38 Hence it would take $74 per annum to provide $2,ocx) at his death if there were no more income from intere«;t than would meet expenses. But if only $20 were paid each year for half the time — about the amount some people think sufficient — then $128.15 would have to be paid during the last half of the 27 years or the money would not be made up. And yet though anyone can see that the above statements are true as that two and two make four, thousands of otherwise intelligent people are now paying exorbitant admission fees to get into assessment enterprises whose agents assure them that the cost hitherto has been only one-quarter or one -third what regular companies have been chargin^^. Let us analyze these ''statements," and in doing so we may find that they are not quite as true "as that two and two make four." What are the reserves, about which we hear so much from old line agents? It is a scheme devised by insurance companies, which requires the insured to insure himself by depositing with the company each year, a sum, in addition to his full share of the death losses and expenses, which, together with the interest at four or four and a half per cent, shall equal ^he face value of his policy when he reaches the age of 96. And when he dies his claim is paid out of the mortality element of the premiums of other policy holders, and the company pockets the reserve, or at least the greater portion of it. The mortality and expense elements of a level premium in an old line company are sufficiently high to meet the necessary expenditure independent of the reserve element. See Table No. VI, page 26. Every dollar of the reserve, as the reader may easily see. is extorted from the insured as a deposit, which has no connection with insurance, and which is of no use to the policy holder, or to the company until the policy becomes a claim. 1 he impression that old line representatives try to make is that the reserve can be used, and is created for the purpose of guaranteeing the payment of claims — that it is wealth. It is not wealth, but an ever increasing debt which the company owes to its policy holders. It is not a source of strength, but of weakness. It is not an element of safety but of danger. It places 7>ast sums of money in the hands of the officials and thus subjects them to a most insiduous and powerful form of temptation to wrong doing in the misappropriation of trust funds, which has proved too strong 89 for thousands of men who have been considered /r^J^ against any and every form of temptation. And to this may be traced the failure of nine-tenths of all the old line companies, through which thousands of policy holders have lost both their insurance and reserve or bank deposits. Millions that have been deposited with insurance companies have been literally stolen from the widow and the orphan and appropriated by old line insurance companies and their officials. In an insurance company operated on the plan of the Mutual Reserve this danger does not exist, as the system avoids the accumulation of vast sums, the money being left with the memljers until it is required, and when paid in it is immediately paid out again. Only a small percentage of the premium is set aside as a reserve, or emergency fund, the most stringent regulations being made for its investment and protection. See Report of Investment Committee, page 96. Several old line companies have such vast sums of money now on hand that the officials are unable to invest it. This accounts for the millions that have been and are now being sunk in expensive buildings, such as the New York Life is now erecting in Montreal and in many other cities. The interest on the money paid for the sites alone on which the New York Life and Canada Life are erected, would be more than enough to pay the rent of offices sufficiently large and numerous in which to transact all the insur- ance that is, or will be, done in Canada for the next century. In order that the reader may see that I have correctly stated the purpose which the reserves of ordinary life companies serve, I shall submit the following evidence from well-known old line actuaries. *• This larger premium is required to provide for a fund or reserve, which with the annual interest therefrom will meet the ultimate payment of the risk when the insured reaches the age of 96, or if he dies before, it will be added to the contri- bution of other policy holders to pay his own claim." — N.WiUey, "Life Agents Instruction Book," p^^e 23, '* A level premium company not having in hand the reserve is not solvent . The reserve can be used for no purpose whatever, while the original policy is in force, except for accumulation." — M. Tabor, «* Three Systems," page 61. 