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LECTURES 
 
 ON 
 
 Life Insurance 
 
 Volume I. 
 
 Being Lectures and Addresses Delivered by 
 
 JOHN M. HOLCOMBE 
 
 President of the Phoenix Mutual Life Insurance Company 
 
 UN1VERSITY j 
 
 HARTFORD, CONN. 
 1908 
 

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PREFACE 
 
 For a long period the beneficence of life insurance 
 was so evident that people accepted truisms as truisms and 
 came to insure their lives without troubling to analyze the 
 system. As time went on, however, and a multiplicity of 
 forms of life insusance was developed to meet special de- 
 mands on the part of a few, comparatively speaking, the 
 fundamental principles became clouded in the minds of 
 many. Life insurance remains a benefaction and has pro- 
 gressed with the times. Fortunately, for one cause and 
 another, the people have become more inquisitive concerning 
 it and are seeking exact knowledge as to what it purports to 
 do and the way in which it does it, in the most straightfor- 
 ward fashion. 
 
 It is in recognition of this most encouraging attitude on 
 the part of the public that the recent lectures and addresses 
 of President John M. Holcombe of the Phoenix Mutual Life 
 Insurance Company have been collected and put in book 
 form. They take up every phase of the great system in 
 itself and in its relations to mankind in all their conditions 
 and requirements. 
 
 This volume will be followed by others, hopefully, all 
 published in connection with the Educational Department 
 of the Company, which aims specifically to train agents in 
 the right line of thinking and acting, for the good of the 
 public as well as of themselves ; since inasmuch as the 
 public is now bound to get its information, the men who offer 
 life insurance also must have it in a more complete form 
 than ever before. 
 
 Acknowledgment is made of the courtesy of the Yale 
 Alumni Weekly in permitting the use of the first three of 
 these lectures from its " Yale Insurance Lectures, Volume I.," 
 copyrighted. 
 
 THE EDITOR. 
 
 173081 
 
v OFT , 
 UNIVER; 
 
 OF 
 
 OBSERVATIONS ON INSURANCE HISTORY 
 DEFINITION OF AN INSURANCE POLICY 
 
 (Delivered in Yale University Course) 
 
 A POLICY of insurance is essentially a contract 
 "^ for indemnity and not for profit, and its object 
 is to relieve the individual from the heavy weight 
 which would fall upon him through no fault of his, 
 by distributing the burden over the community. 
 
 Insurance is a contract whereby one for a con- 
 sideration undertakes to compensate another if he 
 shall suffer loss. All that is requisite to constitute 
 such a contract is the payment of consideration by the 
 one, and the promise of the other to pay the amount 
 of loss agreed upon in the contract to the person 
 entitled to claim it, upon the happening of the con- 
 tingency contemplated in the contract. 
 
 It had its origin in the necessities of commerce, 
 it has kept pace with its progress, expanded to meet 
 its rising wants and to cover its ever widening fields, 
 and under the guidance of the spirit of modern enter- 
 prise tempered by a prudent forecast, it has from 
 time to time with wonderful facility adapted itself to 
 the new interests of an advancing civilization. 
 
 It is applicable to every form of possible loss. 
 Wherever danger is apprehended or protection 
 required, it holds out its fostering hand and promises 
 indemnity. This principle underlies the contract, and 
 it can never, without violence to its essence and 
 spirit, be made by the assured a source of profit, its 
 sole purpose being to guarantee against loss or danger. 
 "Though based upon self-interest," says De Morgan, 
 "yet it is the most enlightened and benevolent form 
 which the projects of self-interest ever took. It is 
 in fact, in a limited sense and a practicable method, 
 the agreement of a community to consider the goods 
 
6 LECTURES ON LIFE INSURANCE 
 
 of its individual members as common. It is an agree- 
 ment that those whose fortune it shall be to have more 
 than average success shall resign the overplus in favor 
 of those who have less. And it has as yet been applied 
 only to the reparation of the evils arising from storm, 
 lire, premature death, disease and old age, yet there 
 is no placing a limit to the extensions which its appli- 
 cation might receive if the public were fully aware 
 of its principles and of the safety with which they 
 may be put in operation." 
 
 There exists in the minds of many a distinction 
 between insurance on lives and insurance on visible 
 property, on the ground that the former is simply an 
 agreement to pay a fixed and arbitrary amount at the 
 death of the insured, without reference to any actual 
 damage, and the latter an undertaking of indemnity 
 for loss. This distinction is not based upon a true 
 comprehension of the real principles which underlie 
 the policy of life insurance. In the one case the thing, 
 the loss of which is made good or modified, is capital 
 which produces income, and in the other it is a life 
 with physical and mental vigor sufficient to produce 
 an income over and above the cost of subsistence. 
 Many lives do not possess these qualities, and it is only 
 with those which do that life insurance in its legitimate 
 field has to deal. The termination of a life which can 
 produce a surplus income inflicts a loss upon some 
 one, and the greater the probable length of such pro- 
 duction, the greater the loss must be. 
 
 It is clear, therefore, that before the insurer can 
 fix the sum to be received for the agreement to pay 
 some amount at an indefinite future time, he must 
 not only know the time when his promise must be ful- 
 filled, but he must be sure that the life upon which it 
 is predicated belongs to the class from which his cal- 
 culations have been drawn. 
 
 A mortality table, therefore, necessarily preceded 
 all contracts involving the length of a human life. 
 The practice of registering births and deaths is a very 
 ancient one, so ancient indeed that no record remains 
 of what people first attained that degree of civiliza- 
 tion which must precede the adoption of a plan only 
 
LECTURES ON LIFE INSURANCE 7 
 
 possible in a stable and enlightened community. It 
 is probable that records of this kind were kept by 
 the early inhabitants of Asia and Africa, but it was in 
 Rome that the first occasion, of which there is any au- 
 thentic knowledge, arose for a reliable measure of 
 the probable future lifetime of persons at various 
 ages. 
 
 At the time of the reign of the Emperor Alex- 
 ander Severus in the third century, it had been a cus- 
 tom of Roman testators to bequeath to legatees pro- 
 vision for life, but by the Falcidian law such legacies 
 were prohibited from encroaching upon the one-fourth 
 of the estate resulting to the heirs-at-law. To carry 
 out this law, some estimate of life duration of the 
 legatees, one with another, from a given age had to 
 be formed. The Roman census enumerated ages of 
 population and Rome had bills of mortality, and it 
 was no doubt from these that the great jurist Ulpian 
 constructed a table which gives evidence of much 
 skill and discrimination. Its results are, under the 
 circumstances, remarkably close to those reached some 
 fifteen centuries later, when Dr. Price classified and 
 moulded into a mortality table the registration of 
 persons living and dying in Stockholm from 1755 to 
 1763 (which seems to have been the first accurate 
 deduction ever made of the length of life in a city). 
 
 At age 30 the Roman expectation of life was about 
 25 years, and by Dr. Price's table about 22 years ; at 
 50 the Roman table gives 10 years expectancy, Dr. 
 Price's 14 years, and at 60 the former shows 7 years, 
 the latter 10 years. 
 
 A careful and accurate record of births, deaths 
 and marriages has been kept in the city of Geneva, 
 Switzerland, since 1549, and is the oldest continuous 
 register of this kind now extant. Many other similar 
 records were established in different countries, but it 
 was not until the beginning of the seventeenth cen- 
 tury that they were general in Europe. Their adop- 
 tion was no doubt the result of public necessity. 
 
 During the middle ages the ravages of war and 
 pestilence rendered impossible any basis for valuing 
 a human life, but when cities had become established 
 
8 LECTURES ON LIFE INSURANCE 
 
 and governments were growing more secure, the value 
 of records of the various happenings in the life of 
 civilized communities naturally became more and more 
 evident as the value of human life became more clearly 
 the foundation on which must be built all that per- 
 tains not only to the commercial prosperity, but also 
 to the happiness and well-being of the race. 
 
 The plague, which wrought such havoc in Eng- 
 land, was probably the cause of the initiative step 
 which was taken in that country in establishing those 
 records which have made possible the institution of 
 life insurance, for to it must be attributed the earliest 
 bills of mortality. Within a period of seventy years, 
 London had been visited by it five separate times, 
 145,000 having died from its collective attacks. It 
 always seemed impending, for the intervals between 
 its departure and return were sometimes only eleven 
 years, and had never exceeded twenty-nine. The 
 reports and even the fear of its approach were a com- 
 mercial calamity, and in 1592, when more than 30,000 
 died of the disease, appalling as was the reality, the 
 rumors were vastly exaggerated. An attempt to quiet 
 public feeling by correctly indicating its progress 
 was, therefore, made in the bills of mortality, and 
 though they were not at first maintained consecutively, 
 they were afterwards found so useful as to be con- 
 tinued from the 29th of December, 1603, down to the 
 present time. While they served to correct some false 
 notions, they were not made of practical and definite 
 use until 1664, when John Graunt published a book on 
 the population, which contained, as he stated, "a new 
 and accurate thesis of policy built on a more certain 
 reasoning than had yet been adopted." This work met 
 with an extraordinary reception and stimulated the 
 consideration of these subjects by thoughtful men. 
 
 He failed in an attempt to deduce a law of life 
 from these records, because they did not specify the 
 ages as well as the deaths of the people, for it was 
 not until 1728 that the ages of the dead were intro- 
 duced in the London bills of mortality. From his 
 enumeration of his objects, it may be seen that life 
 insurance was not contemplated by him, but he made 
 
LECTURES ON LIFE INSURANCE 9 
 
 the earliest attempt to number the people, classify their 
 callings and to ascertain the mortality among them, 
 and he thus laid the foundation of this science. 
 
 The Laws of Chance came to be developed origi- 
 nally very much in the interest of the all-prevailing 
 gaming which pervaded Europe during the seventeenth 
 and most of the eighteenth century. 
 
 A yet higher class of mathematics soon after- 
 wards elaborated the doctrine of mathematical prob- 
 ability. The application of these higher mathematical 
 methods to the data supplied by the bills of mortality 
 and other mortality observations led to the develop- 
 ment of life contingencies. 
 
 While England was destined to be the country 
 where the first correct principles of life insurance 
 were to be developed, the data upon which its practice 
 was built were taken from the registers of the town 
 of Breslau in Silesia, which was the only place where 
 a record of the ages of the dead was kept. In 1693 
 Dr. Halley, the Astronomer Royal, published the 
 Breslau Table of Mortality, which was the first im- 
 portant step toward raising the doctrine of life insur- 
 ance to a position to claim rank amongst the sciences. 
 From the recorded ages in the Breslau register, he 
 constructed a table of the probabilities of the duration 
 of human life at every age, and he taught with great 
 clearness the conditions needful for the formation of 
 rates of mortality. 
 
 Long before this, contracts involving the risk of 
 death within specified times had been entered into, but 
 the premiums charged bore no relation to the hazard 
 incurred, and however legitimate in their object they 
 might have been, they were speculations. 
 
 Although the means were at hand at the beginning 
 of the eighteenth century for the establishment of the 
 institution of life insurance on a firm and legitimate 
 foundation, it continued for many years to be of a 
 speculative character. This was due no doubt to the 
 temper of the times rather than to any other single 
 cause. The purpose of the first attempt at associated 
 operation was legitimate, although its basis was not 
 very substantial. The movement at the beginning of 
 
10 LECTURES ON LIFE INSURANCE 
 
 the eighteenth century was clearly intended to be in 
 the direction of permanence, but the very attractiveness 
 of the features of the business rendered it a prey to 
 unscrupulous adventurers. 
 
 The earliest project of associated life insurance 
 was made in 1699, and was called "The Society of As- 
 surance for Widows and Orphans." This scheme had 
 so many of the elements of modern insurance that 
 those who originated it must have had a pretty clear 
 idea not only of its necessities from a financial point 
 of view, but also of its obligations from a moral stand- 
 point. It was to commence as from April 6, 1699, 
 and registers were to be kept in some public place 
 in London. In these were to be entered the name 
 and age of each subscriber, the names and ages of his 
 wife and children, or of any other persons to be pro- 
 vided for, together with the claim of every widow or 
 person made upon the society, and the sum paid upon 
 such claim. These books were to be open to the 
 examination of subscribers, and all matters were to 
 be heard and determined by thirteen persons who were 
 named and who were all persons of good social posi- 
 tion. Persons entering were to sign the' deed and 
 within six months were to appear at the office before 
 three or more trustees and have their policies approved 
 and signed by the secretary in their presence, at which 
 court every subscriber should, if required by the trus- 
 tees or by the master of the office, produce a certificate 
 of his age and also an affidavit that he had not any 
 known distemper upon him, and that he was in a very 
 good state of health, and that the trustees should have 
 power to refuse the person if it appeared he -was sickly 
 or infirm, or did not produce the certificate, or that 
 in any other respects he was not qualified for member- 
 ship. Any person of the clergy or laity, "excepting 
 such as live in the marshy and unhealthy parts of Eng- 
 land," might be admitted by proxy if known to the 
 trustees or to the master of the office, or to some two 
 subscribers or substantial housekeepers living within 
 the bills of mortality as a person of good report ; also 
 not above 50 years of age, and also a certificate signed 
 by the ministers of three neighboring parishes, testify- 
 
LECTURES ON LIFE INSURANCE 11 
 
 ing that they did believe him to be in health, and of 
 such age as he declared himself to be. There was 
 also a provision that in case of persons who had be- 
 come members becoming soldiers and dying in warfare, 
 or dying at sea, or in foreign parts, all interest in the 
 society and its funds was to be forfeited. 
 
 In 1704 there were 600 members, in 1705 there 
 were 908, in 1707 there were 1104. 
 
 Early in the working of the scheme the age of 
 entry was reduced from 50 to 45 and notice was given 
 that "When the society shall consist of 1200 it is 
 designed to be reduced to 40, when of 1600 to 35, 
 when it is full to 30 years of age," the number being 
 limited to 2,000. In one of the prospectuses issued 
 about this time appears the idea of family protection, 
 which is now, as it was then, the chief reason for the 
 existence of the institution of life insurance. It was 
 expressed as follows : "If the subscriber be a clergy- 
 man that has a good living or one that has good busi- 
 ness or that has an office whose salary and perquisites 
 are considerable, his family is morally secured of a 
 good subsistence. As long as the subscriber lives 
 they have his income to depend upon, and at his death 
 500"; and it added, "A jointure of 10 or 15 
 (pounds) per annum is but a small provision for a 
 wife, but if such an estate were settled to maintain her 
 title to the joint stock of this society when it is full, 
 she will have at her husband's death 500 which will 
 purchase an annuity of 50 per annum upon land 
 security and free of all reprisals." This was the first 
 of the mutual contribution life offices, and it provided 
 for all the essential conditions of life assurance. The 
 lives were to consist of persons in good health, not 
 over a specified age, and of a social position which 
 would enable them to be identified. What were sup- 
 posed to be extra hazardous risks were excluded, and 
 if death took place within six months there should be 
 no claim. This last regulation took the place of the 
 medical examination which was introduced at a later 
 date. 
 
 The year 1720 is a memorable one in English 
 history and hardly less so in the history of life assur- 
 
12 LECTURES ON LIFE INSURANCE 
 
 ance. Gaming and speculation had pervaded the very 
 atmosphere. In the crude life assurance project of 
 1699 a new mode of aggregating wealth had been pro- 
 pounded. The notion having taken hold of the 
 public mind, was skilfully but unscrupulously worked 
 by projectors of new schemes. The very unsoundness 
 of these schemes enabled speculators to realize 
 promptly by entering unhealthy lives. In a mutual 
 contribution society the managers have no pecuniary 
 reason for excluding these lives, for the greater the 
 number of members, the larger will be the amount 
 of the entrance fees and the greater will be the profits 
 of the managers, as the subscribers themselves pay 
 the claims. It is only when the new membership 
 decreases and the claims increase, that the unsound- 
 ness of the plan becomes apparent. The real merits 
 of life assurance were becoming more understood, and 
 a demand therefore arose for something more substan- 
 tial and lasting. 
 
 The first important attempt on the part of any 
 government to raise money by the sale of annuities 
 was made by John DeWit, Grand Pensionary of Hol- 
 land, in 1 67 1, when he explained the basis upon which 
 such an enterprise could be successfully carried out. 
 In 1692 the first attempt was made by the English 
 Government to raise money by life annuities, and in 
 1720 there was an annual charge upon the revenue of 
 eight hundred thousand pounds for irredeemable 
 annuities granted in the reigns of William and Anne. 
 
 It was at this time that the South Sea Company, 
 which had been organized for trade with South 
 America, made an ofTer, which was accepted, to pro- 
 vide seven millions and a half to buy up these annuities. 
 The annuitants were not compelled to exchange their 
 government security for the Company's stock. So 
 thoroughly, however, had the spirit of speculation 
 taken hold of the popular mind, that to hold stock in 
 a company with exclusive trading privileges seemed 
 a far greater thing than to realize seven, eight or even 
 nine per cent, upon annuities. Within six days of the 
 announcement of the Company's terms, two-thirds of 
 the annuitants had exchanged their certain income for 
 
LECTURES ON LIFE INSURANCE 13 
 
 the vast imaginary riches of South America. Before 
 the close of the year the South Sea Bubble burst simul- 
 taneously with the Mississippi Bubble in France. Many 
 circumstances point to the fact that money made in 
 insurance projects passed into South Sea stocks, and 
 certainly some of the young assurance offices invested 
 their members' money in these stocks and advertised 
 that they had done so. 
 
 To what precise extent the various projects of 
 this eventful period were interlaced it is now impos- 
 sible fully to unravel. It is certain, however, that 
 with the bursting of the South Sea Bubble all of the 
 life insurance projects existing in England at that 
 time, with a single exception, passed into thin air, and 
 were heard of no more. There had probably been fifty 
 life assurance schemes set on foot between 1699 and 
 1720, and the loss to the public resulting from their 
 operations can only be conjectured. 
 
 A period which may properly be called one of 
 scientific exactitude began with 1721, at which time 
 there was but one life assurance office in existence in 
 Great Britain, the Amicable, founded in 1706. That 
 too was, so far as is known, the only life assurance 
 association in the world. It was very defective in its 
 mode of working, but it stood alone. It had at this 
 date an accumulated fund of about 50,000 and it had 
 distributed in death claims 1 18,000. 
 
 Between 1720 and 1760 many investigations were 
 made into the subject of life contingencies, and many 
 works of much merit were published. These had ref- 
 erence chiefly to annuities and to the mathematical 
 questions involved in their calculation. A careful 
 examination of the history of this period fails to dis- 
 close any evidence of a systematic attempt to apply 
 the results of the search for the law of mortality to 
 the establishment of life insurance as a stable and 
 legitimate business. After a careful scrutiny of all 
 the facts obtainable, it was declared that the insurance 
 of a sum payable under a contract designed to extend 
 over the whole duration of life, and either at a gradu- 
 ated or an equalized premium, was, at the time to 
 which we are now referring, a contract very rarely 
 
14 LECTURES ON LIFE INSURANCE 
 
 entered upon either by the commercial or other classes 
 of the community: and we may take it as established 
 that no plan of life assurance as we now understand 
 it had been contemplated by any company or society, 
 or had been considered by any legislature in Europe 
 prior to the year 1760. 
 
 It was in this year that the first active steps were 
 taken to establish a plan of life assurance upon the 
 principle of exact scientific computation, the premium 
 being a fixed annual charge, determined by the age of 
 the insured at the time of entering into the contract ; 
 and the sum insured being likewise a fixed and deter- 
 minate sum, subject to no diminution on any ground 
 whatever. 
 
 It is estimated that at this time the sum insured 
 on lives in Great Britain amounted to 350,000. These 
 insurances were mostly if not all for one year, and 
 the premiums were not graduated according to ages, 
 but were much larger than the actual risk justified. 
 Some three years prior to this date, a petition was 
 presented to the Secretary of State's office, setting 
 forth the object for which a charter was desired, sub- 
 stantially as follows : 
 
 "That great numbers of His Majesty's subjects, 
 whose subsistence principally depends on the salaries, 
 stipends and other incomes payable to them during 
 their natural lives, or on the profits arising from their 
 several trades, occupation, labor and industry, are 
 very desirous of entering into a society for insuring 
 the lives of each other, in order to extend after their 
 decease the benefit of their present incomes to their 
 families, and relations, who may otherwise be reduced 
 to extreme poverty and distress by the premature death 
 of their several husbands, fathers and friends, which 
 humane intention the petitioners humbly apprehend 
 cannot be effectually carried into execution without 
 His Majesty's royal authority to incorporate them for 
 that purpose." 
 
 Although the application for a charter was pressed 
 with some vigor in 1760 and 1 761, it was not until 1762 
 that the objections were overcome and the incorpo- 
 ration of "The Society for Equitable Assurance on 
 Lives and Survivorships" was accomplished. 
 
LECTURES ON LIFE INSURANCE 15 
 
 Among the reasons advanced against the granting 
 of the charter was that "the success of this scheme 
 must depend upon the truth of certain calculations 
 taken upon tables of life and death whereby the chance 
 of mortality is attempted to be reduced to a certain 
 standard : this is mere speculation, never yet tried in 
 practice, and consequently subject, like all other experi- 
 ments, to various chances in the execution." 
 
 It was pointed out furthermore that the tables 
 from which the premiums were derived were the bills 
 of mortality of London and the Breslau tables, which, 
 admitting their accuracy, which was very doubtful, 
 included diseased as well as healthy persons and those 
 engaged in hazardous as well as other employments, 
 while it was proposed to insure only healthy persons, 
 excluding those who for any reason were regarded as 
 hazardous risks. 
 
 The history of modern life insurance dates from 
 the foundation of this Society, which has, in its own 
 experience, not only demonstrated the benefits of true 
 protection, but also has shown the stability of the busi- 
 ness through the varying problems which a hundred 
 and forty years have brought to it for solution. 
 
 Its first rates were based on the bills of mortality 
 of the City of London during a period which included 
 the year 1740, when the death rate was almost equal 
 to that of a plague, and were in consequence unneces- 
 sarily high. 
 
 In 1769 Dr. Price published his work "Obser- 
 vations on Reversionary Payments ; on Schemes for 
 providing Annuities for Widows and for Persons in 
 old age; on the Method of Calculating the Values of 
 Assurances on Lives, etc." The table which he con- 
 structed from the records of the town of Northamp- 
 ton, widely known as the Northampton Table, became 
 and continued to be for many years the standard for 
 life insurance calculations. The Equitable Society in 
 1777 reduced its rates materially, although they still 
 remained so high that large surplus accumulations 
 resulted from the premiums received from policy- 
 holders. 
 
 That the premiums charged, even after many 
 
16 LECTURES ON LIFE INSURANCB 
 
 years of experience, were excessive was clearly 
 shown by a comparison of the actual mortality of this 
 Society with the theory upon which these premiums 
 were based. In the twelve years preceding 1829 the 
 expected deaths by the Northampton Table were 2248, 
 while the actual claims numbered but 1489. When 
 the records of this Company drew the attention of the 
 public to the profits accruing from the transaction of 
 this business at the rates then current, numerous similar 
 corporations rapidly came into being, most of them 
 for the benefit of stockholders. Although it is prob- 
 able that many of these were organized with the in- 
 tention of meeting the obligations of policies as well as 
 for the profit of incorporators, yet few of them long 
 survived, and it was not until near the middle of the 
 nineteenth century that the business assumed a magni- 
 tude which commenced to make it a positive force in 
 the affairs of the world. 
 
 In the nature of things, the only mortality tables 
 available in the early history of the business, namely, 
 those derived from public records, would in time be 
 abandoned for those made up from the experience 
 among the selected lives of the companies themselves, 
 when that experience should be sufficiently extensive 
 to furnish valuable results. The decision to construct 
 a table from the data to be furnished by the various life 
 offices was reached in 1838. Seventeen companies con- 
 tributed their experience, comprising 83,905 assur- 
 ances. The calculations were made under the direc- 
 tion of the most skilled mathematicians of the day, and 
 the result was a table adjusted and graduated in so 
 masterly a manner that it has up to the present time 
 been used more generally than any other. It was pub- 
 lished in 1843 and was called "The Actuaries' or Com- 
 bined Experience Table of Mortality." 
 
 Inasmuch as the risk of death is greater at each 
 age than it was at that next previous, the premiums 
 required will increase as the life advances. It has been 
 evident from a very early day that a fixed premium 
 will in most cases be more satisfactory to the insured, 
 and safer for the insurer, than an ascending scale, 
 which creates a burden growing with advancing years. 
 
LECTURES ON LIFE INSURANCE 17 
 
 A level premium will be larger than the contributions 
 to death losses require in the early years of insurance, 
 and this surplus, together with deposits requisite to 
 meet liabilities undertaken in various contracts, must 
 be invested to provide for future necessities. The rate 
 of interest which is likely to be realized for many 
 years is, consequently, a vital question. 
 
 As will appear when the forms of contract are 
 discussed, it is not unlikely that some of the life insur- 
 ance obligations assumed at this time will, in some 
 form, still be outstanding a hundred years hence. The 
 history of the rate of interest is, therefore, an impor- 
 tant part of the study of life insurance. 
 
 It is not necessary in this connection to attempt 
 to trace the record of the recompense demanded from 
 the earliest period of commercial undertakings by those 
 having money to lend, and the restrictions which the 
 laws have from time to time placed upon these transac- 
 tions. Supply and demand have caused wide fluctu- 
 ations in this rate, but the peculiar nature of the in- 
 vestments suitable for life insurance companies is 
 such, that a more accurate analysis of past experience 
 and a more certain estimate of the future is possible 
 than in any other class of invested funds. In other 
 financial institutions where interest plays an important 
 part, the liabilities are of such a nature that the avail- 
 ability of the resources set aside to meet them must be 
 a controlling element. The amount of cash which will 
 be required from time to time to meet the maturing 
 obligations of life insurance companies can be fore- 
 told with substantial accuracy, and the rate of interest 
 which will be safely obtainable is consequently higher. 
 The fluctuations in the price of government and sim- 
 ilar bonds, and the interest resulting to the investor, 
 should not, therefore, be relied upon by the student of 
 this branch of finance. A very large part of the busi- 
 ness heretofore transacted as well as that now in force 
 was based upon the assumption that 4 per cent, would 
 be realized on the invested funds, and the safety of 
 this had been verified by experience. A decline in the 
 earning power of money invested in securities suitable 
 for trust funds of all kinds has been going on for many 
 
18 LECTURES < N LIFE INSURANCB 
 
 years, and has resulted in a reduction in the rate em- 
 ployed in calculating premiums and reserves. 
 
 The experience of the English government in 
 connection -with the sale of annuities was of such a 
 character as to make it worthy of note as an example 
 of the care which must be exercised in drawing con- 
 clusions from statistics when the power of selection 
 rests with the individual. In 1808 England placed 
 this branch of the public finances under the control 
 of the Commissioners for the Reduction of the 
 National Debt, and terms were offered which -were so 
 attractive that a very large obligation was incurred. 
 The Northampton Table having been found to be a 
 safe basis for life insurance, was adopted by the Gov- 
 ernment as a basis for its annuity operations. While 
 a life insurance company can select its members from 
 those who appear to have the elements of longevity, if 
 annuities are offered, the applicants which are accepted 
 cannot be chosen from those who are inferior in phy- 
 sical or hereditary strength. Self-interest will, there- 
 fore, play an important part in the transaction, and 
 annuitants have always been and always will be drawn 
 from the long lived class, for as a rule only those who 
 have reason to expect to live to old age will invest 
 at the outset the sums required for the purchase of 
 contracts providing- for the periodical payment of 
 amounts ceasing only with death. 
 
 The mistake of supposing that the lives of this 
 class would terminate in accordance with the rule 
 applicable to the general population, cost the English 
 government many million dollars before the error 
 could be rectified. 
 
 It was in England that the theories of the busi- 
 ness were most carefully studied, and put in practice, 
 but the development of the institution has been more 
 rapid in the United States than in any other country. 
 
 It has been estimated that apart from annuity 
 contracts, there were not a hundred policies in force 
 in the United States on the risk of life at the begin- 
 ning of the nineteenth century, and it has been only 
 within the past forty years, that the public recognition 
 of the value of life insurance has been such as to raise 
 
LECTURES ON LIFE INSURANCE 19 
 
 this business to a position in which it not only plays 
 an important part in social problems, but also affects 
 the financial life of the nation. 
 
 It is difficult to estimate the total amount of insur- 
 ance carried by all the corporations and associations 
 engaged in the business of life insurance, but some 
 idea may be gained of its proportions by examining 
 the records of the departments appointed by state 
 governments to supervise its affairs. The first of 
 these departments was established in the eastern states, 
 but the power of the states to prescribe the conditions 
 under which outside corporations shall prosecute the 
 business transacted within their borders has led to 
 careful scrutiny of the affairs of these institutions. 
 
 In the year i860, the life companies reporting to 
 the Insurance Department of the State of New York 
 showed an aggregate annual premium income of 
 $4,700,000, with 56,000 policies in force, representing 
 outstanding insurance of $163,000,000. To provide 
 for the ultimate payment of these obligations, these 
 corporations held funds to the amount of some $24,- 
 000,000. In 1870 this Department reported that the 
 life companies authorized to prosecute business in 
 the state had an aggregate premium income of $90,- 
 000,000 with 740,000 policies and $2,000,000,000 of 
 insurance. Their assets then amounted to about 
 $270,000,000. 
 
 The next decade witnessed a decline in the busi- 
 ness, but for 25 years its progress has been continuous, 
 and at the present time the companies classed as reg- 
 ular have more than $8,000,000,000 of insurance in 
 force, with a premium income of $380,000,000 per 
 annum and accumulated assets of over $2,000,000,000. 
 The records of no other country approach these figures. 
 
 In many countries companies have been formed 
 to assume life insurance obligations, and there is now 
 no civilized country whose inhabitants are precluded 
 from the benefits of this protection, a knowledge of 
 which, in its general features at all events, is now a 
 necessary part of the education of that citizen who 
 desires to be well equipped for the part he is to take 
 in the affairs of his country. 
 
ECONOMICAL FUNCTIONS OF INSURANCE 
 WITH RELATION TO THE FAMILY 
 
 {Delivered in Yale University Course) 
 
 ~p ACH family requires for its subsistence a certain 
 sum of money, which varies both as to the 
 amount and the length of time during which it will 
 be needed, according to the circumstances which sur- 
 round each individual case. The income is, in some 
 cases, derived from invested funds inherited or ac- 
 cumulated, but, in general, it represents the earnings 
 of that one upon whom rests the responsibility of sup- 
 porting the various individuals who have the right 
 to look to him for maintenance. 
 
 The relations between life insurance and the 
 family spring from this state of affairs, and depend 
 upon the value which one human life has to another. 
 To clearly understand how this may be ascertained, 
 it will be useful to consider the rules which govern 
 the worth of some varieties of property. 
 
 In the analysis of the question under consideration, 
 it' will be assumed that the security underlying the 
 evidence of indebtedness is abundant and not regarded 
 with doubt. 
 
 The simplest form of invested funds is, perhaps, 
 a note or other form of obligation, the payment of 
 which may be, at any time, demanded by the lender 
 or made by the borrower. The value of this is always 
 the amount it represents, for if the current rate of 
 interest rises above the rate which has been agreed 
 upon, the lender will demand his principal in order 
 that he may put his money to more profitable use. 
 If, on the other hand, the ruling rate falls below that 
 stipulated for, the borrower will pay his obligation 
 and secure his money on more favorable terms. 
 
 The present value of a bond running for a stated 
 
LECTURES ON LIFE INSURANCE 21 
 
 term of years, and bearing a fixed rate of interest, 
 is a kind of property into which another element is 
 introduced and which will serve to show the controlling 
 force which interest exerts in all valuations. The 
 price of such a bond will depend upon the rate of 
 interest which it bears compared with the current rate 
 which can be obtained by investors, and which, there- 
 fore, must be satisfactory to them. 
 
 If the rate provided for is greater than the market 
 rate, the value of the bond will be greater than its face 
 value, but will decrease as it approaches maturity, at 
 which time only the face value will be payable. If, 
 on the other hand, the stipulated rate is less than that 
 current, the value will be less than the face, but will 
 increase up to the time when the full obligation will 
 be payable. 
 
 If the rate coincides with the market, the value 
 will coincide with the amount of the bond. 
 
 If the current rate of interest changes, the value 
 will change accordingly. 
 
 In valuing lands, still other elements must be 
 introduced, although the interest question still exerts 
 a force which, on the whole, is controlling. 
 
 Adam Smith in his "Wealth of Nations," pub- 
 lished in 1776, remarks, "The ordinary market price 
 of land, it is to be observed, depends everywhere upon 
 the ordinary market rate of interest. The person who 
 has a capital from which he wishes to derive a revenue, 
 without taking the trouble to employ it himself, de- 
 liberates whether he should buy land with it or lend 
 it out at interest. The superior security of land, to- 
 gether with some other advantages, which almost 
 everywhere attend upon this species of property, will 
 generally dispose him to content himself with a 
 smaller revenue from land than what he might have 
 by lending out his money at interest. These advan- 
 tages are sufficient to compensate a certain differ- 
 ence of revenue ; but they will compensate a certain 
 difference only; and if the rent of land should fall 
 short of the interest of money by a greater difference, 
 nobody would buy land, which would soon reduce its 
 ordinary price. On the contrary, if the advantages 
 
22 LECTURES ON LIFE INSURANCE 
 
 should much more than compensate the difference, 
 everybody would buy land, which again would soon 
 raise its ordinary price. When interest was at 10 
 per cent., land was commonly sold for ten and twelve 
 years' purchase. As interest sunk to 6, 5 and 4 per 
 cent., the price of land rose to twenty, five and twenty 
 and thirty years' purchase. The market rate of interest 
 is higher in France than in England ; and the common 
 price of land is lower. In England it commonly sells 
 at thirty, in France at twenty years' purchase." 
 
 In modern times this rule seems to hold good. 
 In thirteen counties in the States of Iowa, Illinois, 
 Missouri, Nebraska and Kansas, there are now on 
 record appraisals of farming lands made in 1876, 
 showing an average of $20 per acre. At that time 
 money was loaned on these lands at 10 per cent. In 
 1903 lands in these same counties were appraised 
 at an average of $39.60 per acre, while loans were 
 made at about 5 per cent. 
 
 In the varieties of property thus far considered, 
 there will be found to be lacking certain elements 
 which produce chances of change and deterioration, 
 which must be combined with interest in valuing othef 
 classes of property. A lot in the center of the city 
 has no value of its own, and can only be made income- 
 producing by the erection upon it of a building for 
 the use of which a rental will be paid. There are 
 many circumstances which must now be considered in 
 determining the worth of this property. If it is com- 
 posed of or surrounded by inflammable materials, its 
 value will be unfavorably affected. It is true that the 
 owner can protect himself against loss by fire by a 
 policy of insurance, but he must pay for this protection 
 his full share of the risk, which will be accurately 
 estimated, and the value which the building would 
 have, were it not for this hazard, will be diminished 
 by just the chance of that contingency. The present 
 condition of the structure, viewed in the light of nat- 
 ural decay and its adaptability to the needs of the 
 location and times, will demand intelligent discrimi- 
 nation. The amount, therefore, which an investor 
 will pay for the block will be determined by his knowl- 
 
LECTURES ON LIFE INSURANCE 23 
 
 edge of -what it now produces, and his estimate both 
 of what it will yield in the future and the time when, 
 either by gradual deterioration or by sudden accident, it 
 will become unable to afford an income. If there can be 
 obtained from it more than will suffice to meet neces- 
 sary expenditures, then the property has an actual 
 value which will vary according to the estimate that 
 may be made of its future, always controlled by the 
 current rate of interest which can be obtained on in- 
 vestments. 
 
 That neighborhood which today attracts business 
 by the elegance of its buildings, or its nearness to lines 
 of travel or transportation, may tomorrow be swept 
 by fire or damaged by changes in modes of conveyance. 
 No human foresight can provide with certainty for 
 these contingencies, but the general future of a section 
 is estimated by the careful student of the laws under- 
 lying commercial transactions, with an accuracy which, 
 on the whole, enables him to reap the profits that 
 legitimately belong to high intelligence. In the change 
 of ownership, the purchaser thinks that he is receiving 
 more than an equivalent for his money ; else he would 
 not buy. The seller differs as to the probable future, 
 and belives that what he now receives will be of 
 greater value; otherwise he would retain his pos- 
 session. The result in almost any particular trans- 
 action will show that one or the other has erred in his 
 estimate, but on the whole, real estate or any other 
 property which is valued for its income will be found 
 to conform to the general law which governs the value 
 of money. 
 
 Repairs and alterations may be made which will 
 check decay or even increase productiveness, but each 
 change will call for a new expenditure which will not 
 prevent the decline in the value of the original invest- 
 ment. 
 
 Having considered the elements which enter into 
 the value of certain kinds of property, it can now be 
 enquired whether a human life can have a definite 
 worth which can be measured with any degree of ac- 
 curacy. It would not be difficult to enumerate many 
 lives which cannot be considered of any pecuniary 
 
24 LECTURES ON LIFE INSURANCE 
 
 value, because, for various reasons, they produce noth- 
 ing. Such are those of the very old, the imbeciles 
 and the confirmed invalids. But the life of every 
 man who earns more than suffices for his actual per- 
 sonal expenses is of pecuniary value to someone besides 
 himself. This has been recognized from early times 
 in the institution of slavery, which was based on the 
 principle that the ownership of the services of a human 
 being had a value in accordance with the excess of 
 earnings obtainable above the necessary cost of sub- 
 sistence. When a slave was purchased as an invest- 
 ment, he was examined in order that the state of his 
 health and his muscular development might be known. 
 These qualities in connection with his age, his skill 
 in any variety of labor, and his disposition, determined 
 the price at which he seemed likely to be a profitable 
 investment. A carpenter or blacksmith was worth 50 
 per cent, more, other things being equal, than an or- 
 dinary field hand, because, while the cost of his sup- 
 port was no greater, the quality of his service was 
 much more valuable. In any case, however, certain 
 important elements were either wholly lacking or but 
 partially developed. "A person who can acquire no 
 property can have no other interest but to eat as much 
 and to labor as little as possible." 
 
 Family ties are needed to develop the highest 
 value of a human life. But while this value thus 
 reaches its greatest capacity, there devolves upon its 
 possessor the responsibility of supporting those who 
 have by his own choice and act the right to depend 
 upon him for the necessities of life. The family, then, 
 has a clear and indisputable interest in his earnings. 
 This they have day by day, month by month, and 
 year by year. If he dies possessed of property, this 
 by right goes to them, in order that they may, so far 
 as its income may enable them, continue to defray 
 the cost of existence. 
 
 But what of the life itself? Has it a value beyond 
 what it produces in a month or a year which can be 
 measured with any degree of accuracy? Supposing 
 its possessor to be of good constitution and free from 
 hereditary taint, it has already been shown that he and 
 
LECTURES ON LIFE INSURANCE 25 
 
 others of his class will be governed, as to the length 
 of their lives, by a law of mortality so certain that 
 their average lifetime may be measured -with as much 
 precision as that which governs any series of future 
 events. For example: A man is thirty years old, in 
 good health, and his surplus earnings are $1,500 a 
 year, and money is worth 4 per cent, per annum: by 
 a standard mortality table, the present value of the 
 future surplus earnings of this life is $25,560. It is 
 true that this value is based on averages, and that the 
 assumption that he will, through his life, receive and 
 spend just the amounts here set down will not prob- 
 ably be realized. It is well-nigh certain that his 
 death will occur either before or after the date ex- 
 pected. Disease or accident may rob him permanently 
 of his productive power. Circumstances which no 
 skill guided by research can calculate, and no judg- 
 ment foretell, may change the current of his life, 
 and enchance or diminish the value of his efforts. And 
 yet this value rests upon a foundation composed of 
 elements no more uncertain than those which deter- 
 mine the worth of the business block. Both the build- 
 ing and the life are constantly exposed to the danger 
 of destruction, but the chance can be measured even 
 more accurately in the latter case than in the former. 
 