40 •• The fact is the reserve is simply and purely a bank deposit, belonging for life or death to the depositor, and having no more real connection with the insurance risk than a corresponding deposit in a bank across the street would have." Emory McClin- tock. Actuary, Northwestern Mutual." (An old Line Company, J. T. P.) " No part of the Reserve can be used to pay a death claim on any policy save the one to which it belongs, any more than a bank of deposit can use the funds of one depositor, to make good its losses to any ot'^er." E. D. Williams, Consulting Actuary. If the statements of the "Monetary Times" that "Many carefully conducted companies are now paying out each and every year very much larger sums than they are receiving " and that •* the reserves are being annually drawn upon to make up the deficit, and yet those companies are pushing on successfully in insuring, new lives, are as true as that two and two make four," the officials are misappropriating the deposits entrusted to them by their policy holders and are guilty of fraud ; the companies doing so are insolvent, and if they are, "pushing on successfully in insuring new lives " they are swindling the public. If the ou lay exceeds the income year by year, the ultimate result is inevitable. The company must fail, and then where will the funds come from to pay the last man ? " This is a sample of the kind of arguments that are used to frighten people from insuring in the Mutual Reserve. There is not even the semblance of an argument against the Assessment Life Insurance system that does not apply equally to the old line, or high rate insurance plan. If a man aged forty has only twenty-seven years of life ahead on the average, and it takes $74.00 per annum, exclusive of expenses, "to provide $2,000 how will an Old Line Co. make it up out of a premium of $62.60, $17.90 of which are expended in expenses. It is need- less to try to account for it by counting on the interest. For there can be no interest from that part of tke premium which is expend- ed in the payment of the death losses and expenses ; the reserve is the only portion of the premium from which any interest will be received, and this at age of 40 is only $26.52, which, invested at 4 per cent, compound interest for 27 years would amount to $1,405 53 ; deficit, $594.47. But as will be seen from the fol- lowing extracts from Nathan Willey and from " The Monetary 41 ^ f~~ '. ^ I Times itself, the average duration of a life policy is less than nine years. "In the Beventeen life offices the average duration of life after insuring of tlie policy holders who died was 6.413 years," Principles and practice of liife Insurance" page 69. "The average duration of the policies in the leading offices in England, upon wliose experience the tables (hm) named in our Insurance Act was founded, was 9-12 years. "Monetary Times, Dec. 18th 1885." In view of such ** Statements," that •* are as true as that two and two make four," how could the companies pay each policy holder's claim ? Instead of paying $74.00 for 27 years, they only paid $62.60 for 9 years. That is, they each paid $563.40 and the companies paid their representatives $2,000.00. There is no mystery about this. Nothing but what any schoolboy might easily understand. It is the contributions of the many who are spared, that meet the claims, of the few who are taken away each year. See history of lapses and surrender values. Here in the language of the •' Insurance Chi-onicle*'' are a few of the " Monstrosities " which Old Line agents "are adepts at placing on paper : — ** Manufacturers Life "age 35, "Ton- tine period 20 years, $10,000.00 policy, annual premium $312.00' Total premiums paid during tontine period $6,240.00. Paid up policy for $21,850.00," i. e. $3.50 for every one dollar paid. I have estimates from the North American, Neiv York Life, and Equitable Life, that are equally astonishing in view of the fact that the statement is made, by the