 The natural ability of one man is greater than that 
 of another, and this advantage will be shown in the 
 value of their respective services. These qualities as well 
 as those of industry and perseverance are inborn traits, 
 and will, considered in connection with education and 
 training, determine the amount for which their pos- 
 sessor can lease his efforts to others or employ them 
 for independent profit. What nature has done for the 
 man may be said to correspond with the location of 
 the building. What experience has taught him is like 
 the quality of the structure. In each case there are 
 certain necessary expenditures which must be met 
 before any real value can exist, and in each case the 
 worth rests upon estimates. 
 
 The family which depends upon this income has 
 an interest in the life which produces it, which is not 
 limited by a month or a year. It extends into the 
 
26 LECTURES ON LIFE INSURANCE 
 
 future as far as they need it. Without it they will 
 suffer privation or be dependent upon charity, in 
 either of which conditions their natural protector 
 has no right to leave them. It is here that the insti- 
 tution of life insurance performs the service for which 
 it was created. It renders immediately available the 
 future earnings of a lifetime. It takes the place of 
 him whose duty it is to care for his dependents until 
 they can care for themselves. 
 
 The Federal Bureau of Labor has completed an 
 extended investigation into the cost of living of work- 
 ingmen's families, and the retail prices of the prin- 
 cipal staple articles of food used by such families. 
 The material for the detailed study of the cost of liv- 
 ing consisted of the figures of income and expenditures 
 furnished by some 2,500 families in thirty-three states, 
 although certain data not entering so much into detail 
 were gathered from 25,000 families. The 2,500 fam- 
 ilies furnishing the detailed material consisted on an 
 average of 5.31 persons, a figure slightly (0.7), above 
 the average of private families in the whole country 
 as shown by the census of 1900. The average yearly 
 expenditures for all purposes was $768.54 for the 
 year 1901. Of this, 43 per cent, was for food, 13 per 
 cent, for rent, 14 per cent, for clothing and 5 per cent, 
 for fuel and lighting. Three-quarters of the expendi- 
 tures -was for the actual necessities of ordinary living, 
 the remainder representing miscellaneous expenses, in- 
 cluding the cost of education and sickness. If this 
 average family is supported by one person, his death 
 would diminish the total family expenditures by some 
 amount. It is not unreasonable to assume that the 
 cost of maintaining the remainder would be $500.00 
 per annum. Assuming that he is forty years of age, 
 and in good health, and that money is worth 4 per 
 cent, per annum, the present value which this family 
 has in his life is $7,546.50. Human and divine laws 
 give them the right to the fruit of his labors. But 
 does he perform his whole duty when he furnishes 
 them with food, clothing and the other necessities of 
 life, or even with education suitable to their station? 
 He mav live to see his children self-supporting, and 
 
LECTURES ON LIFE INSURANCE 27 
 
 to provide for the old age of himself and his wife, but 
 what if his life shall be cut off while they are still un- 
 able to earn their own subsistence? 
 
 Hadley says : "Although society insists as far 
 as it can that each man shall be responsible for him- 
 self and his family, it cannot carry this principle out 
 to its logical conclusion. We cannot kill off the weak 
 merely because they have been unable to support 
 themselves. Still less can we leave the unfortunate 
 to die as a result of their incapacity. The ethical loss 
 to the community which adopted such a course would 
 indefinitely outweigh any material or physical gain. 
 The independent and the unfortunate must under cer- 
 tain conditions be taken care of by society, even though 
 the process of natural selection is thereby hampered." 
 
 Again, in discussing compulsory insurance and 
 pensions, he says : "There are certain things which 
 society must do in justice to itself, which it cannot 
 safely allow individuals to demand in justice to them- 
 selves. If you give every man a right to a pension 
 when he is incapable of self-support, you tacitly ap- 
 prove his failure to provide for himself and his chil- 
 dren. That the necessary degree of production and of 
 economy by the community as a whole would be main- 
 tained, if such a point of view were adopted, seems 
 highly improbable. We need measures which shall 
 increase individual responsibility rather than diminish 
 it; measures which shall giive us more self-reliance 
 and less reliance on society as a whole. We cannot 
 afford to countenance a system of morals or law which 
 justifies the individual in looking to the community 
 rather than to himself for support in age or infirmity." 
 
 It will not be denied that certain persons must 
 and should be supported at the public expense, but the 
 fewer there are of these, the better will be the morals 
 as well as the finances of the community, and life 
 insurance is continually reducing this dependent class. 
 It is not the man who lives to old age, supports and 
 educates his children and saves a competency, who 
 contributes to the class who are applicants for public 
 charity. But the one who is taken away while his 
 children are infants and who has not had the time 
 
28 LECTURES ON LIFE INSURANCE 
 
 given him, no matter how affectionate and thrifty he 
 may be, to provide for their needs, is a liberal contrib- 
 utor to the orphan asylum and the almshouse. He 
 may avoid this danger by postponing marriage for 
 such time as will enable him to accumulate a sufficient 
 sum to insure the comfort of a family, but neither mor- 
 ality nor the public welfare will be best served by 
 the establishment of such a principle. There is but 
 one way by which he can follow the course which 
 nature intended him to take, and that way is open to 
 him through life insurance. By the payment of com- 
 paratively small sums at convenient intervals, he can 
 relieve himself of the responsibility of the distress 
 which would fall upon his dependents in case of his 
 premature death, and he can, moreover, provide for 
 his own future in case he should survive the time 
 when, from physical weakness, he shall become inca- 
 pacitated from earning his own subsistence. 
 
 In what directions and to what extent life insur- 
 ance promotes the best family life it is difficult to prove. 
 That it tends to increase the sense of responsibility 
 which leads to a thoughtful appreciation of affection 
 and duty cannot be doubted. That man who enters 
 upon his married life without consideration not alone 
 of the probabilities, but also of the possibilities, will 
 find himself weighted with a burden which he cannot 
 transfer to another, and which will consist both of 
 the necessity of self-denial and anxiety for the future. 
 The first will develop and improve his character, will 
 stimulate his ambition and increase his efficiency, but 
 a combination of the two will dishearten and impede 
 him and tend to cruelty, intemperance and divorce, 
 for he will seek to transfer to others that for which 
 he alone is responsible. 
 
 Life insurance makes immediately available the 
 future savings of a lifetime, and it is this element of 
 its operations which is its most common and prominent 
 characteristic. But its mission cannot be fully gauged 
 without an understanding that it has another feature 
 less used but not less useful. It has been shown that 
 in a large number of human beings belonging to a 
 known class, a law of mortality has been found to 
 
LECTURES ON LIFE INSURANCE 29 
 
 exist, and this has been used through life insurance 
 to distribute among the many the unexpected disasters 
 which must overtake the few, and which would other- 
 wise bring distress, pauperism and crime. 
 
 It is equally true that out of the many some will 
 survive to old age, when they -will have reared and 
 educated their children and performed their whole 
 duty toward them. If a man thus situated has been 
 fortunate enough to accumulate property, the income 
 of which is sufficient to maintain him independently of 
 other aid, his natural desire and duty are to pass on 
 his possessions to his descendants, who will thus eventu- 
 ally secure his surplus earnings. But in many cases 
 he will in his old age find himself alone, his duty done, 
 his children self-supporting and in the same condition 
 in which he himself was in his youth, while the inter- 
 est on his savings will not suffice to give him that com- 
 fort and independence to which he is fairly entitled. 
 
 Suppose such a man to be seventy-five years of 
 age, and that he has saved $5,000. If this is invested 
 at 4 per cent, it will yield him an income of $200 a 
 year. This will not provide for his needs, and he must 
 depend upon others for a part of his support if he 
 has lost his earning power, or he must, each year, 
 spend a part of his principal, with a possibility of liv- 
 ing long enough to exhaust it and finally to become 
 wholly dependent. By the operation of the laws of 
 mortality, life insurance can take this amount and give 
 him an income of $800 a year so long as he may live. 
 
 This service also is a distinct and important ele- 
 ment in the family life. While the responsibility which 
 rests upon the man with a young and immature fam- 
 ily is definite and unmistakable, and may extend to 
 the end of an old age, involving the preservation and 
 transmission of any property he may have, yet in 
 some cases independence and happiness can only be 
 secured by obtaining by means of life insurance the 
 larger and sure income which involves the investment 
 of the principal for the sole benefit of its owner. 
 
 The aged parent or relative who is no longer able 
 to earn a living, and who has become a charge upon 
 a family needing all its resources for its own members, 
 
 OF THE 
 
30 LECTURES ON LIFE INSURANCE 
 
 is often an unwelcome guest, while this same one 
 with an income sufficient for his maintenance will be 
 an object of care and solicitude. 
 
 In these ways does life insurance serve the fam- 
 ily in guarding against the losses of early death and in 
 providing means to ameliorate the disadvantages of 
 old age. But distributing the burden of the few among 
 the many is not the only service which this institution 
 performs for the family. The contracts which it offers 
 to the public contain not only the element of protec- 
 tion, but of accumulation as well. The savings bank 
 has its uses and has played an important part in the 
 development of family thrift, but the payment which 
 is called for at stated times will be more likely to be 
 met than the deposit which is required only by an 
 indefinite resolution. That the habit of saving, espe- 
 cially if it be for others, is uplifting and tends to 
 strengthen family ties does not need demonstration. 
 
 Carroll D. Wright says that the family "must be 
 considered as the crucial social unit 'the very key- 
 stone of society' for it results from happy associa- 
 tion of the sexes by which the human species is per- 
 petuated and extended, by which the affections are 
 developed, and by which the interest which compels 
 one unit to protect, preserve and cherish another, is 
 fostered. It should be the purpose of society, as a 
 whole, to protect the sacredness and integrity of that 
 relation. Without the family unit no other social 
 units .would be possible ; it brings the individual out 
 of his seclusion into ethical relations, constitutes him 
 a living evolutionary force, lifts him out of intensive 
 selfishness to a more extensive selfishness, for in the 
 family relation he must live for others, although in 
 living for others he may live for his own higher enjoy- 
 ment. The purpose of the individual unit in entering 
 social relations and in inviting the force of association 
 is to secure happiness. He may be well fed, warmed 
 and clothed, while in the disintegrated state of the indi- 
 vidual, but in such state he can have no realization of 
 the happiness which comes from appreciation of and 
 service to others. Hence the family grows out of the 
 psychic tendencies of men, and is perhaps the best 
 
LECTURES ON LIFE INSURANCE 31 
 
 demonstration of the highest aspirations of the indi- 
 vidual. It is found in every condition of population, 
 whether living in savagery, in barbarous or in civil- 
 ized communities. It is the fundamental unit of civil- 
 ized society." 
 
 If the family as thus described be thoughtfully 
 considered, it will be apparent that life insurance is 
 not only an important factor of this social unit, but 
 that it is an absolutely essential part of an ideal con- 
 dition of civilized life. 
 
ECONOMICAL FUNCTIONS OF INSURANCE 
 WITH RELATION TO THE STATE 
 
 (Delivered in Yale University Course) 
 
 \\I OOLSEY defines a state as, "A community of 
 persons living within certain limits of territory 
 under a permanent organization which aims to secure 
 the prevalence of justice by self-imposed law." 
 
 It is clear that any agency which improves the 
 mental or moral attributes, or the material circum- 
 stances of any one of its citizens, raises the condition 
 of the community of which he is a member, and thus 
 benefits the state. Savings banks encourage thrift and 
 produce accumulations which would in many cases 
 be otherwise wasted, and thus they constitute a dis- 
 tinct and tangible benefit to the state. Life insurance 
 promotes a sense of responsibility, strengthens family 
 ties, and thus elevates the general character of the 
 nation. It lessens those family discords which end in 
 divorce, it checks intemperance, and often by its re- 
 quirements brings a realizing sense of the benefits of 
 right living. The very restrictions which the com- 
 panies transacting this business themselves place upon 
 admission to membership bring a clear comprehen- 
 sion of the result which temperate living has upon the 
 length of life. Careful observation has shown that the 
 intemperate use of liquor weakens the human system, 
 rendering it less liable to withstand disease, and thus 
 shortens life. This is one of the risks which life insur- 
 ance companies strive in every way to avoid. Not 
 only are searching questions asked of the applicant as 
 to his habits in this respect, but reports are often 
 secured from independent sources as to his custom in 
 the use of liquor. It is undoubtedly the case that many 
 who have thoughtlessly fallen into habits of intem- 
 perate drinking, without realizing its ill effects, have, 
 
LECTURES ON LIFE INSURANCE 33 
 
 when brought face to face with the requirements of 
 life insurance, changed their modes of life, and have 
 become not only sounder physically, but improved in 
 financial condition, and have thus become more valu- 
 able citizens, and therefore increased the prosperity 
 of the state. 
 
 The physical examinations which are required in 
 all cases of life insurance also have their very marked 
 effect upon the public, for until the true meaning of 
 life insurance is brought home to an applicant, he 
 seldom comes to an understanding of what the actual 
 value of his life is, and how much this value is in- 
 creased if the length of his life can be prolonged. 
 Weaknesses and ailments not before known are often 
 discovered, and remedies are applied which lengthen 
 life, and thus add to the aggregate value of the state. 
 
 There can be no doubt, furthermore, that life 
 insurance curtails the expense to the public treasury 
 of almshouses and police, of criminal courts and pris- 
 ons, and of the various other necessary branches of 
 the public service which have to do with the preven- 
 tion and punishment of crime, and the relief of the 
 suffering and unfortunate. 
 
 Some years ago, a census was taken of the paupers 
 in the Philadelphia almshouse, with the result that of 
 the number observed 1,110 only three were found 
 who had been beneficiaries of life insurance, and these 
 to the extent of $6,000, but through profligacy or im- 
 providence they were reduced to a state of pauperism. 
 In a census of the Montgomery County (Pa.) alms- 
 house, 133 were examined and it was found that none 
 of these people or their families ever had been the 
 beneficiaries of life insurance. 
 
 In the year 1902 there was distributed to the 
 holders of life insurance policies and their families 
 in death claims, matured endowments, and annuities, 
 by the life insurance companies of the United States, 
 more than $140,000,000. 
 
 It is certain that in many cases the proceeds of a 
 life insurance policy are practically all that remain at 
 the death of the one responsible for the support of 
 helpless dependents, and in a vast number of these 
 
34 LECTURES ON LIFE INSURANCE 
 
 cases, were it not for this aid, many persons would 
 be forced to accept public charity. There can be no 
 doubt that an investigation of the records of the in- 
 mates of prisons, and of asylums, maintained at the 
 public expense, for the care of those made helpless by 
 disease and old age and unable to care for them- 
 selves, would show that with rare exceptions they do 
 not belong to that class from which the membership of 
 life insurance companies has been drawn. 
 
 The limits of this discourse do not permit an 
 exhaustive analysis of the influence of life insurance 
 upon the community, nor the benefits which it confers 
 upon the living on the one hand and upon dependents 
 on the other. Some other phases of the subject are 
 of such importance as to make the study of them inter- 
 esting and useful to all who are engaged in business, 
 professional or political life. 
 
 The state long ago recognized the part played in 
 its affairs by this institution, and the peculiar nature 
 of its service, by enacting laws to protect the family 
 in the proceeds of life insurance policies as against 
 the claims of creditors. As early as 1840, the state of 
 New York passed an act in substance like the present 
 law in that and other states. It clearly indicated 
 that the government was justified in the position that 
 the duty of a man not only to support his family 
 during his lifetime, but also to provide for them after 
 his death, should take precedence of all other obliga- 
 tions. This law as it now stands in the statute book 
 of Connecticut is as follows: "Any policy of life 
 insurance expressed to be for the benefit of a married 
 woman, or assigned to her, or in trust for her, shall 
 inure to her separate use; or in case of her decease 
 before payment, to the use of her children, or of her 
 husband's children, as may be provided in such policy. 
 But if the annual premium on such policy shall exceed 
 $300, the amount of such excess, with interest, shall 
 inure to the benefit of the creditors of the person 
 paying the premium." 
 
 The charters of some of these companies contain 
 similar provisions. In order to make sure that the 
 protection provided for by the insured shall in any 
 
LECTURES ON LIFE INSURANCE 35 
 
 event, notwithstanding his own pecuniary condition, 
 reach those persons who properly look to him for sup- 
 port, and without whose protection might become 
 charges upon the public, the law has been invoked 
 both in the statute books and the articles of incorpora- 
 tion. 
 
 The business of life insurance is transacted exclu- 
 sively by corporations deriving their powers from char- 
 ters granted, in this country, by the governments of 
 the various states. An ordinary contract of insurance 
 is a promise to pay a given sum at some indefinite fu- 
 ture time, in consideration of the present payment of 
 a certain other sum. The peculiar character of this 
 agreement makes possible the practice of deceptive 
 and unsound methods, to an extent impracticable in 
 those transactions where the purchaser can more 
 readily examine and understand the real nature of the 
 thing for which he pays. It was natural, therefore, 
 that laws should be passed, intending to guard the pub- 
 lic against the dishonesty and ignorance of the man- 
 agers of these institutions, by requiring reports of 
 their affairs to be filed with public officials. The state 
 of Massachusetts in 1807 adopted a resolution, requir- 
 ing insurance companies to render an account of their 
 affairs to the next legislature. In 1828 an act was 
 passed requiring these corporations to make annual 
 statements to the comptroller, and in 1851 this official 
 was given authority to make examinations of com- 
 panies. 
 
 Massachusetts enacted a law in 1854, providing 
 for the creation of an insurance department, which was 
 organized in the following year by the appointment 
 of three commissioners, whose duty it was to examine 
 the reports and the conditions of all companies doing 
 business in the commonwealth. Other states have fol- 
 lowed the example set in the East, as the operations 
 of these corporations have become extended and en- 
 larged, until now there are fifty-two insurance depart- 
 ments, including Alaska, Porto Rico and Hawaii. 
 
 The questions asked by the officials in charge of 
 these departments were at the outset comparatively 
 few in number, and were intended to show only in a 
 
36 LECTURES ON LIFE INSURANCE 
 
 general way the operations of these companies. The 
 insurance commissioners many years ago formed an 
 association for the discussion of the various questions 
 which were constantly coming before them, and they 
 now hold annual conventions at which new thoughts 
 have been from time to time brought forward, and a 
 uniform blank has been agreed upon, which at this 
 time is in use by nearly all of the departments. 
 
 It is required that each company shall state in 
 general the title of the corporation, the date when it 
 began business, its location, and the names of its 
 officials. The details of its business are then gone into 
 with very great minuteness. It must give the amount 
 of new or first year's premiums received during the 
 year, the amount of renewal premiums, or those which 
 are paid after the first year to continue policies in force, 
 together with the sums received for annuities. The 
 interest on the various investments is required to be 
 stated in detail, together with any profits which may 
 have been secured from the sale of assets. 
 
 The disbursements are also called for, showing the 
 amounts paid for claims by death, for matured endow- 
 ments, for annuities, surrender values and dividends 
 to policyholders. These make up the total amount 
 distributed to members and their beneficiaries. It is 
 also required to state the amount of dividends paid to 
 stockholders, in case of companies having capital stock, 
 the commissions to agents, separating those paid for 
 first premiums and those for the collection of renewals, 
 salaries and allowances to agents, agency supervision, 
 traveling and all other agency expenses, the fees of 
 medical examiners and for the inspection of risks, 
 -salaries and all other compensation of officers and 
 home office employees, rents, advertising, printing, 
 postage, legal expenses, the amounts paid out in taxes, 
 licenses and department fees, taxes on real estate, 
 repairs and expenses of real estate. 
 
 A detailed account of the assets of each company 
 is also required, showing the book value of real estate, 
 and a statement of where it is located, mortgage loans 
 on real estate, loans on the company's policies, book 
 value of its stocks and bonds, the amount of cash in 
 
LECTURES ON LIFE INSURANCE 37 
 
 the office and in banks, interest due and accrued on 
 mortgage loans, and on stocks and bonds, and on pre- 
 mium notes or policy loans. The market value of 
 stocks and bonds compared with the book value must 
 also be stated, the outstanding uncollected premiums, 
 both new and renewal, and deferred premiums, i. e., 
 the unpaid portion of the yearly premiums which were 
 not due at the close of the year. The liabilities must 
 also include the net value of outstanding policies and 
 annuities, the unpaid losses which have occurred prior 
 to the close of the year, specifying which are due 
 and which are adjusted and not due, together with any 
 claims which may be resisted, dividends to policy- 
 holders unpaid, and those which have been apportioned. 
 
 Following these statements of operations, a de- 
 tailed policy showing is required : the number of these 
 obligations outstanding at the end of the previous year, 
 and amount represented by them, separated into their 
 various classes of life, endowment and term insurances, 
 the issues of the year, including revivals and increases, 
 and the terminations with the causes by death, matur- 
 ity, expiry, surrender, lapse, decrease and not taken. 
 This statement indicates the outstanding obligations 
 at the time of the report, and the number and amount 
 of policies reinsured in other companies. The amount 
 of business transacted and outstanding in the particu- 
 lar state inquiring is also required, showing premium 
 receipts and claims paid. 
 
 In addition to these particulars, a list is called for 
 of real estate owned, showing the location and values ; 
 any securities held as collateral security, together with 
 their values and the amount loaned. The bonds and 
 stocks owned are required to be specified in detail, 
 with descriptions which will enable any one to know 
 exactly what these securities are. 
 
 The intention of these requirements is to show, 
 first, the present financial condition of these corpora- 
 tions, by exhibiting so far as possible the nature of 
 their various investments, in order that the public may 
 know the general plan of each company as to its invest- 
 ments. 
 
 The liabilities, as has already been shown, are 
 
38 LECTURES ON LIFE INSURANCE 
 
 based upon averages and estimates as to the length of 
 life and future rates of interest, and while a mere 
 statement of the amount of these calculations cannot 
 always convey an accurate idea of the real condition of 
 any company, it is safe to say that in practically all 
 cases, liabilities are calculated upon sound principles ; 
 that is, upon a table of mortality less favorable than 
 the average experience, rates of interest somewhat 
 below the actual receipts, and the assumption of future 
 premiums considerably less in amount than the actual 
 contracts call for, so that any company which has a 
 sufficient amount of good assets to cover its definite 
 as well as its computed liabilities is in reality financially 
 sound, and able to meet its claims as they mature. 
 
 The details of income and disbursements which 
 are required, and which through these departments are 
 given to the public, are for the purpose of enabling 
 each one to judge for himself as to the wisdom and 
 economy of the management of the various companies. 
 While mere inspection of these figures will not always 
 enable one to arrive at a true comparison between 
 different companies, they do serve to show important 
 particulars which throw much light upon the conduct 
 of these institutions. 
 
 In considering this phase of state supervision, 
 while the items which are required to be given by all 
 companies may seem unnecessarily numerous, yet it 
 should be borne in mind in fairness, that it is not alone 
 the old and strong companies whose affairs are thus 
 scrutinized, but those other institutions which may still 
 be in the experimental stage. It may be something 
 of an indication as to the searching qualities of these 
 requirements to state that there are in the regular 
 blank three questions relating to ledger assets and 
 capital stocks outstanding at the beginning of any 
 given year ; the questions as to income number 29, dis- 
 bursements 31, assets 36, liabilities 25, first exhibit 
 of policies 24, second exhibit 23, miscellaneous 18, 
 premium notes 10, in all 199, not including the details 
 of securities. 
 
 For filing these statements, each company is re- 
 quired to pay various fees, in many cases not only 
 
LECTURES ON LIFE INSURANCE 39 
 
 sufficient to pay all the expenses of the department, 
 but to leave a surplus to be turned over to the treas- 
 ury of the state. This kind of supervision is valuable 
 in many ways, for it seeks to place before the public 
 the condition of each company, and generally enables 
 any one interested to form some idea as to the respon- 
 sibility and management of these corporations. In a 
 recent address delivered by the Commissioner of In- 
 surance of the state of Wisconsin occurs the follow- 
 ing: "Each state, therefore, has extended its police 
 powers for the purpose of protecting its citizens. Its 
 laws are intended not only to protect the policyholders, 
 but to keep irresponsible and fraudulent companies 
 from competing with honest, .well-managed, sound 
 companies, and to give to the latter official endorse- 
 ment by the state. In so far, no one can object to the 
 purposes of state supervision ; but with such benefit con- 
 ferred on the people, insurance departments have be- 
 come revenue collecting agencies to the annoyance and 
 hardship of companies. Supervision means not only 
 collecting taxes and fees, receiving reports, compil- 
 ing and printing statistics, valuing policies and exam- 
 ining companies, but includes the judicial as well as the 
 executive enforcement of the statutes under which 
 insurance corporations are formed, and in which their 
 powers and duties are defined and their limitations 
 presented. This requires an understanding of the 
 principles of insurance, the functions of companies, 
 and the relation of present conditions and future neces- 
 sities. The cost to the companies should be the cost of 
 supervision. The cost of examination should be im- 
 posed upon a company only when seeking admission 
 to the state. When once admitted, any examination 
 made is for the protection of the people, and should 
 be borne by the state. Taxes, when imposed, should 
 be for the purpose of enforcing mutuality, and not 
 for revenue. For example: We impose a tax upon 
 life insurance premiums, yet the business of life insur- 
 ance can only be transacted by the members combining 
 contributing to a common fund to insure themselves, 
 and by imposing a tax upon the premium, each policy- 
 holder in a mutual company is paying the state a spe- 
 
40 LECTURES ON LIFE INSURANCE 
 
 cial tax for the privilege of relieving the state from 
 caring for his dependents, and is again taxed for the 
 purpose of caring for the dependents of those who 
 carried no insurance." 
 
 It is likely that by reason of the statements made 
 public through these reports, of vast sums collected 
 from the people, a system of taxation has grown up, 
 which has become a serious burden upon members of 
 these corporations, whose sole object it is to provide 
 for future necessities. There was collected in the 
 year 1902 from life insurance companies for taxes 
 more than $8,300,000, by far the greater part of which 
 was the tax upon premium receipts. It will not be 
 claimed that these institutions should altogether escape 
 some share of the cost of maintaining the governments, 
 yet it is a question of very great public interest as to 
 what burden of this kind should be imposed upon this 
 particular class of institutions. If they are perform- 
 ing the public service which is claimed, the levying of 
 these taxes tends to check the spread of insurance, by 
 making it more costly than it otherwise would be. 
 For several years the question of national supervision 
 has been widely agitated, and while it is not at all 
 probable that the various states will relinquish all 
 supervision, it is certainly a fair question whether 
 the public good will not be served, if some general 
 supervision can be substituted for a considerable part 
 of the present system, to the great saving of expense, 
 without impairing the value of the present, govern- 
 mental inspection. 
 
 An examination of the items of investment is 
 interesting and useful as indicating the influence which 
 these accumulations undoubtedly have upon the growth 
 and development of the country. The loans which 
 these companies now hold upon real estate securities 
 amount to not less than $600,000,000. These invest- 
 ments have enabled the owners of real estate in cities 
 to improve their properties by building dwellings and 
 business blocks, and to increase and extend every line 
 of business. For more than thirty years some of the 
 life insurance companies have made loans upon west- 
 ern farming lands. These have enabled the farmers 
 
LECTURES ON LIFE INSURANCE 41 
 
 of the country to buy land and to cultivate it, to erect 
 necessary buildings, to buy stock, and to continue their 
 operations through unfavorable years. It is certain 
 that these institutions have been largely instrumental 
 in the growth of the farming interest. Lands in sec- 
 tions .where these corporations have loaned money 
 have very greatly increased in value, largely by rea- 
 son of the reduction in rate of interest which has come 
 through the increase of these funds seeking invest- 
 ment. Vast sums of money gathered from the pay- 
 ments of policyholders, and held and improved at inter- 
 est, solely for the final payment of claims, have been 
 used in the development of railroads and other corpora- 
 tions, and to improve cities and towns. Deposits 
 in banks have served to aid commerce and have been 
 largely instrumental in enabling those engaged in 
 various lines of business to procure funds on reason- 
 able terms. 
 
 Life insurance exists for the purpose of repairing 
 the loss occasioned by the death of an individual who 
 can produce more than the cost of subsistence. This 
 has been shown in individual cases, and it has also been 
 demonstrated how such value can be reached in any 
 particular instance. In considering the relations which 
 life insurance bears to the state, it is necessary to take 
 such aggregates as can be ascertained, and to point 
 to certain conclusions. The conditions which prevail 
 in Connecticut may be used as a fair example. It is 
 shown by the census of 1900 that there were 385,610 
 persons in Connecticut engaged in all occupations ; 
 of this number, 186,675, or somewhat less than one- 
 half, were engaged in manufacturing, and the amount 
 paid by these establishments in wages and salaries 
 during the year 1900 was $95,053,775- Of this amount 
 it is probably within the fact to assume that two- 
 thirds, or say $60,000,000, was expended in the sup- 
 port of others than those earning this income. If it 
 is assumed that the average age of these producers is 
 thirty years, and that the present value of an annuity 
 at that age is $17.00, and that on the whole the mor- 
 tality among these persons will follow the table rate, 
 it appears that this income represents a present value 
 
42 LECTURES ON LIFE INSURANCE 
 
 of future earnings of more than a thousand million dol- 
 lars, any portion of which capital is liable to be cut 
 off in any hour of any day. But these figures apply 
 only to those engaged in one branch of labor, and this 
 probably on the whole less remunerative than the 
 sum total of other occupations. It is not claimed that 
 these estimates even approach accuracy, but it seems 
 reasonable to believe that they are within facts. 
 
 The grand list of Connecticut in the year 1900 
 amounted to $694,000,000. This represents the amount 
 of property subject to direct taxation in the State, by 
 far the greater part of it consisting of real estate and 
 buildings. Theoretically these properties are placed 
 in this list at somewhat less than their actual value, 
 but it is doubtful if taking the whole state together, 
 the value of real estate and buildings is materially 
 greater than that placed upon them in the grand list. 
 
 From the estimates which have here been made, 
 there can be no doubt whatever that the present val- 
 ue of the future earnings of those engaged in various 
 occupations in this state is many times the amount 
 of the grand list. 
 
 The material wealth of a state not only depends 
 upon its citizens, but by far the greater part of the 
 real resources of the commonwealth is composed of the 
 actual computable value of the lives of its inhabitants. 
 
 The report of the Insurance Commissioner of 
 Connecticut for the year 1900 shows that there were 
 at the close of that year, life insurance policies out- 
 standing on lives of citizens of the state representing 
 $149,970,752 of insurance. Some of these have been 
 in force for many years, and it is certain that the 
 average age of these policyholders is much higher 
 than that of the general population. Assuming it to 
 be fifty, it appears that this amount of insurance rep- 
 resents an income which it is intended to protect of 
 about $12,000,000. It is evident that this protection 
 is far less than the amount at risk, and that the com- 
 munity is therefore constantly sustaining losses by 
 death, which are repaired only to a comparatively 
 small degree. The life insurance agent is supposed 
 to prosecute his business thoroughly, but he will not 
 
LECTURES ON LIFE INSURANCE 43 
 
 accomplish his full mission until the education of the 
 public has proceeded to a point where the real pur- 
 pose and the actual benefits of life insurance are far 
 better understood than they are at this time. 
 
 The propriety of taxing the income or accumula- 
 tions of life insurance companies has led to many dis- 
 cussions of the relations of these institutions to the 
 state, and to an expression of opinion by many emi- 
 nent men who have, by reason of such propositions, 
 given much study to this question. 
 
 In a debate on an Income Duty Bill in the House 
 of Commons in 1798, Pitt said: "Laying aside the 
 proud idea of the vigor, permanence and renewing 
 energy which the measure secured, there is one case 
 which, with a view to the class who are really willing 
 to save for the benefit of those for whom they are 
 bound to provide, makes some modification. It is in 
 favor of those who have recourse to that easy, certain 
 and advantageous mode of providing for their fam- 
 ilies by insuring their lives." 
 
 In 1862, when this country was seeking means for 
 meeting the extraordinary expenditures occasioned 
 by the war, and the question of taxing insurance com- 
 panies was before Congress, Charles Sumner said : 
 "The business of insurance, it seems to me, is peculiar. 
 It differs from other business. It is not strictly, if 
 I may say so, a money-making business, but it is a 
 money-saving business. I know that persons get up 
 insurance companies in order to advance their own 
 interests : but the primary object of the insurance office 
 is to protect other people, and particularly the poor: 
 it is to help the poor. I say, therefore, it is not pri- 
 marily, as compared with many other businesses, a 
 money-making business. On this account, it seems 
 to me, it has a title to a certain consideration. Now, 
 what is proposed? A tax on the premium. What are 
 the premiums? The premiums are themselves a tax. 
 The premiums constitute the tax which the person 
 insured pays for his insurance: and now it is pro- 
 posed to put a tax on a tax. This is the precise case. 
 I state it in this way in order to simplify it ; in order 
 to reduce it, if I may say so, to its most naked form." 
 
44 LECTURES ON LIFE INSURANCE 
 
 Francis A. Walker has said : "If a man's income 
 belongs to him to spend, it belongs to him to save: 
 and on the ground of equity, the state cannot lay its 
 hands upon that which represents the double virtue 
 of industry and frugality, while sparing that which 
 represents the single virtue of industry. Economically 
 considered, there cannot be a moment's question that 
 the policy of laying the burden of the state upon 
 that portion of the product of industry which has 
 escaped the maw of appetite, which is presumably 
 reserved for useful employment, which is in a sense 
 consecrated by worthy social ambition and which rep- 
 resents the courage, prudence and faith requisite to 
 subordinate the present to the future, is thoroughly 
 vicious." 
 
 Two-thirds of the adult men and women of this 
 country are married. Some of the remainder are 
 physically or mentally unfit for the marriage state, 
 but it cannot be doubted that whatever agency increases 
 marriages, among those who only postpone this act 
 because of a natural and prudent apprehension of the 
 results which death may bring, promotes the well- 
 being and increases the happiness of the community. 
 There is no way, except through life insurance, that 
 many suitable and advantageous marriages can be 
 entered, into with a due regard for the happiness of 
 the individuals directly interested, and for the pro- 
 tection and welfare of the state. 
 
 The public treasury must be supplied by those who 
 are benefited by the expenditure of public money. 
 Churches and schools lessen crime and pauperism, and 
 thus diminish public expense. Their influence is 
 rightly considered in distributing the burdens of tax- 
 ation. In considering this question, which is of great 
 and increasing importance, a knowledge not only of 
 the theory of life isurance, but also of what it is 
 accomplishing and of its possibilities, will be of 
 advantage to everyone who seeks to do his share for 
 the uplifting of the state of which he is a part. 
 
LEGISLATION IN LIFE INSURANCE 
 
 (Delivered in Yale University Course) 
 
 (Copyright, Phoenix Mutual Life Insurance Company. ) 
 
 PO form an intelligent opinion of the wisdom of 
 present and the need of additional laws in this 
 country it is necessary to consider the theory of 
 the federal government and its relation to the sepa- 
 rate states, and to reflect upon the characteristics 
 of human nature, in order to determine what legal 
 restraints will best protect those who need and are 
 entitled to the shelter of the law, without at the 
 same time fostering a sentiment of dependence 
 upon governmental care destructive of true liberty 
 and independence. 
 
 In a sermon preached in Hartford in 1638, it 
 was announced that "the foundation of authority 
 is laid, firstly, in the free consent of the people." 
 Upon this and other doctrines of liberty laid down 
 in this discourse rests the Constitution which was 
 framed in the following year, and which was the 
 first written document creating a government in the 
 world's history. 
 
 The Declaration of Independence in 1776 pro- 
 claimed "that all men are created equal, that they 
 are endowed by their Creator with certain inalienable 
 rights, that among these are life, liberty and the 
 pursuit of happiness. That to secure these rights 
 governments are instituted among men deriving 
 their just powers from the consent of the governed." 
 
 CONSTITUTIONAL GUARANTIES 
 
 The Constitution of the United States adopted 
 in 1789 guarantees to all citizens equal rights and 
 liberty, which may be defined as "freedom from 
 all restraints except such as the lawful rights of 
 others prescribe." It is the clear intent of the 
 
46 LECTURES ON LIFE INSURANCE 
 
 whole theory of the government of the United 
 States, that the individual citizen shall be permitted 
 to pursue such lawful occupations as he may choose 
 to engage in, and that no restrictions shall be placed 
 upon his acts, except those which may be necessary 
 for the protection of society and which are denned 
 by legislators of his own selection. He certainly 
 may, if he pleases, devote his energies to any number 
 of different lines of business, and he may invest 
 his accumulations in whatever way may suit his 
 needs or his fancy. He can employ a large capital 
 or none at all, can borrow at will, can acquire prop- 
 erty of any kind, to any amount. His accounts do 
 not concern any one but his creditors. He requires 
 no legislative permission to manufacture or buy as 
 cheaply as he can and to sell at any prices which he 
 may induce others to pay. The laws of supply and 
 demand, and the results of competition are relied 
 upon to regulate values. The buyer must rely upon 
 his own observation and care to protect him against 
 extortion. He reaps the reward of study and in- 
 vestigation, or he suffers the penalty of ignorance 
 and carelessness, and is thus taught by experience 
 the value of those qualities which make a successful 
 and valuable citizen. 
 
 INSURANCE CORPORATIONS 
 
 The business of insurance is transacted by 
 corporations created by and deriving their powers 
 from the states. A corporation is an artificial 
 person created by law, or under authority of law, 
 from a group or succession of natural persons and 
 having a continuous existence, irrespective of that 
 of its members, and powers and liabilities different 
 from those of its members. 
 
 Insurance is based on averages, and steady and 
 reliable results can only be obtained when the num- 
 ber of risks is larger than could be safely assumed by 
 an individual with the capital which he could com- 
 mand, or which he would be willing to hazard in 
 such an undertaking. But more especially must 
 this business be done by corporations, because those 
 
LECTURES ON LIFE INSURANCE 47 
 
 interested in policies of insurance cannot safely 
 depend upon the continuance of the life of a human 
 being for the final payment of an obligation which 
 may not mature for many years. 
 
 The charters of these institutions may be special 
 or general acts of a legislature, but in either case 
 the articles of incorporation set forth in detail the 
 exact nature of the transactions which may be 
 legally undertaken. 
 
 The legislature of a- state is composed of in- 
 dividuals elected for the purpose of enacting laws 
 which could not be intelligently framed by the 
 whole people, but which are intended to be for their 
 protection or benefit. 
 
 GRANTING OF CHARTERS 
 
 A special charter is a law permitting certain 
 persons to engage in some enterprise which, though 
 it may bring advantage to its promoters, will also 
 be of service to the general public. In granting 
 such a charter, the state does not guarantee the 
 success of the undertaking by pledging the public 
 credit, but it does set the stamp of its approval on 
 the character of the business to be transacted, and 
 in return for this puts such limitations and requires 
 such publicity as will best guard against those evils 
 which may come from great combinations of capital 
 and corporate greed. A legislature which is elected 
 for the sole purpose of acting for the whole people 
 has no right to grant a franchise which, by per- 
 mitting public property to be taken or sued without 
 an adequate return, or by giving any advantage over 
 individual effort, enables its possessors to make 
 unusual profits or enjoy any gains except those 
 which legitimately belong to industry, skill and fair 
 dealing. 
 
 It must be assumed that it is advantageous to 
 the whole people that they should be able to secure 
 the protection afforded by insurance companies; 
 that is, that the loss of the individual shall be dis- 
 tributed by the contributions of many. 
 ? v; While charters specify what varieties of busi- 
 ness may be undertaken, and often designate in 
 
48 LECTURES ON LIFE INSURANCE 
 
 what manner it may be done, yet there are seldom 
 definite limitations as to forms of policies, amount 
 of premiums, rate of expense, investments, or any 
 of these details which make up the transactions of 
 these corporations. These have been regulated 
 from time to time by general laws. 
 