first three named companies that if the policy holder dies within the period, his heirs get the $10,000 and all the premiums he paid returned. For example, suppose a policy becomes a claim ten years after it is issued, the company would pay $13, 120.00, or $6,880 more than it received from the insured. Surely the " Chronicle" is right in calling such estimates ** Afonstrosities," i{ it takes ** $74.00 per annum" for 27 years, •* to provide $2,000," rtj stated by the ^^ Monetary Times,''* Six out of the ten companies cited ceased to do new business, in Canada, ten years ago two of them are insolvent and have been so for years and the others are not really life insurance companies in the true sense of the term. They are fire insurance companies that issue a life policy if any one desires them to do so. Several of these companies have been in business for 50 years, and yet 42 according to tlie '* Monetary Times^^ in 1875, when they were doing even an average new business, '*$i 1.70 pf.R $1,000 was SUFFICIENT TO PAY BOTH DEATH LOSSES AND EXPEN"ES, \\\uc\i flit nishes an additional proof that the cost of life insurance IS LESS THAN $i2.oo PER $1,000 AT ALL AGES. If the cost of in- surance is to be determined by the experience of companies that have ceased to do new business, and in which there are hundreds of thousands of paid up insurance, it could be made to appear that it costs $1,000 per annum per $1,000 insured ; for, suppose all the policy holders in these companies are dead but one, and that he has a paid up policy for "$20,000.00, the company will have to pay out $20,000.00, more than it receives the year that his policy becomes a claim. There is not an official statement on record, from which it can be proved, that the death losses of any well managed life insurance company, have exceeded the average indicated by the Mortality Tables, while it was " pushing on successfully in insuring new lives." In proof of this I quote from the ^'' Monetary Times ^^ December i8th. 1885. The actual losses of the leading offices on this continent have been from one-fifth to one-sixth less than those provided for by the mortality table named. ^^ Also from the report of the Hon. John K. Tarbox, Insurance Commissioner of the State of Massachusetts for 1S84 • — *' These Mortality Tables are the results of carefully verified statistics of the actual death experience of Life Companies in Europe and in this country. Confidence in their safety as a basis of antici- pation is strengthened by the seemingly tvell-established fact that the longrc'ity of the human race grows with the advance in knowledge of the lazvs of health, the better obsemance of sanitary conditions and the generally improved circumstances of the people, incident to high- ly civilized life. 'That the average duration of life in the future of well ordered American communities will, at least, equal the past average, as found by the tables, is a reasonable expectation . Tur- ther confirmatory evidence is afforded by later experience. Of the companies doing business in Massachusetts^ ivith records of from twenty to forty-two years' experience^ not one has experienced a death rate of within ten per cent, of the expectation. Of the older and larger companies, which furnisrh perhaps the more satisfactory test, THE ACTUAL MORTALITY, BY THE LATEST COM- PUTA TION^ has bfu in the Mutual, 80 ; in the Mutual Benefit, 85; in the New York Life, 88; in the ALtna, 89 ; in the Pennsyl- vania Mutual y 81 ; in the Connecticut Mutual, and the Equitable^ 78; in the Northwestern, 77; and in the New England, ^i^ per cent. AS COMPARED WITH THE TABLE. Whenever a Compa ny has suffered a death loss in excess of the expectation, the cause is irferred to imprudent selection. The evidence of the safety of the mortality assumption is proof beyond reasonable doubt." To show the public that the form of deception adopted by the •'Monetary Times,'' as to the cost of insurance, is constan ly practised by old line journals and agents, I quote the following from the *' Insurance and Finance Chronicle," Montreal. To THE Editob OF The Chrrt ,a. Port Hopk, January 20th, 1888. Dkab Sir,— When dealing •wit. 1 Ihc paaest'^-Tt humbugs, I state that the average age at which a man insures !» ol and that the average all life policy runs for 32 years. "By dividing $1,000 by 32 we get $31.25, years, hence for the average all life man $31.25 must be raised each year besides expenses, and if there is no interest that sum must be got hold of somehow by the Associa- tion or the things is nil. * addition to the obligations and responsibilities of an insurer, and prejudices its safety as an insurance institution by exposure to the dangers incident to its banking operations ^ If Life Insurance com- panies had devoted their attention to life insurance, pure and simple, failures would have been all but unknown. As in every Instance, where failure has taken place, it has been caused by the mismanagement or misappropriation of moneys over and above the Cost of insurance, intrusted to the company as an investment or bank deposit. ^or the benefit of those who prefer to insure on the endow- ment plan, I submit the following taken from a circular published by the Mutual Reserve. " How AN Endowment Policy can be Secured it the Lowest Possible Cost and the Largest Results Obtained. The Assured Retaining Control of the Accumulation. "The Mutual Reserve Fund Life Association introduces the following plan by which an Endowment Fund may be provided, a piopoitionate amount of which (in case of necessity) may be drawn at any time, beside providing an immediate benefit to the family or estate in case of death. '•The cost of providing both benefits is but the "Annual Premium " charged by an Old Line Company for an Endowment Policy. «*the old way. " $721.40 is the Annual Premium, age 45, to secure an endowment policy of $10,000 payable in fifteen years, or at death, if prior, charged by Old Line Companies. 66 '•the new way. y "Deposit annually in Savings Bank an amount equal to the Annual Premium charged by an Old Line Company $72140 •'Deduct the amount to pay this Association for $10,000 insurance at maximum rates, which has never yet been reached and which in- cludes the 25 per cent, set apart for Reseive or Emergency Fund which iS the property of the members, and is returned to the per- sistent members. The Annual Dues of $3.00 on every $1,000 of insurance is also included $179,60 " Difference in Gash in Bank for En- dowment Fund $541.8 O *• And interest at 4 per cent, on amount in bank, $21.67 ** Total Amount Endowment Fund in Bank end of first year $563 47 ••The following table fully illustrates the practical workings of both methods, the OLD and the NEW. Table showing amount accumulating each year) the amount realized any year in case of deaths and the amount that would be paid by Old Line Companies- • 1 2 3 Total am'nt that would be realized 4 Am'nt that w u 1 d be due from YEAR. Amount f any year old line YEAR. Endow- in case of com p any Amount i n nientFimd d'-ath, i f any year in this Asso- ill bank at insured in case of c i a t i n end of each Mutual Re- death, r payabL- in y<'ar, 1 n - serve Fund at end of case of eluding in- Life Asso- 15 years if death. terest. ciation. living. Ist year. $10,000 00 $ 503 47 $10,663 47 $10,000 00 l8t year. 2ml '* 10,000 00 1,14'J 48 H,149 48 10,000 00 2nd " 3rd " 10,{.00 00 1,758 93 11,758 93 10,000 00 3rd '« 4th « 10,000 00 2,302 7o 12,392 76 10,000 00 4th " 6th " 10.000 00 3,051 93 ] 3,051 93 10,000 00 6th » 6th " 10,000 00 3,737 47 13,737 47 10,000 00 6th '• 7th " 10,000 00 4,450 44 14,450 44 10,000 00 7th " 8th « 10,000 00 5,001 92 15,191 92 10,000 00 8th « 9th «• 10,000 00 5,963 06 16,963 06 10,900 00 9th " 10th " 10,00(1 00 6,765 05 16,765 06 . 10,000 00 10th " 11th •< 10,000 00 7,599 12 17,599 12 10,000 GO 11th ♦' 12th '* 10,0(K) 00 8,466 55 18,4«6 55 10,000 00 12th «« 13th •• 10, ' 00 9,368 68 19,358 68 10,000 00 13ih •« 14th '* lOjt.Jv; 00 10,306 89 20,306 89 10,000 00 14th " 15tb *• 10,000 00 11,282 63 21,282 63 10,000 00 loth •» 56 <( (( (( <( {( (I -s<^^^T^;|^ 'Ej>-c5>--o HON. J. A. CHAPLEAU, Q.C., M.P. JOHN S. HALL, JR., Q,C., M.P.P. ARMINE D. NICOLLS. ALBERT J. BROWN. H AVE YOU a lot of Slow or Bad Accou nts? If so, send them in to the office of She (Canadian Reportioj aod Collection AssociatioD (ESTABLISHED 1869,) 217/ ST. '^ J/IMES « STREET, MONTREAL. P.O. 80X2004. -.^A^^,.-.^ TELEPHONE No. 1698 A. N.B.— No Collection, no Charge and no Membership Pee. -■j*"«««»'j<«aiatei^-. PROMINENTjCAiyjlMAN MEMBERS. Certificates of Alemhemhip have been issued to the followiug 7vell-kiiown ^eiitieinen : Hon t( i> !• II It li «l It (< (t (< t( (I