 THE STATE'S RIGHT 
 
 A state has the right not only to dictate the 
 methods of its own companies, but it also has the 
 power to specify in what way a foreign corporation 
 seeking to do business with its citizens shall conduct 
 its affairs, so long as these conditions do not conflict 
 with the privileges granted by the federal Constitu- 
 tion. In fact, it is well settled that a state may 
 lawfully demand that a foreign corporation shall 
 agree to waive certain constitutional rights which it 
 would naturally have, before granting it a license to 
 be represented within its borders. United States 
 courts exist for the purpose of securing justice in 
 cases where local prejudice or influence might pre- 
 vent unbiased decisions. Many states require as a 
 condition precedent to admission, that an insurance 
 company shall agree that it will submit to the juris- 
 diction of local courts. 
 
 How far the public good is served by general 
 laws restricting and regulating the conduct of these 
 corporations is a complicated and serious question. 
 
 Violations of the laws of health, excesses in 
 eating and drinking, bring their sure results in 
 causing disease and shortening human life. In 
 this way they diminish the aggregate of the country's 
 wealth, for the value of the lives of a community 
 is far greater than that of all its other possessions. 
 Certain articles of food and drink are well known 
 to be unwholesome, but to prevent by law the use 
 of these is not only an unwarrantable interference 
 with personal liberty, but, what is perhaps even 
 more important, such legislation would tend to 
 impair the value of that strength of character which 
 can only come from self-reliance. It is proper 
 that people should be protected against many of 
 
LECTURES ON LIFE INSURANCE 49 
 
 those perils which they cannot measure themselves, 
 but it is demoralizing to teach them that the laws 
 will relieve them of those risks which it should be 
 a part of their education to measure and meet. 
 
 A state which charters and to a certain extent 
 endorses a corporation may well regulate its opera- 
 tions in such ways as will protect the public against 
 those dangers which they cannot measure, leaving 
 reasonable freedom of action in accordance with 
 the spirit of a free country. 
 
 An insurance company is a peculiar institu- 
 tion in that its liabilities cannot be measured with 
 accuracy, but can only be estimated, and claims 
 will be due at wholly uncertain times in the near 
 and distant future. 
 
 TAXES LEGISLATIVE RESTRICTION 
 
 Bearing in mind the elements which go to 
 make up this business, the matter of legislative 
 restriction presents a difficult problem. It must 
 be remembered that in insurance no values are 
 created; they are only distributed, and whatever 
 a company distributes must be collected. Any 
 taxes which are imposed upon these corporations 
 are paid by their policyholders, whose insurance 
 costs them that much more than it otherwise would. 
 The expense of administering the affairs of such an 
 institution is also borne by the policyholders, and 
 any unnecessary cost which is entailed by any of 
 the requirements of the law is adding that much 
 to the amount which is paid for this protection. 
 
 It is quite clear that the public should be pro- 
 tected, so far as this can be done, against the in- 
 solvency of insurance companies. Before one enters 
 a theatre or a hotel, it would be well if he could 
 himself examine the safety of the building, but 
 since this is out of the question, the next best thing 
 is a building law. It would certainly be desirable 
 before one takes a policy of insurance if he could 
 personally examine the company in which he pro- 
 poses to insure, but as this cannot ordinarily be 
 done, it is proper to have laws which shall require 
 these companies to be safe, and also that their 
 
50 LECTURES ON LIFE INSURANCE 
 
 affairs shall be made public, in order that each one 
 may have the opportunity of forming an intelligent 
 opinion as to the responsibility of the insurer. 
 
 There is no more inexorable, economic fact 
 than that unwise and unsound legislation will either 
 raise the cost of insurance or drive companies out 
 of the business. 
 
 While there are many elements of similarity 
 in the rights, privileges and duties of corporations 
 engaged in the various branches of insurance, the 
 subject of legislative control is so complex that it 
 will be best at this time to consider only one branch 
 of this business, namely, life insurance. 
 
 LIMITATIONS AND REQUIREMENTS 
 IN LIFE INSURANCE 
 
 It would be interesting to trace the causes 
 and history of the laws which have from time to 
 time been placed on the statute books of the differ- 
 ent states, but for the present discussion it need 
 only be said that the principal limitations and re- 
 quirements are of comparatively recent date, and 
 may be divided into two classes: Those which 
 are definitely laid down by law, and those which 
 are created by the public officers who are charged 
 with the supervision of these corporations; but 
 though appeals may be taken from the demands 
 of these officials, such a course is rarely resorted 
 to, and the two may well be considered together. 
 
 The state insurance commissioners have for 
 many years met in annual convention for the pur- 
 pose of determining in what way they can best 
 protect the public and the companies, for one can- 
 not in the end flourish at the expense of the other. 
 Every state in which a company does business 
 requires it to file, among other documents, an annual 
 statement, and much time and ingenuity has been 
 devoted by the commissioners to framing questions 
 which will disclose the real condition of these com- 
 panies and their yearly progress. Publicity, if 
 it can be secured in such form as to be intelligible 
 to the average citizen without misleading him, 
 
LECTURES ON LIFE INSURANCE 51 
 
 is perhaps the most effective means of guarding 
 against fraud, extravagance and ignorance, and 
 at the same time fostering qualities of thought 
 and care among the people. 
 
 The annual statement is now required to be 
 made in form developed by and agreed upon by 
 practically all insurance commissioners. It is an 
 elaborate affair, and requires not only the details 
 which would ordinarily be kept by a careful and 
 systematic concern, but also many involving much 
 expense, the value of which is, to say the least, 
 doubtful. 
 
 INVESTMENTS 
 
 Inasmuch as policies of life insurance in many 
 cases run for long periods, and because a company 
 once issuing a policy has no power to increase the 
 premium or change any of its conditions, it is of 
 the utmost importance that such a corporation 
 should always be in condition to meet policy obli- 
 gations which may not mature for many years. 
 In a bank the depositor always has the right which 
 he frequently exercises to withdraw his money, 
 but in a life insurance company, payments are 
 supposed to provide for a sum, the date of the 
 payment of which is altogether uncertain. The 
 fund which is to make good the policy reserves 
 must, therefore, be invested with peculiar care, 
 and at a rate of interest which has some relation 
 to the rate at which the reserves are running. For 
 these reasons it seems to be entirely proper that 
 laws should be enacted limiting the investments 
 of such a company to those securities which will 
 meet the peculiar requirements of this business. 
 
 While no law can compel intelligence and skill 
 in the management of any corporation, yet it is 
 proper that the statutes should set up a basis for 
 calculating the future liabilities assumed. Such 
 laws are now common and require a sufficient amount 
 of assets to be held to cover liabilities calculated 
 on some standard mortality table, and at a rate 
 of interest which will probably be received in the 
 future. 
 
62 LECTURES ON LIFE INSURANCE 
 
 NEW BUSINESS 
 
 It has not been until recently that state govern- 
 ments have attempted to fix the limits to which 
 life insurance companies may go in incurring ex- 
 pense in securing new business, and in conducting 
 the entire affairs of these corporations. The state 
 of New York in the year 1906 enacted a law of 
 this kind, defining these expenses for the companies 
 chartered by the state itself, and furthermore pro- 
 viding that no foreign company could do business 
 in that state unless it should conduct its affairs on 
 the lines laid down in the law for domestic com- 
 panies. This law was announced to be for the 
 benefit of the policyholders of those companies, 
 and it is a question which is worthy of considera- 
 tion whether it is a proper thing for a legislature 
 representing the whole people to make laws for a 
 special class, unless it can be shown clearly that 
 the good of the entire public is served. 
 
 In considering the propriety of laws, it must be 
 remembered that if all men were good, laws fixing 
 penalty for crimes would be wholly unnecessary. 
 There are men who do not need laws, and there are 
 life insurance companies which do not need them; 
 but this class of companies can well afford to incur 
 reasonable trouble and expense for the general 
 good, if by so doing deception can be prevented 
 and the careless and ignorant protected. 
 
 It cannot be doubted by anyone who contem- 
 plates the character and condition of the people, 
 that an expansion of life insurance far beyond its 
 present limits would be of infinite benefit to the 
 country in mitigating the losses occasioned by 
 premature deaths, and instilling an appreciation 
 of the responsibilities of the marriage state. But 
 life insurance must be carried to those who need 
 it most, and like every other business, those engaged 
 in it must be paid. The holders of policies can 
 afford to pay not only for the risk, but a reasonable 
 sum for expenses. Rather than be without it, 
 they can afford to pay liberally to have it brought 
 to them. But even a good thing may cost too 
 
LECTURES ON LIFE INSURANCE 53 
 
 much. Cost is usually regulated by the laws of 
 supply and demand, and competition, and it is 
 worth considering whether life insurance can safely 
 be left to work out its own results. 
 
 This business offers a tempting field for the 
 legislator. 
 
 "LEGISLATIVE EXPERIMENTS" 
 
 In treating of a phase of American tendencies, 
 James Bryce says: 
 
 "And in the state legislatures they possess 
 bodies with which it is easy to try legislative experi- 
 ments, since these bodies, though not of themselves 
 disposed to innovation, are mainly composed of 
 men unskilled in economics, inapt to foresee any 
 but the nearest consequences of their measures, 
 prone to gratify any whim of their constituents, 
 and open to the pressure of any section whose self- 
 interest or impatient philanthropy clamors for some 
 departure from the general principles of legislation. 
 For crotchet mongers as well as for intriguers there 
 is no such paradise as the lobby of a state legislature. 
 No responsible statesman is there to oppose them, 
 no warning voice will be raised by a scientific econ- 
 omist. Thus it has come to pass that, though the 
 Americans have no theory of the state and take 
 a narrow view of its functions, though they con- 
 ceive themselves to be devoted to * laissez faire ' 
 in principle, and to be in practice the most self- 
 reliant of peoples, they have grown no less accus- 
 tomed than the English to carry the action of govern- 
 ment into ever-widening fields. Economic theory 
 did not stop them, for practical men are proud of 
 getting on without theory. The sentiment of in- 
 dividualism did not stop them, because state inter- 
 vention has usually taken the form of helping or 
 protecting the greater number, while restraining 
 the few; and personal freedom of action, the love 
 of which is strong enough to repel the paternalism 
 of France or Germany, has been infringed upon only 
 at the bidding of a strong moral sentiment such as 
 that which condemns intemperance. So gradual 
 has been the transition of this new habit, that few 
 
54 LECTURES ON LIFE INSURANCB 
 
 but lawyers and economists have yet become aware 
 of it, and the lamentations with which old-fashioned 
 English thinkers accompany the march of legisla- 
 tion are in America scarcely heard and wholly un- 
 heeded. 
 
 "As the field of ordinary private law and admin- 
 istration belongs to the states, it is chiefly in state 
 legislation that we must look for instances of govern- 
 mental intervention. Recent illustrations of the 
 tendency to do by law what men were formerly left 
 to do for themselves, and to prohibit by law acts 
 of omission and commission which used to pass 
 unregarded, might be culled in abundance from the 
 statute books of nearly every commonwealth." 
 
 SAFETY ONLY IN WIDER COMPREHENSION 
 
 The question may fairly be asked -whether the 
 burdens and restrictions placed upon life insurance 
 are worth what they cost, and if they are not, how 
 they are to be modified. There is every reason to 
 believe that they come from a failure on the part 
 of the intelligent public to comprehend principles 
 and scope of this business. Its prosperity and 
 safety lie in that education which has been rapidly 
 spreading and which can be guided into the right 
 path by men whose intelligence and standing fit 
 them to lead the people to a comprehension of 
 what this institution can do in the development 
 of civilization. 
 
WHAT IS INSUKANCE? 
 
 Many Forms of Its Beneficence 
 Recommendations for Remedy of Its Evils 
 
 {Delivered before the Economic Club of Providence, R. I.) 
 
 AAThAT is insurance ? 
 
 Insurance is a contract whereby one for a con- 
 sideration undertakes to compensate another if he shall 
 suffer loss. All that is requisite to constitute such a 
 contract is the payment of considerations by the one, 
 and the promise of the other to pay the amount of loss 
 agreed upon in the contract to the person entitled to 
 claim it, upon the happening of the contingency con- 
 templated in the contract. 
 
 It had its origin in the necessities of commerce, 
 it has kept pace with its progress, expanded to meet 
 its rising wants and to cover its ever widening fields, 
 and under the guidance of the spirit of modern enter- 
 prise, tempered by a prudent forecast, it has from time 
 to time with wonderful facility adapted itself to the 
 new interests of an advancing civilization. 
 
 It is applicable to every form of possible loss. 
 Wherever danger is apprehended or protection 
 required, it holds out its fostering hand and promises 
 indemnity. This principle underlies the contract, and 
 it can never, without violence to its essence and spirit, 
 be made by the assured a source of profit, its sole pur- 
 pose being to guarantee against loss or danger. 
 "Though based upon self-interest" said De Morgan 
 many years ago, "yet it is the most enlightened and 
 benevolent form which the projects of self-interest 
 ever took. It is in fact, in a limited sense and a prac- 
 ticable method, the agreement of a community to con- 
 sider the goods of its individual members as common. 
 It is an agreement that those whose fortune it shall 
 be to have more than average success shall resign the 
 
56 LECTURES ON LIFE INSURANCE 
 
 overplus in favor of those who have less. And it has 
 as yet been applied only to the reparation of the evils 
 arising from storm, fire, premature death, disease and 
 old age, yet there is no placing a limit to the extensions 
 which its application might receive if the public were 
 fully aware of its principles and of the safety with 
 which they may be put in operation." 
 
 THE VALUE OF A HUMAN LIFE 
 
 It can now be inquired whether a human life can 
 have a definite worth which can be measured with any 
 degree of accuracy. It would not be difficult to enum- 
 erate many lives which can not be considered of any 
 pecuniary value because, for various reasons, they pro- 
 duce nothing. Such are those of the very old, the 
 imbeciles and the confirmed invalids. But the life of 
 every man who earns more than suffices for his actual 
 personal expenses is of pecuniary value to some one 
 beside himself. This has been recognized from early 
 times in the institution of slavery which was based on 
 the principle that the ownership of the services of a 
 human being had a value in accordance with the excess 
 of earnings obtainable above the necessary cost of sub- 
 sistence. When a slave was purchased as an invest- 
 ment, he was examined in order that the state of his 
 health and his muscular development might be known. 
 These qualities in connection with his age, his skill in 
 any variety of labor, and his disposition, determined 
 the price at which he seemed likely to be a profitable 
 investment. A carpenter or blacksmith was worth 50 
 per cent, more, other things being equal, than an ordi- 
 nary field hand, because while the cost of his support 
 was no greater, the quality of his service was much 
 more valuable. In any case, however, certain impor- 
 tant elements were either wholly lacking or but par- 
 tially developed. "A person who can acquire no prop- 
 erty can have no other interest but to eat as much and 
 to labor as little as possible." 
 
 Family ties are needed to develop the highest 
 value of a human life. But while this value thus reaches 
 its greatest capacity, there devolves upon its possessor 
 
LECTURES ON LIFE INSURANCE 57 
 
 the responsibility of supporting those who have by his 
 own choice and act the right to depend upon him for 
 the necessities of life. The family, then, has a clear 
 and indisputable interest in his earnings. This they 
 have day by day, month by month, and year by year, 
 and this interest extends into the future as far as they 
 need it. Without it they will suffer privation or be 
 dependent upon charity, in either of which conditions 
 their natural protector has no right to place them. If 
 he dies possessed of property, this by right goes to 
 them in order that they may, so far as its income 
 may enable them, continue to defray the cost of exist- 
 ence. 
 
 But what of this life itself ? Has it a value beyond 
 what it produces in a month or a year which can be 
 measured with any degree of accuracy? Supposing 
 its possessor to be of good constitution and free from 
 hereditary taint, it can be shown that he and others of 
 his class will be governed, as to the length of their 
 lives, by a law of mortality so certain that their aver- 
 age lifetime may be measured with as much precision 
 as that which governs any series of future events, and 
 the present money value of any such life can be valued 
 with an accuracy at least equal to that which charac- 
 terizes market transactions in other kinds of property. 
 
 DOES LIFE INSURANCE PERFORM A SERVICE 
 TO THE PUBLIC ? 
 
 It will not be denied that certain persons must 
 and should be supported at the public expense, but 
 the fewer there are of these the better will be the 
 morals as well as the finances of the community, and 
 life insurance is continually reducing this dependent 
 class. It is not the man who lives to old age, sup- 
 ports and educates his children and saves a compe- 
 tency, who contributes to the class who are applicants 
 for public charity. But the one who is taken away 
 while his children are infants and who has not had 
 the time given him, no matter how affectionate and 
 thrifty he may be, to provide for their needs, is a lib- 
 eral contributor to the membership of the orphan 
 
58 LECTURES ON LIFE INSURANCE 
 
 asylum and almshouse. He may avoid this danger by 
 postponing marriage for such time as will enable him 
 to accumulate a sufficient sum to insure the comfort 
 of a family, but neither mortality nor the public wel- 
 fare will be best served by the establishment of such 
 a principle. There is but one way by which he can 
 follow the course which nature intended him to take, 
 and that way is open to him through life insurance. 
 By the payment of comparatively small sums at con- 
 venient intervals, he can relieve himself of the respon- 
 sibility of the distress which would fall upon his de- 
 pendents in case of his premature death, and he can, 
 moreover, provide for his own future in case he should 
 survive the time when, from physical weakness, he 
 shall become incapacitated from earning his own sub- 
 sistence. 
 
 IS LIFE INSURANCE OVERDONE ? 
 
 The value of human life lies at the foundation of 
 every other property, and if a fair computation could 
 be made of it, it would no doubt appear that its sum 
 total is greater than the amount of all other posses- 
 sions. The man who has a building which is liable to 
 be destroyed by fire will not sleep well unless it is 
 covered by fire insurance, because its loss will affect 
 him personally, and he comprehends very clearly that 
 this catastrophe is liable to happen at any time. He 
 is not so eager to protect his family, because, whether 
 he knows and acknowledges it or not, the loss of his 
 valuable life will not cause him personal financial in- 
 conveniences, so far as he knows. 
 
 Aside from the individual family, the state is 
 much more interested in having his family provided 
 for so that they will not become public charges, than 
 it is in having his building insured, for this can be 
 replaced by himself by industry. 
 
 The census of 1900 showed that there were in 
 the United States 26,100,000 children under 15 years 
 of age, about 900,000 persons over 75 years of age, 
 and 13,200,000 married women between the ages of 
 15 and 65. The married men between 20 and 65 
 
LECTURES ON LIFE INSURANCE 59 
 
 years of age numbered more than 12,000,000. By far 
 the greater part of these 40,000,000 children, married 
 women and old people, depended for their subsistence 
 upon these married men. In many, and perhaps most 
 cases, nothing but the earnings of these men stood 
 between the dependents and public or private charity. 
 
 HOW IS THIS PROPERTY PROTECTED ? 
 
 The life insurance companies doing business in 
 Connecticut had outstanding at the close of last year 
 about $9,000,000,000 of insurance, and this included 
 policies on lives now beyond an insurable age and those 
 held for investment, so that the actual amount car- 
 ried by those who need it is much less. 
 
 The fire insurance companies doing business in 
 Connecticut in the same year had outstanding insur- 
 ance amounting to some $26,000,000,000. These fig- 
 ures may not prove much, but they indicate I am sure 
 some things that are worth considering. 
 
 WILL PEOPLE VOLUNTARILY SEEK 
 LIFE INSURANCE ? 
 
 A man who has saved some money will find his 
 way to the savings bank and place it where it will earn 
 something and where he can get it at any time for his 
 own use. If he has a building he will take the trouble 
 to have it insured. Will he insure his life of his own 
 accord, even if he is convinced that some life insur- 
 ance company will carry his risk at a small expense 
 ratio ? 
 
 In the year 1904 there was living in a small 
 town in Alabama a young farmer named Robert Burt, 
 25 years of age. He was sober, industrious and frugal, 
 and had some two years before that time married the 
 daughter of a neighbor. While he had saved about 
 $100, at the time of his marriage, this had been used 
 for some articles of furniture, and in certain other 
 expenditures which happened to be larger than the 
 expected cost of living, so that at this time neither he 
 nor his wife had practically any property aside from 
 
60 LECTURES ON LIFE INSURANCE 
 
 the value of his own life, which was sufficient to sup- 
 port his wife and himself, together with their child. 
 He had every reason to believe that his income would 
 increase with experience, and felt no anxiety for the 
 future. 
 
 An agent of a northern life insurance company, 
 however, in the course of his travels visited Robert 
 Burt and explained to him the nature of life insur- 
 ance, and why as he was situated it was his duty to 
 secure some protection for his wife and child. After 
 giving the matter careful consideration, he concluded 
 to take a policy on his life at that time and hoped to 
 increase the amount in the future. The agent prepared 
 the application, secured a physician who had been ap- 
 pointed by the company to make its examinations, had 
 Robert Burt examined, sent his application to the head 
 office of the company, and in due time received the 
 policy, for which he paid the first premium of $21.02. 
 Of this amount the agent received a commission of 
 $10.51, and out of the remainder paid the medical 
 examiner for his services. More than 50 per cent, 
 of the premium went for expenses. 
 
 Within twelve months Robert Burt was taken sick 
 and died, and his family received $1,000, which was all 
 they had, the farm having been rented. The question 
 arises whether this insurance cost too much, whether 
 Robert Burt should have read the newspapers and 
 taken mathematical advice as to whether life insurance 
 was not more expensive than it ought to be, and 
 whether he ought not to have refused to take a policy 
 unless it could be shown to him that the expense ratio 
 of the company was less than 10% oi the premium, 
 which it probably would have been had it not been for 
 the fact that the agent was earning a living in this 
 business and also had a family to support. 
 
 Was life insurance a good thing for Mrs. Burt? 
 Was it worth what it cost ? Would it have been better 
 if Robert Burt had been left to his own resources, and 
 would he have been likely to have communicated with 
 some life insurance company, had it not been for the 
 agent? Was the agent engaged in an honorable and 
 legitimate occupation ? These are all interesting ques- 
 
LECTURES ON LIFE INSURANCE 61 
 
 tions at this time and deserve very careful consider- 
 ation. 
 
 DISTRIBUTION AND SAFETY* 
 
 Can life insurance be widely distributed with 
 safety without agents? 
 
 Let us take another point and assume that at 
 this time there was a life insurance company in New 
 York of considerable size and strength, conducting its 
 business on a low ratio of expense, but without agents ; 
 and let us assume that Robert Burt heard about this 
 company, thought about life insurance, decided that 
 he ought to have it, communicated with the company, 
 secured the necessary blanks, hunted up a physician, 
 submitted himself to an examination, forwarded the 
 papers to the company, that they issued the policy and 
 he paid the premium. He had a neighbor who knew 
 of the large sum which had been received by the fam- 
 ily compared with the small amount of the premium. 
 Peter Jones, while he was a hard working man, knew 
 that he had a trouble which would cause his death 
 within a short time, and it occurred to him that an 
 opportunity was offered for an exceedingly favorable 
 operation for his family, and so he communicated 
 with this company, secured the papers, filled out the 
 application, without too much regard for facts, visited 
 a physician he knew was careless and intemperate, had 
 him make an examination when this doctor was under 
 the influence of liquor, forwarded the papers to the 
 company, and they appearing all right, the policy was 
 issued, which, as was expected, became a claim within 
 a short time. 
 
 Without an agency organization, without a corps 
 of selected physicians, any company would be a prey 
 to designing men, and its career would inevitably be 
 short. 
 
 Is an institution maintaining an organization 
 which not only will gather members from distant 
 points, but will also do it in a way which will be safe, 
 doing a valuable work for the people at large not 
 only for those who directly take advantage of its 
 
62 LECTURES ON LIFE INSURANCE 
 
 services, but also for others who help maintain alms- 
 houses and orphan asylums? 
 
 Is it possible to compare the expenses of an insti- 
 tution of this character with those of a savings bank? 
 
 Is it reasonable to claim that because the expense 
 ratio of an old established company is too high, that 
 that of a young and growing one, honestly and intelli- 
 gently managed, should be less? 
 
 Is it best for the public that all life insurance 
 should be done by the company which can show the 
 smallest ratio of expense to income? 
 
 The man who seeks the truth should answer all 
 these questions before he condemns the institution of 
 life insurance. 
 
 OTHER QUESTIONS 
 
 I find that I have asked a good many questions, 
 each one of which from my standpoint admits but 
 one answer. But at this time other questions are be- 
 ing propounded which we should not overlook, and 
 which those who are interested in the welfare of hu- 
 manity must answer if we are to accomplish what 
 all right-minded men desire, and that is, justice and 
 the best good of all. 
 
 Have some life insurance companies, professing to 
 offer the most sacred kind of protection at the lowest 
 possible cost, been used by their managers for per- 
 sonal and improper purposes? The answer must be, 
 "Yes." 
 
 Have some life insurance companies made state- 
 ments for the information of their policyholders and to 
 attract additional members, which statements were 
 not in accordance with the actual facts? The answer 
 must be, "Yes." 
 
 Have some life insurance companies used the 
 funds of policyholders in ways which were not only 
 not within the spirit of the policy contracts, but also 
 were demoralizing to the public? The answer must 
 be, "Yes." 
 
 Have some life insurance companies incurred 
 expenses which w r ere not for the benefit of their 
 policyholders ? The answer must be, "Yes." 
 
LECTURES ON LIFE INSURANCE . 63 
 
 RECOMMENDATIONS 
 
 Have the disclosures which have been made 
 within the past few months carried the idea to many 
 reasonable and thoughtful men that the vices which 
 have appeared are the rule in the general practice of 
 life insurance rather than the exception? I think 
 the answer will be "Yes." Is this just? The answer 
 must be -"No"; for there are many life insurance com- 
 panies whose practices have been honest and fair, 
 whose business has been conducted for the benefit 
 of policyholders, and whose general record will com- 
 pare favorably with that of any other class of corpora- 
 tions. The public will scarcely be satisfied, however, 
 unless these matters shall receive the attention of the 
 law makers, and attempts shall be made to cure evils 
 by legislation and it is, therefore, clear that it will 
 be for the best interests of life insurance that some 
 laws shall be passed. I have been asked to make sug- 
 gestions in this line, and I trust that it may not be 
 without interest to take up some of the points which 
 have been considered by the public as a result of the 
 recent investigations. 
 
 I. Publicity. 
 
 2. Limit of Size. 
 
 3. Deferred Dividends. 
 
 4. Investments. 
 
 5. Contributions. 
 
 6. Responsibility of Directors. 
 
 7. Expense. 
 
 1. Publicity. The present form for returns to 
 the various insurance departments is amply sufficient 
 for showing the financial condition of a life insurance 
 company, and if the answers to all the questions are 
 full and accurate, and the required oath is carefully 
 considered by those who sign it, the operations of any 
 company will be fully disclosed. I suggest in addition 
 to the present requirements, that companies be pro- 
 hibited from including in any profit and loss or sim- 
 ilar account any disbursements for expenses of any 
 kind, and that such account be allowed to include only 
 credits and charges on account of assets, and that a 
 
64 LECTURES ON LIFE INSURANCE 
 
 detailed report of any such account be furnished the 
 insurance commissioners. 
 
 2. Limit of Size. I suggest that looking into the 
 distant future, it might be wise to establish a limit in 
 the matter of outstanding insurance, beyond which a 
 company should not go, excepting for reasons which 
 might apply to some particular institution. It is con- 
 ceivable that a company having $500,000,000 of out- 
 standing insurance might accumulate $250,000,000 of 
 assets. Such a company could be kept in a perfectly 
 healthy condition and could give good service to its 
 policyholders, if it were permitted to maintain its out- 
 standing insurances by issuing new ones only for suf- 
 ficient amounts to counterbalance the withdrawals ; 
 and I suggest that if this limit were fixed, and no com- 
 pany having a greater amount outstanding should be 
 permitted to increase its volume,- no damage would be 
 done to present policyholders, and the best interests 
 of the public would be served. It might be well in 
 this connection to provide that the insurance commis- 
 sioner should have power, in view of conditions which 
 might be made known to him, to issue a written order 
 permitting an extension of this limit on such condi- 
 tions as to locality and amounts as might seem to him 
 on the whole desirable. 
 
 3. Deferred Dividends. I suggest that a life 
 insurance company, if it be permitted to issue deferred 
 dividend policies, should be required to annually de- 
 clare and credit to each policy on any such plan a cer- 
 tain dividend, but allowed to couple with it a provision 
 that it, together with any further accumulations, 
 should be payable only in event of the policy being 
 continued in force for a certain number of years. This 
 dividend should be in no case less than it would have 
 been if the policy had been on the annual dividend dis- 
 tribution plan, if the company issues both annual and 
 deferred dividend policies, and such dividends should 
 be included in the liabilities and not in any case appear 
 in any surplus. Any policyholder should be permitted 
 to know the amount of his accumulations at any time, 
 and in any event should be informed at periods not 
 longer than five years. 
 
LECTURES ON LIFE INSURANCE 65 
 
 4. Investments. Statutory provisions as to 
 investments, while prohibiting syndicate and financial 
 underwriting transactions, should not be as drastic as 
 the provisions covering investments of savings banks. 
 These latter institutions are mainly local in character, 
 and dividends to depositors are based only upon the 
 net returns of interest which they receive upon their 
 investments. Life insurance companies do an extended 
 business, and the laws as well as the principles upon 
 which they conduct their affairs require that to main- 
 tain solvency these trust funds shall be improved at 
 interest of at least a given rate per cent. Many of 
 these institutions secure for their members a much 
 higher rate than savings banks, and this without in- 
 curring any great risk. The laws of Connecticut 
 touching investments which may be made by life insur- 
 ance companies are suggestive, and I commend them 
 to your consideration. 
 
 5. Contributions. I suggest that laws be pro- 
 posed prohibiting contributions for political, benevo- 
 lent or charitable purposes. 
 
 6. Responsibility of Directors. It seems proper 
 that the law should provide that all business transacted 
 at a directors' meeting should be brought to the atten- 
 tion of the directors present in such a way that their 
 responsibility shall be determined solely by the record 
 of their votes. To that end I would suggest individ- 
 ual record books for each director, comprising a 
 printed record of business to be reported at each 
 meeting, and similar to those in use for many years 
 by the company with which I am connected. These 
 individual record books are for use of the directors 
 only at their meetings, and are never taken away by 
 them. This record of course should be at all times 
 open to the inspection of the insurance commissioner, 
 that he may be able to decide whether the laws are 
 being complied with so far as they apply to the knowl- 
 edge and responsibility of the directors. 
 
 7. Expense. A matter about which much has 
 been said is that of expense. The lives of some mil- 
 lions of Americans are insured in the life companies of 
 the United States, which corporations hold for the 
 
66 LECTURES ON LIFE INSURANCE 
 
 final payment of these policies a very large amount 
 of property. So many persons have come to rely 
 upon these companies for protection to those to whom 
 they are under obligations, and the probable future 
 growth of this business is so great, that the best inter- 
 ests of the public demand that there should be many 
 separate institutions engaged in carrying these risks. 
 Laws limiting expense might be passed to the advan- 
 tage of those companies which have attained consid- 
 erable size, but which if applied to companies recently 
 organized would prevent further development, and 
 would make it impossible for any other similar cor- 
 porations to be undertaken. Proper laws providing 
 for financial strength and accurate statements, together 
 with the force of competition, if there were a yearly 
 disclosure of dividends earned on individual policies, 
 would probably regulate this question as fully as it 
 can be brought within reasonable statutory require- 
 ments. 
 
 THE COST 
 
 In the preparation of these suggestions concerning 
 this most interesting and important subject, I have 
 endeavored to view it from the standpoint of one who 
 considers, not the individual company, nor indeed 
 any class of companies, but rather the business as a 
 whole, its purposes and possibilities; what it does for 
 the individual and what it does and can do for the 
 state. I believe that life insurance is a good thing 
 and I believe that the more widely it is spread among 
 the people, the better will be not only those who are 
 directly interested in it, but the entire nation. I know 
 that the protection that it affords cannot be widely dis- 
 tributed except through the efforts of agents and I 
 know that it cannot be safely done over any consider- 
 able territory without local representatives and phy- 
 sicians, and without constant inspection from the 
 home office. I know that it costs a great deal oi 
 money to construct and start the necessary machinery, 
 and while this operation is going on the expense 
 account will be large, but I know that when once it 
 is thoroughly built of good material, and running 
 smoothly it will be worth to policyholders and the pub- 
 lic all that it has cost. 
 
SERVICE AND SCOPE OF LIFE INSURANCE 
 
 (Delivered before Philadelphia Ass'n of Life Underwriters) 
 
 T BELIEVE in the power for good which lies in the 
 organizations of life underwriters. Whether circum- 
 stances have placed us in the home offices or in the 
 field, we are all engaged in the same work, the 
 strengthening, purifying and uplifting of the best busi- 
 ness in the world. The man who causes another to 
 take insurance on his life performs a service to the 
 individual and to the state, for he increases the hap- 
 piness and prosperity of the one, and decreases the 
 expenses and dangers of the other. 
 
 It is in the line of duty as well as for our own 
 interest to seek for the causes which lead to practices 
 which tend to degrade our profession in the eyes of 
 the public, and to injure the institution which we are 
 bound to protect and to elevate. Our business suffers 
 from rebating, which not only deprives the laborer in 
 the field of life insurance of his legitimate and well- 
 earned reward, but also casts discredit upon this most 
 beneficent of all interests, by seeming to admit that 
 the premiums charged are more than necessary. We 
 hear of the evils of twisting and competition for the 
 individual case, which lead to unworthy arguments 
 and misleading comparisons between different com- 
 panies. 
 
 And what lies at the root of these evils? If 
 there was but one company doing a life insurance 
 business, there would be no rebating, nor twisting, nor 
 defamatory literature, nor excessive estimates of fu- 
 ture dividends, for the simple facts would appeal 
 to all persons, and the real merits of the institution 
 would be a sufficient argument in its favor. 
 
 If every agent believed that there were five or ten 
 uninsured persons to every one insured, it would seem 
 natural that he should spend his time and talents in 
 educating the public to understand what it all meant, 
 
68 LECTURES ON LIFE INSURANCE 
 
 rather than to strive by unworthy methods to deprive 
 his fellow laborer of the fruits of his toil, and thus 
 degrade his business to his own final loss. 
 
 LIFE INSURANCE OVERDONE ? 
 
 And is life insurance overdone? Is there no 
 longer fresh material to work on, except as it is sup- 
 plied by new candidates who are reaching the age and 
 condition for insuring their lives? 
 
 Life insurance exists for the purpose of repairing 
 the loss occasioned by the death of the individual who 
 can produce more than the cost of subsistence. We 
 can measure the value of a single life with as much 
 accuracy as we can the worth of other classes of prop- 
 erty. The total present value of the future earnings 
 of a single individual can be estimated, but the aggre- 
 gate present worth of the future efforts of the entire 
 working community can scarcely be even conjectured. 
 If that could be known, it would appear that the chief 
 part of the values of the world consists not of lands 
 and buildings, nor of railroads and ships, nor stocks 
 of goods, nor minerals, but of the earning power of 
 the human family. 
 
 Let us glance at some of the conditions which 
 exist in the state of Connecticut. The census of 1900 
 shows us that there were in that state in that year 
 385,610 persons engaged in all occupations ; of this 
 number 186,675, or somewhat less than one^half, were 
 engaged in manufacturing, and the amount paid by 
 these establishments in wages and salaries during that 
 year was $95,053,775. Of this amount it seems rea- 
 sonable to assume that two-thirds, or say $60,000,000, 
 was expended in the support of others than those earn- 
 ing this income. If it is assumed that the average age 
 of these producers is 30 years, and the present value 
 of an annuity at that age is $17, and that on the 
 whole the mortality among these persons will follow 
 the table rate, it appears that this income represents a 
 present value of future earnimgjs of more than a 
 thousand million dollars, any portion of which capital 
 is liable to be cut off in any hour of any day. But these 
 
LECTURES ON LIFE INSURANCE 69 
 
 figures apply only to those engaged in one branch of 
 labor, and this probably on the whole less remuner- 
 ative than the sum total of other occupations. 
 
 The grand list of Connecticut in the year 1900 
 amounted to $694,000,000. This represents the 
 amount of property subject to direct taxation in the 
 state, by far the greater part of it consisting of real 
 estate and buildings. Theoretically, these properties 
 are placed in this list at somewhat less than their 
 actual value, but it is doubtful if taking the whole 
 state together, the value of real estate and buildings 
 is materially greater than that placed upon them in 
 the grand list. From estimates which have here been 
 made, there can be no doubt whatever that the present 
 value of the future earnings of those engaged in vari- 
 ous occupations in that state is many times the amount 
 of the grand list. 
 
 PROTECTION, RELATIVELY 
 
 Let us now see what protection was provided in 
 that year by the citizens of Connecticut against the 
 loss of this capital. The report of the insurance com- 
 missioner for the year 1900 shows that there were at 
 the close of that year life insurance policies outstand- 
 ing on the lives of citizens of the state, amounting to 
 $149,970,752 of insurance. Some of these have been 
 in force for many years, and it is certain that the aver- 
 age age of these policyholders is much higher than 
 that of the general population. Assuming it to be 50, 
 it appears that this amount of insurance represents an 
 income which it is intended to protect of about 
 $12,000,000, or about one-eighth of the sum paid in 
 that year to those engaged in manufacturing alone. 
 It is evident that this protection is far less than the 
 amount at risk, and that the community is therefore 
 constantly sustaining losses by death which are 
 repaired only to a comparatively small degree. Mak- 
 ing allowance for the fact that many of the persons 
 who are engaged in remunerative labor of various 
 kinds are uninsurable, and that there are some who by 
 reason of their financial condition do not need insur- 
 
70 LECTURES ON LIFE INSURANCE 
 
 ance, we cannot escape the conclusion that in Connec- 
 ticut alone there is not one-tenth the amount of insur- 
 ance carried by its citizens Which there should be, and 
 this in a state which has had its own life insurance 
 companies for more than fifty years, and in which 
 many of the best and most active companies in the 
 country are represented. 
 
 If this is the condition of things in the old and 
 respectable and intelligent state of Connecticut, it is 
 not unreasonable to believe that the field in other sec- 
 tions is not more thoroughly covered. 
 
 I will not claim that we are engaged in this busi- 
 ness solely for philanthropic reasons, but every one 
 of us must feel a satisfaction, that while we are earn- 
 ing our living, we are at the same time educating and 
 benefiting our fellowmen. 
 
 The life insurance agent is supposed to prosecute 
 his business thoroughly, but he will not accomplish his 
 full mission until the education of the public has pro- 
 ceeded to a point where the real purpose and the 
 actual benefits of life insurance are far better under- 
 stood than they are at this time. 
 
 The physician and the clergyman employ their 
 time and talents in improving the physical and moral 
 condition of the people, and in lengthening and render- 
 ing more efficient their services ; they thus add to the 
 value of the state. But they cannot repair the loss by 
 death, which is inevitable. Life insurance is the only 
 agency which can make good or modify this loss of 
 the individual and of the state, and we shall not only 
 benefit the public, but ourselves as well, if we devote 
 our time to explaining what life insurance has done 
 and what it can do, and to extend its protection over 
 those who need it the most and who have it the least. 
 
 We in the home offices can do much to elevate 
 our common calling, but in many directions we are 
 powerless without your co-operation. Together we 
 can accomplish all things needful. 
 
INTEREST OF STATE 
 
 Life Insurance Means Less Expense for Alms- 
 houses and Orphan Asylums 
 
 (Delivered before Legislative Committee at Albany, N. Y.) 
 
 A T the close of the year 1904 there were in force 
 ** in New York state in what may be called the reg- 
 ular life insurance companies, 706,000 policies repre- 
 senting obligations due at various times in the future 
 amounting to $1,490,000,000. These companies paid 
 in the state in that year claims amounting to about 
 $21,000,000. Of this there were outstanding in com- 
 panies chartered by other states, but doing business 
 in New York, 248,000 policies, representing insur- 
 ance to the amount of $501,000,000, an average of 
 about $2,000 for each policy. These companies in that 
 year paid in the state in claims about $6,400,000. This 
 business constituted in a general way about one-tenth 
 of the total operations of these foreign companies. 
 
 Life insurance corporations located outside of 
 New York state in the five years from 1900 to 1904 
 inclusive paid in claims alone in New York over $29,- 
 000,000. In the year 1904 these companies placed in 
 New York state 50,000 policies for $85,000,000 of' 
 insurance, an average of about $1,700 for each policy. 
 Practically all of these policy contracts were issued 
 upon applications secured by agents operating in that 
 state. 
 
 It will not be denied that the people of New York 
 have the right and the power not only to regulate, 
 build up or destroy their own corporations, but they 
 also have the right to prescribe upon what conditions 
 corporations of other states shall be permitted to do 
 business with them. 
 
 The bill which is before you provides, in some of 
 its features, not only how these corporations shall do 
 
72 LECTURES ON LIFE INSURANCE 
 
 business with the people of New York state, but also 
 in many ways how they shall conduct their entire 
 affairs, and it is, therefore, a serious question whether 
 such a corporation can properly comply with the con- 
 ditions which may be prescribed for the privilege of 
 transacting business in the state. 
 
 These outside companies have many policyholders 
 in New York state whose interests can best be cared 
 for through agents. These agents have devoted them- 
 selves to the legitimate work of spreading abroad 
 among the people the protection of life insurance, and 
 their withdrawal from the state would inflict a damage 
 upon them which it is the duty of the managers of 
 these companies to avert if they can do so by fair 
 arguments. 
 
 NECESSITY OF AGENTS 
 
 Life insurance has never been done to any con- 
 siderable extent except through the instrumentality of 
 agents, and it is perfectly safe to say that it never will 
 be. This is shown conclusively by the experience of 
 many companies, especially those in England. The 
 Equitable Life Assurance Society of London one of 
 the strongest of all life insurance companies, having 
 been in business continuously for more than 150 years, 
 located in the heart of the greatest city in the world, 
 within easy reach of many millions of people, but pro- 
 hibited by its by-laws from employing agents has 
 issued in the past thirty years an average of less than 
 300 policies a year. 
 
 A life insurance company is not a savings bank. 
 It exists not for the purpose of receiving money, im- 
 proving it at interest and returning it to its depositors, 
 but to repair the loss occasioned by the termination of 
 a life valuable to those dependent upon it and to the 
 state. The premium required to meet this loss must 
 be sufficient not only to make good the loss itself, but 
 also to meet the necessary cost of bringing this protec- 
 tion to the insured, to pay reasonable expenses of con- 
 ducting a large, complicated and delicate business, 
 requiring skill, integrity and experience, and the taxes 
 
LECTURES ON LIFE INSURANCE 73 
 
 levied upon it by the various states in which the opei - 
 ations are conducted. A mutual life insurance com- 
 pany exists for the purpose of furnishing to its mem- 
 bers sound insurance in such forms as best suit their 
 various needs, at as low a cost as possible. Whether 
 this can be accomplished in each individual case by 
 increasing the number of policyholders or going into 
 liquidation must be left to the judgment of those whose 
 knowledge of the affairs of the institution is sufficient 
 to enable them to intelligently decide so important a 
 subject. If an increase shall be deemed to be for the 
 good of all, the terms and conditions upon which 
 this shall be made and the localities where new mem- 
 bers shall be admitted must be decided by the care- 
 ful consideration of all surrounding circumstances, 
 and these cannot be known except by those who have 
 an intimate knowledge of every detail of the situation. 
 A mutual life insurance company must charge 
 equal rates and equity must prevail in the apportion- 
 ment of its surplus earnings. But this is not all. If 
 it has but one scale of premiums, it must be sure that 
 its members must, in the quality of the risks assumed, 
 be on an equality. It must also issue to its members 
 policy contracts alike in terms and conditions. It 
 would be as false to principles of mutuality to insure 
 good and bad lives on the same terms, as it would be 
 to discriminate between individual members in allotting 
 surplus. 
 
 PROTECTION FOR BOTH PARTIES TO CONTRACT 
 
 In what way can this balance best be secured and 
 preserved? Plainly, in a business obtained chiefly at 
 a distance from the home office, the greatest care 
 must be exercised that the personal history and physi- 
 cal condition of the applicant shall be known. A com- 
 petent medical examiner and a faithful and honest 
 agent are essential. No contract should be entered 
 into without a full knowledge by both parties of all 
 material facts. The company must know the condition 
 of the applicant. The applicant must know the condi- 
 tion of the company. The agent must be the medium 
 through which this information is exchanged. 
 
74 LECTURES ON LIFE INSURANCE 
 
 In what way can both parties be most effectually 
 protected ? 
 
 If the compensation which the agent receives for 
 his labor is dependent not only upon the payment of 
 the first premium, but also upon the continuance of 
 the policy, then it will be directly for his interest that 
 the policyholder shall live to pay, shall be satisfied 
 with his contract and that the company shall meet 
 with success, in order that it may retain the confidence 
 of its members and the public. As renewal premiums 
 are paid the agent can and does perform many ser- 
 vices for both parties for which he is entitled to fair 
 remuneration. 
 
 The system of renewal commissions extending 
 over a considerable period is not in the nature of a 
 bonus, but is of distinct value, and the instances are 
 rare where the agent, under this form of compensation, 
 receives more than his services are reasonably worth, 
 or more than the company or the policyholders can af- 
 ford to pay. Life insurance agents are engaged in 
 an honorable work upon which they rely for support 
 of themselves and their families. Their occupation 
 is one of as much dignity, importance and value as 
 that of the minister, the lawyer or the doctor, and they 
 undoubtedly receive less for the amount of intelligence, 
 ability and labor required for their work than almost 
 any other class of laborers. 
 
 WHO MOST NEED INSURANCE 
 
 It is not those who can afford to carry large 
 policies who need life insurance most. It is those who 
 can only afford to pay comparatively small premiums, 
 and any law which would tend to restrict the business 
 of life insurance companies to the wealthy, and even 
 the well-to-do class, would certainly deprive the far 
 more numerous class of this protection. 
 
 That portion of the bill which is before you which 
 seeks to regulate the amount to be paid for new busi- 
 ness and for collecting renewals, after making mod- 
 erate allowance for other necessary disbursements, 
 would leave a compensation to be divided between the 
 solicitor and the general agent under which life insur- 
 ance cannot be brought to those who need it most. 
 
LECTURES ON LIFE INSURANCE 75 
 
 This bill would destroy agency organizations which 
 have cost much money to establish. 
 
 Many of these companies have been conducting 
 their business for more than fifty years, honestly, faith- 
 fully, economically and unselfishly serving the public. 
 They have adjusted their premium rates and their 
 entire policy contracts upon equitable and safe prin- 
 ciples, and that section of this bill which seeks to dic- 
 tate the premiums which shall be charged would be an 
 interference with those principles which have been 
 established after many years of experience and most 
 careful consideration. 
 
 COMPETITION 
 
 All life insurance companies doing business in 
 any state should be required to maintain a condition 
 of perfect solvency; should be regulated to a reason- 
 able extent in the investment of these sacred trust 
 funds ; should be required to give the public full 
 information of their operations. Competition and 
 public opinion will be far more powerful to keep these 
 companies economical and honest than statute laws. 
 
 No matter approaching this in importance in its 
 far-reaching results has ever before been brought to 
 the legislature of this or any other state for decision. 
 No one at all familiar with the history of life insur- 
 ance can doubt that the requirements of this bill, if 
 enacted into laws, would place all the companies 
 engaged in this business in a condition of practical 
 liquidation. 
 
 The officers of these companies are the cus- 
 todians of the most sacred trust known to the business 
 world. They acknowledge their responsibility to their 
 policyholders, but they demand that fair treatment 
 which legislators are bound to accord to those who 
 are earnestly striving to fairly administrate the great 
 interests which have been placed in their hands. They 
 welcome proper safeguards, but they object to inter- 
 ference in the details of their affairs which can be 
 known and adjusted only by those who have studied 
 them long and earnestly. 
 
76 LECTURES ON LIFE INSURANCE 
 
 CURTAILING PUBLIC EXPENSES 
 
 A bill which openly has for its object the prohibi- 
 tion of the transaction of the business of life or any- 
 other form of insurance can be met and argued 
 frankly, but one which means the same thing, but 
 which is covered up with technicalities not easily 
 understood either by its framers or by the public may 
 lead to consequences not intended even by those who 
 advocate it. 
 
 The interest of the state is deeply concerned in 
 this matter. Life insurance is conceded, by those who 
 have given social questions the most study, to be of 
 all institutions the most powerful in curtailing the pub- 
 lic expenses connected with the suppression and pun- 
 ishment of crime and the caring for those who cannot 
 care for themselves. If any laws should be enacted 
 which would in the end do away with the distribution 
 of the millions of dollars which are annually paid out 
 to the beneficiaries under life insurance policies, it 
 would inevitably result in very greatly increasing the 
 appropriations necessary to be made from the public 
 treasury for the maintenance of almshouses and orphan 
 asylums. 
 
IS LIFE INSUKANCE WORTH 
 WHAT IT COSTS? 
 
 (Delivered before the Boston Life Underwriters' Ass'n) 
 
 IFE INSURANCE came into existence to meet 
 a definite need arising out of the conditions 
 of civilized life. 
 
 Banks of deposit became necessary when com- 
 mercial transactions reached the point where it was 
 practically impossible to exchange commodities, and 
 thus realize upon the labors of different classes of 
 people. The savings bank system grew out of the 
 desire of thrifty persons to lay aside small sums which 
 could not be invested separately, but the aggregate of 
 which could be used to advantage. 
 
 Marine and fire insurances were first thought of 
 because individual losses proved ruinous, whereas if 
 they were distributed among a considerable number, 
 each one could bear the burden. 
 
 The purposes of life insurance can scarcely be 
 expressed better than in the petition which was pre- 
 sented to the Secretary of State's office in 1757 in the 
 application for a charter for a new life insurance com- 
 pany in Great Britain, as follows : 
 
 "That great numbers of His Majesty's subjects, 
 whose subsistence principally depends on the salaries, 
 stipends and other incomes payable to them during 
 their natural lives, or on the profits arising from their 
 several trades, occupation, labor and industry, are very 
 desirous of entering into a society for insuring the 
 lives of each other, in order to extend after their 
 decease the benefit of their present incomes to their 
 families, and relations, who may otherwise be reduced 
 to extreme poverty and distress by the premature 
 death of their several husbands, fathers and friends, 
 which humane intention the petitioners humbly appre- 
 hend cannot be effectually carried into execution with- 
 out his majesty's royal authority to incorporate them 
 for that purpose." 
 
78 LECTURES ON LIFE INSURANCE 
 
 The sentiment expressed in this petition covers 
 the whole question, and gives the reason for the exist- 
 ence of legitimate life insurance. 
 
 The savings bank has its uses for those who can- 
 not for any reason secure life insurance, and often- 
 times in connection with it, but the worth of life 
 insurance extends much farther and has to do with 
 the protection of that property without which there 
 can be no other value, and the loss of which cannot be 
 covered in any other way, and that is, ithe value of 
 a human life. 
 
 A NECESSITY 
 
 That life insurance is a legitimate and even neces- 
 sary part of the family and business life of the pres- 
 ent day is too generally conceded to need argument. 
 It has existed in one form and another for two hun- 
 dred years. The maintenance and education of many 
 families rest upon its stability. The credit of many 
 persons whose business affairs require that they shall 
 borrow money depends upon the protection which 
 creditors are afforded by life insurance. In a broader 
 way, it curtails the expense to the public treasury of 
 almshouses and police, of criminal courts and prisons, 
 and of the various other necessary branches of the 
 public service which have to do with the prevention 
 and punishment of crime, and the relief of the suffer- 
 ing and unfortunate. 
 
 Some years ago a census was taken of the paupers 
 in the Philadelphia almshouse, with the result that 
 of the number observed 1,110 only three were 
 found who had been beneficiaries of life insurance, 
 and those to the extent of $6,000, but through profli- 
 gacy or improvidence they were reduced to a state 
 of pauperism. In a census of the Montgomery County, 
 Pa., almshouse, 133 were examined, and it was 
 found that none of these people or ithear families ever 
 had been the beneficiaries of life insurance. 
 
 IN BUSINESS LIFE 
 
 In business life the investment of the accumu- 
 lations of small payments held and improved at inter- 
 
LECTURES ON LIFE INSURANCE 79 
 
 est for the final payment of claims has enabled the 
 owners of real estate in cities to improve itheir prop- 
 erties by building dwellings and business blocks, and 
 to increase and extend every line of business. For 
 many years some of the life insurance companies have 
 been making loans upon western farming lands. 
 These have enabled the farmers of the country to 
 acquire land and to cultivate it, to erect necessary 
 buildings, to buy stock, and to continue their oper- 
 ations through unfavorable years. Lands in sections 
 where these corporations have loaned money have very 
 greatly increased in value, largely by reason of a re- 
 duction in the rate of interest which has come through 
 the increase of those funds seeking investment. The 
 development of railroads and other corporations, and 
 the improvement of cities and towns have been pos- 
 sible to a considerable extent through the accumula- 
 tions of life insurance. 
 
 Now, the life of every human being who earns 
 more than is required for his own subsistence has a 
 money value to some one else. The present worth 
 of these future earnings depends upon the length of 
 time during which they will probably continue, and an 
 estimate of them can only be made after considering 
 the age, the condition of health and the circumstances 
 of the individual. Many of these lives are so uncer- 
 tain in their tenure that no definite value can be placed 
 upon them, but any one which comes within the class 
 represented by a standiard mortality tjable can be 
 valued with an accuracy at least equal to that which 
 characterizes market transactions in other kinds of 
 property. If a value could be fixed for every pro- 
 ductive life and a suitable premium could be collected, 
 the insuring of each such life for a certain amount 
 would improve the general condition of society. The 
 value of life would thus be more thoroughly under- 
 stood, and the moral tone of civilization would be 
 vastly elevated. 
 
 MORTALITY TABLES 
 
 As a practical question, however, it has proved 
 feasible to protect by insurance only the lives of those 
 
80 LECTURES ON LIFE INSURANCE 
 
 who apply to the various corporations undertaking 
 this business, and these institutions must confine their 
 membership to those who are shown by family and 
 personal history, and physical examination, to belong 
 to certain well-defined classes. For many years by far 
 the greater part of the membership of the life insur- 
 ance companies has been drawn from a class which is 
 made up of those who are shown to be free from 
 family taint and personal weakness, and all of whom 
 in a general way may be said to have similar pros- 
 pects of longevity. 
 
 Mortality records of one kind or another have 
 been kept for many centuries, but it has not been 
 practicable until within the past sixty or seventy years 
 to ascertain the death rate prevailing among those who 
 have been selected as proper members of life insur- 
 ance companies. Many tables have been made, differ- 
 ing somewhat, but indicating a mortality table which 
 is a safe basis for life insurance calculations. 
 
 While it is true that in the early years of insur- 
 ance, by reason of careful selection, the actual mortal- 
 ity experienced by prudently managed companies has 
 fallen considerably below the rate indicated by the 
 standard tables, yet it has also been shown that the 
 effect of selection is but temporary, and that under the 
 varying conditions which have prevailed, and are likely 
 to govern the business in the future, these tables indi- 
 cate a mortality no greater than must be expected in 
 the long run, even by the most skillfully managed 
 companies. 
 
 Some recent writers, from insufficient information 
 and superficial examination, have taken the ground 
 that as the mortality shown by the companies is at 
 this time falling below the table rate, a considerable 
 reduction can safely be made in the premiums charged. 
 It is important that the public should clearly under- 
 stand this point before forming an opinion as to the 
 conduct of the business. 
 
 INTEREST RATE 
 
 In establishing a premium which shall be charged 
 for a policy of insurance, an interest rate also must 
 
LECTURES ON LIFE INSURANCE 81 
 
 be assumed. There are many policies in force in this 
 country at this time which were issued more than fifty 
 years ago, and there certainly will be a far greater 
 number issued at this time which will still be in force 
 more than fifty years hence. Not only the mortality 
 which is safe, but the rate of interest which can be 
 secured on trust funds in the distant future must be 
 fixed on a basis which will leave no room for doubt on 
 the part of the company undertaking a contract of this 
 kind. These elements and no other enter into the cal- 
 culation of the net premium. To this net premium 
 must be added the margin to provide for expenses and 
 contingencies. It must not be lost sight of that the 
 business is burdened with heavy taxes ; that the cost 
 of maintaining a skillful and efficient home office is 
 of necessity considerable ; that an agency force must 
 be paid reasonable compensation for its services. The 
 safe premium which is charged today has thus far 
 proved larger than is necessary ; it is likely that it will 
 be so for many years to come. The Equitable Life 
 Assurance Society of London, whose hisitory will be 
 referred to later, has established a scale of rates higher 
 than that of any American company. Surplus accu- 
 mulations can be allotted to policyholders, but if the 
 premium should ever prove too small, either from an 
 increase of mortality, a decrease of interest, or ad- 
 ditional burdens of taxation or other expenses not to 
 be foreseen, there is no escape from bankruptcy, and 
 the failure of a life insurance company entails far 
 more suffering than that of any other financial insti- 
 tution. 
 
 USE OF INCOME 
 
 It will, I believe, be particularly interesting if we 
 analyze somewhat the sources of income, and inquire 
 what has become of the receipts. For this purpose 
 I have taken the companies doing business in Massa- 
 chusetts in the year 1904, with the exception of those 
 institutions devoted largely to what is known as the 
 "Industrial" business. 
 
 The expenses of life insurance companies may 
 be separated into two divisions those which are in- 
 
82 LECTURES ON LIFE INSURANCE 
 
 curred in the conduct of the home office, and those 
 which are used to maintain the agency force. Although 
 it is not possible to accurately apportion the cost of 
 caring for outstanding business as distinguished from 
 procuring new members, yet it will be in the interest 
 of fairness and will tend to a fuller comprehension of 
 the facts, if we divide the expenses in this way so far 
 as is practicable, and consider the work done in each 
 department, home office and agency. While the oper- 
 ations of a single year do not serve to show the labor 
 expended in building up this business, yet for present 
 purposes it is sufficiently suggestive to throw much 
 light upon the questions which are agitating the public. 
 At the close of the year 1904, the assets of the 
 companies operating in Massachusetts amounted to 
 more than $2,000,000,000, invested chiefly in loans ou 
 real estate, stocks and bonds, and loans on policies and 
 other collateral. The interest received upon the assets 
 during the year amounted to about $90,000,000. These 
 securities must be examined carefully, recorded accu- 
 rately and kept safely ; they must be invested not only 
 with intelligence and honesty, but also at a rate which 
 will yield at least as much as the requirements of the 
 business call for. The care of this property involves 
 the payment of salaries, of rents, of stationery, and of 
 clerical labor of a high character. There was received 
 by these companies in that year about $350,000,000 of 
 premiums. This came in large and small amounts, 
 each of which had -to be credited to its proper account 
 and kept, like all the other accounts of these companies, 
 in such shape as to answer not only general business 
 requirements, but the demands of state officials and of 
 the public. 
 
 LABOR ENTAILED 
 
 There was paid out during the year more than 
 $100,000,000 for death claims and nearly as much 
 more for matured endowments, dividends and sur- 
 rendered policies. This involved many millions of 
 calculations, almost innumerable entries in books, and 
 a careful examination of releases and receipts, which 
 involved a high class of intelligence in employees 
 conducting the work. 
 
LECTURES ON LIFE INSURANCE 83 
 
 More than 700,000 new policies were issued, and 
 the applications not only for these but for many who 
 were declined were examined critically, and passed 
 upon by persons skilled in these duties. At the close 
 of the year there were outstanding nearly 4,000,000 
 policies, each one of which had had its part in the 
 year's work, for it had to be recorded, and had entered 
 into all the calculations of reserves, and all the inves- 
 tigations which are so important not alone to the 
 companies themselves, but to the public. 
 
 It is difficult to comprehend the amount of labor 
 and detail involved in properly and intelligently caring 
 for a business of this magnitude. 
 
 The expenses of the home office are represented 
 by expenditures for salaries of some $7,000,000, and 
 other office expenses of about $10,000,000, this latter 
 item covering rent, books, stationery, printing, adver- 
 tising, postage, and all the necessary equipment not 
 only for attending to the old business, but also for 
 furnishing material for agency work. If this total 
 outlay could be apportioned to the different items, the 
 impression which it makes upon the public mind 
 would be very much modified. 
 
 I am not criticising or defending individual sal- 
 aries which may be and no doubt are like those in 
 every line of business or even educational work in 
 some instances too large and in some too small, but I 
 believe that justice demands that the labors performed 
 and the responsibilities carried shall be considered and 
 understood before the whole system and all of its rep- 
 resentatives are condemned as extravagant and waste- 
 ful. 
 
 Medical examinations consumed $5,000,000. In 
 considering the cost of the business it is not reason- 
 able to include this outlay. It is made once for all ; 
 it is a necessary incident of the business ; it protects 
 present policyholders; it serves to produce savings 
 in mortality, and above all it works equity between the 
 individual members. 
 
 The taxes for the year amounted to more than 
 $7,000,000, a heavy burden, far heavier than is put 
 upon any similar institution, greater than can be jus- 
 
84 LECTURES ON LIFE INSURANCE 
 
 tified when the nature of the business is taken into con- 
 sideration. These companies are not responsible for 
 this portion of the expense which falls upon the policy- 
 holders. 
 
 TO AGENTS 
 
 We come now to the sum paid out for commis- 
 sions to agents and for agency expenses, which 
 amounts to something more than $50,000,000. Much 
 of this was undoubtedly demanded by policyholders 
 and received by them, and whatever this portion may 
 be, it never benefited the agent or the company. But 
 aside from this consideration, we find that there were 
 issued during the year more than 700,000 new policies, 
 and not only was an application received at the office 
 for each one, but many were obtained after faithful 
 labor only to be declined, and many others were 
 solicited which were never secured. The new premi- 
 ums were about $70,000,000 and the renewal premi- 
 ums some $280,000,000. Many of these latter were 
 collected only after much labor and persuasion, and 
 in every case a service was performed for the policy- 
 holder. While the sum total paid to agents for all 
 duties is large, it is fair to consider that it was paid 
 to many thousand individuals who were benefiting the 
 world by their labors, and without whose efforts the 
 risk of the loss of future earnings would be prac- 
 tically unprotected. 
 
 I am not advocating exorbitant commissions and 
 ruinous expenses. I am not justifying the methods 
 employed by any company whose officers are inspired 
 alone by personal ambitions or by desire for the power 
 which magnitude brings with it, regardless of the 
 rights of helpless policyholders. But I do demand 
 that the man who loosely condemns the whole system 
 shall examine the facts in all their details, shall con- 
 sider what life insurance means to the individual and 
 to the state, and shall clearly understand what experi- 
 ence has shown to be the only method of carrying its 
 protection to those who need it, before he puts in 
 print false ideas which will inevitably deter many 
 from securing this shelter for dependents until it is 
 too late. 
 
LECTURES ON LIFE INSURANCE 85 
 
 Are agents necessary in order that the business 
 shall perform its best service ? Experience will answer 
 this question. 
 
 Among the various corporations organized for the 
 purpose of insuring human lives, one of the most in- 
 teresting is the Equitable Life Assurance Society of 
 London, which was founded in 1762, and which has, 
 therefore, been in the business continuously for 143 
 years. Its first rates were based on the bills of mor- 
 tality of the City of London, during a period which 
 included the year 1740, when the death rate was 
 almost equal to that of a plague, and were in conse- 
 quence unnecessarily high. 
 
 HAS NO AGENTS 
 
 In 1769 the Northampton Table was published, 
 and the rates of the Equitable were materially reduced 
 in 1777. Subsequently they were still further dimin- 
 ished because the experience of the company showed 
 a less death rate than was provided for in the tables 
 from which the premiums were derived. 
 
 Throughout the history of this remarkable com- 
 pany, it has been managed with an unusual degree of 
 intelligence and economy. Its lives have been well 
 selected, its funds have been judiciously invested, and 
 its results to its policyholders have not probably been 
 equaled by any other similar institution. Its ratio of 
 expense is much less than that of any American com- 
 pany. In short, it is a model of stability, and it has 
 justly retained the confidence of the English people. 
 At no time in its history has there been any doubt cast 
 upon its financial strength. 
 
 Its prospectus contains the following statement: 
 "The Society deals directly with the public without 
 the intervention of the unnecessary middleman. It 
 has no agents and pays no commissions, by which 
 alone members have benefited to the extent of at least 
 two million pounds. All that an applicant has to do 
 is to write to the actuary for a prospectus, which con- 
 tains full instructions how to proceed." 
 
 In the year 1819 there were in force 9,650 policies, 
 
86 LECTURES ON LIFE INSURANCB 
 
 insuring some $80,000,000. In 1829 there were 8,750 
 policies in force, insuring something less than 
 $75,000,000. In 1839 there were 7,450 policies in 
 force, insuring about $50,000,000.- In 1849, 6,000 
 policies, insuring some $40,000,000, in 1859 there were 
 4,650 policies insuring $30,000,000, in 1869 there were 
 3,800 policies insuring $25,000,000 and for twenty 
 years the figures remained nearly stationary. In the 
 thirty years from 1870 to 1900, the Society issued 
 6,152 new policies, an average of about 200 a year. 
 This company has done a service to its members. 
 
 NEEDS OF AGENTS 
 
 If life insurance is a good thing for the family 
 and for the state, it may be asked why the benefits of 
 this model society have not been more widely spread 
 abroad. The answer is plain. The taking of a life 
 insurance policy is a particularly unselfish act. The 
 spending of money which will not be returned during 
 the lifetime of him who spends it is not an act which 
 appeals to the taste of the average man, and he is 
 always ready to postpone, if not altogether forego, 
 this particular kind of a luxury. It requires the expla- 
 nation of the agent as to the nature of the business, 
 what his own company has performed and can accom- 
 plish, and all the arguments which he can use in over- 
 coming human selfishness. The business is of such 
 a peculiar nature that it never has been and never will 
 be built up to any considerable extent except by the 
 aid of the agent who must visit and labor with the 
 public. He is a necessary element of the business, and 
 it cannot perform its beneficent work without him 
 any more than the home office can get along without 
 those who shall manage and direct its affairs. 
 
 No more convincing proof of the soundness of 
 this statement need be made than that furnished by 
 the experience of the Equitable. In the 99 years end- 
 ing December 31, 1899, the Society received in pre- 
 miums about $130,000,000. During the same time it 
 paid out in claims and surrender values about $228,- 
 000,000. In other words, it paid to its policyholders 
 
LECTURES ON LIFE INSURANCE 87 
 
 and their beneficiaries $176 for every $100 it had 
 received in premiums, and in addition to that had more 
 than $23,000,000 left over. If this sum be added to 
 the payments, it appears that for every $100 of premi- 
 ums received, the Society accounted to its policy- 
 holders for $190. 
 
 Each one of several English companies in each 
 year through an agency force issues more policies than 
 the Equitable has issued in twenty years. An Ameri- 
 can company which established an agency in Great 
 Britain not many years ago, through an agency force 
 issued more policies in that country in the year 1903 
 than the Equitable had issued in thirty years and this 
 notwithstanding the record the Equitable had made 
 for returns to its policyholders, and the further fact 
 that it advertises to issue nearly all the varieties of 
 policies in use by our companies, and some which are 
 peculiar to Great Britain. 
 
 RESULT OF THIS TRIAL 
 
 Although only certain companies and individuals 
 are now under investigation I think we need not dis- 
 guise from ourselves that Life Insurance is on trial 
 before the bar of public opinion. The result of this 
 trial will be of incalculable importance not only to our- 
 selves and to the companies which we represent, but 
 also to the cause of humanity. The occasion has 
 arisen which cannot be obscured or deferred, when 
 we must demonstrate both the reasons for the exist- 
 ence of the institution and the necessity for its con- 
 tinuance and growth. 
 
 It will not avail to show what has been accom- 
 plished and to make general claims that whatever has 
 been done has been the result of circumstances over 
 which we have had no control. It will not be suf- 
 ficient to urge that methods adopted by others have 
 compelled us to follow in practices which are in them- 
 selves demoralizing and wrong. We have not been 
 drafted, we have voluntarily enlisted in a sacred cause, 
 in a business which had its origin and attains its 
 growth in p appeals to the best qualities of human 
 
88 LECTURES ON LIFE INSURANCE 
 
 nature. We cannot hold up to a man the picture of 
 his helpless widow and orphans, and offer to care for 
 them at the lowest cost consistent with safety, and at 
 the same time betray him by using his contributions in 
 ways not strictly within the spirit of the contract. 
 
 We have reached a crisis in our business and its 
 future will depend largely upon the verdict rendered 
 by the public when the evidence shall be fairly before 
 them. 
 
 THE RIGHT COURSE 
 
 We have it in our power to do a service to the 
 cause for which future generations will have reason 
 to hold us in grateful remembrance. While we can 
 and do claim that the world is better for the institu- 
 tion of life insurance, that it has been worth all the 
 cost and labor which have attended its growth and far 
 more, let us also acknowledge our mistakes. Let us 
 admit that we have learned lessons of experience, bit- 
 ter sometimes but salutary always, that we do not 
 differ from right-minded, earnest and broad men who 
 are as eager to commend the good as they are to con- 
 demn the evil. Let us encourage the idea of protec- 
 tion against the loss of future earnings, and discourage 
 the desire of speculation and profitable investment. 
 Realizing that the field for legitimate life insurance is 
 practically limitless, let us take care that we do not 
 infringe upon the rights of our fellow workers, and 
 sacrifice our reputation and our proper rewards by 
 accepting less than what we claim is a fair premium, 
 thus apparently admitting that our contracts are not 
 based on equity and justice. 
 
 And let me say here, that while we shall the more 
 quickly secure the confidence of the people if we 
 frankly acknowledge our faults and mistakes, we 
 have a right to demand that a verdict shall not be ren- 
 dered on one sided and insufficient testimony. And 
 above all let us never forget that the public will not 
 respect us and our calling unless we respect ourselves 
 and each other. 
 
 If you have not confidence in your company, you 
 cannot expect to inspire confidence in others, and you 
 
LECTURES ON LIFE INSURANCE 89 
 
 cannot cast discredit upon your competitor without 
 simply postponing the time when the people will 
 believe that the business is conducted with as great a 
 regard for duty as they are asked to have when they 
 are urged to confide their savings to our keeping. 
 
 You have done me the honor to ask me to address 
 you on this occasion, and you have, therefore, given 
 me the opportunity of expressing some opinions which 
 I have formed after a long experience in the business 
 and much thought as to its present condition and 
 future prospeots. 
 
 OPINIONS BASED ON EXPERIENCE 
 
 I believe that life insurance is a good thing for 
 the individual and for the state. I believe that legiti- 
 mate life insurance is not only not overdone, but 
 that it would be for the best good of the public if a 
 vastly greater amount should be carried than is now 
 in force. The census of 1900 shows that there were 
 385,610 persons in Connecticut engaged in all occupa- 
 tions. Of this number 186,675, or somewhat less than 
 one-half, were engaged in manufacturing, and the 
 amount paid by these establishments in wages and 
 salaries during that year was $95,053,775. The grand 
 list of Connecticut in the year 1900 amounted to 
 $694,000,000. The present value of the future surplus 
 earnings of those engaged in manufacturing alone 
 was undoubtedly greater than the grand list. The 
 report of the insurance commissioner of Connecticut 
 for the year 1900 shows that there were at the close 
 of that year life insurance policies outstanding on 
 the lives of citizens of the state representing $149,970,- 
 752 of insurance. The crop is small compared with 
 the size of the field and the richness of the soil. 
 
 I believe that the benefits of life insurance can- 
 not be generally spread over the country excepting 
 through the efforts of agents. I believe that the 
 policyholder should be given to understand with the 
 utmost frankness that he cannot get his insurance for 
 the actual mortality cost, any more than he can buy 
 his barrel of flour for the cost of the wheat which goes 
 
 i UN 
 
 UNIVERSITY I 
 
90 LECTURES ON LIFE INSURANCE 
 
 into it, or his fire insurance for his share of the actual 
 losses. I believe that the home office employee, 
 whether he be an officer or a clerk, is entitled to rea- 
 sonable compensation for his service, and no more. 
 I believe that the general agent and the solicitor should 
 be fairly paid. 1 believe that there are faults in the 
 business which should be corrected, and that there 
 is a better prospect of reformation now than there 
 ever was before. 
 
 I do not believe that any ratio of expense to 
 income necessarily proves economy, efficiency, useful- 
 ness or the opposite. I do not believe that laws can 
 transform dishonest men into honest ones. I do not 
 believe that the acts of a legislature can produce con- 
 fidence where it is not deserved. 
 
 I believe that public opinion is stronger than 
 statutes, and that that can be secured and retained 
 only by fair and honest practices and absolute frank- 
 ness in all things. And I believe above all that we have 
 it in our power at this time, by fair dealing toward 
 each other and the public, to win the confidence of 
 thoughtful people, to the end that our business shall 
 be better and greater than it ever has been. 
 
LIFE INSURANCE AND BANKING 
 
 (Delivered before the Bankers' Association at Lenox, Mass.) 
 
 ^HE 
 
 business of the world is conducted on credit. 
 A railroad company borrows money of its stock- 
 holders, bondholders and often of others. A manu- 
 facturing corporation obtains the means with which 
 to carry on its business from similar sources. A bank 
 organizes by borrowing money from its stockholders, 
 and conducts its operations by borrowing from its de- 
 positors. A merchant invests his own -capital, and 
 then borrows on the strength of his resources to en- 
 large his business and increase his profits. Every 
 corporation and individual in active affairs is either a 
 borrower or a lender, and frequently both. 
 
 But money is not loaned without security, nor is 
 it borrowed without some guarantee beside the mere 
 promise to pay. Property which is pledged to secure 
 payment is of various kinds land, buildings, mer- 
 chandise and evidences of other indebtedness, such as 
 bonds and certificates of stock. Collateral security 
 is defined to be "Any property or right of action, as 
 a bill of sale or stock certificate, which is given to 
 secure the performance of a contract or the discharge 
 of an obligation, and as additional to the obligation 
 of that contract." No loan is ever made without se- 
 curity, for it would then be a gift, and in a broad way, 
 all loans are made upon collateral security. 
 
 The banker has to do chiefly with the loaning of 
 money upon notes, which obligations rest upon the 
 resources of the borrower merchandise, amount due 
 from creditors, lands and buildings, and upon his per- 
 sonal qualities. These loans are generally made for a 
 comparatively short time. A loan upon real estate 
 is often made for a term of years, but commercial 
 paper is made for but a few months. 
 
 It wall be interesting to inquire why a savings 
 bank will make a loan for a term of years on a piece 
 
92 LECTURES ON LIFE INSURANCE 
 
 of real estate, and why the same institution will not 
 make a similar loan upon the security which is offered 
 by the note of a merchant or manufacturer. The 
 margin may be quite as great and quite as real in the 
 one case as in the other. 
 
 Lenders desire, no matter what the security may 
 be, that a borrower should be of good character. 
 This is true whether they deal with a corporation, firm 
 or an individual. A railroad which is controlled and 
 managed by reputable men can dispose of its bonds 
 to better advantage than one the reputation of whose 
 officers and directors is tainted. The name of an 
 old and honorable firm has a distinct value in the 
 money market. The man who has for many years 
 enjoyed an unvarying record of promptly meeting his 
 liabilities secures accommodation on the most favor- 
 able terms. 
 
 VALUE OF A HUMAN LIFE 
 
 The chief distinction, however, between the fifty- 
 year bond of a railroad and the four-months' note of 
 a merchant lies in the value of individual human life. 
 
 There is no value in either except that which is 
 based on human necessities and activities, but the bond 
 is expected to be cared for by the continuance and 
 increase of the general population, while the note 
 is expected to be paid out of the profits often of a 
 single life. A dying man does not borrow that which 
 is to be paid after his death if the money is to be 
 used in active business. No matter how great the se- 
 curity is and how certain the ultimate payment may 
 be, the purchaser of commercial paper relies in nearly 
 every case upon the continuance of the life q* the 
 maker of the note for its payment when due. The 
 banker arranges his maturities on this assumption, 
 and his business is adjusted with this in view. 
 
 The value of an individual human life is, there- 
 fore, an element as clearly defined in the transaction 
 of a bank of discount as the value of real estate in 
 the investments of a savings bank. If a merchant, 
 by his skill, intelligence and experience can make a 
 profit over and above his business and family expenses 
 
LECTURES ON LIFE INSURANCE 93 
 
 of $10,000 a year, then whatever worth there is in 
 his stock of goods and other resources is increased 
 by the value of his own services if he lives. This is 
 the best asset which the creditors of an honest man 
 have. His stock may burn and his bills may not 
 be paid, but his talents will still go along with his 
 name if he lives. 
 
 THE SECURITY DESIRED 
 
 The applicant for a loan makes a statement. If 
 he owns real estate, its value or the equity in it if it 
 is mortgaged is considered, his stock and the appli- 
 ances for carrying on his affairs are estimated, and 
 he is required to protect these by fire insurance. But 
 beyond all this, his skill as a buyer and seller, his 
 knowledge of credit and his prudence and integrity 
 are of no less weight in determining the amount which 
 he can borrow and the terms he can secure. 
 
 The banker must keep his money invested, for 
 it is by his interest account that he makes his profit. 
 He welcomes the borrower who confers a benefit while 
 he secures a favor if he lives. The borrowed money 
 is not deposited in a bank at a greater rate of interest 
 than is paid for it. It is used to buy goods which are 
 to be sold at a profit to those who in turn require 
 credit. This gain will depend upon shrewdness in 
 buying, popularity in selling, and judgment in trust- 
 ing. Experience has taught the banker whom he can 
 trust if he lives. , ' 
 
 The putting together of all the different ele- 
 ments which go to make up the value of a note be- 
 comes a matter of instinct to him who has long ob- 
 served the successes and failures of those engaged in 
 making, and buying and selling the necessities and 
 luxuries of life. By indications which escape the 
 ordinary man, the banker learns who will pay his note 
 if he lives. But if, when the obligation falls due, 
 the signer is not here to meet it, who will pay? The 
 stock of goods and the book accounts may in time be 
 sufficient to liquidate all indebtedness, but the most 
 important asset, the skill, the ability, the attractive 
 
94 LECTURES ON LIFE INSURANCE 
 
 qualities which have been relied upon to make good 
 the liability when due, is gone. And thus it comes 
 about that the two great interests of banking and life 
 insurance are closely, connected and have mutual 
 interests. 
 
 GOT HIS CREDIT 
 
 At a meeting of the directors of a bank not long 
 ago, the president presented the statement of a mer- 
 chant who desired a line of credit. He offered a large 
 amount of valuable real estate, subject, however, to a 
 mortgage. He had a stock of modern goods and 
 many excellent book accounts. He showed a con- 
 siderable margin of resources over liabilities, and yet 
 the statement was not on the whole one which would 
 find favor with a bank where his personal abilities 
 were not known. Each member of the board knew 
 him, and respected his character and his skill. It 
 was shown that he had cleared a handsome profit 
 each year for a long time. There was but one ele- 
 ment of weakness in the proposition, but when the 
 president stated that he had $100,000 of life insur- 
 ance payable to his estate, that element of weakness 
 vanished, and he was cheerfully given the credit 
 he desired. This is by no means an unusual case, for 
 the question of personal ability and integrity must 
 more and more enter into the matter of credit, and 
 there is only one way of finding protection against 
 the loss which would be occasioned by the termina- 
 tion of a valuable life. 
 
 SECURITY BACK OF POLICY 
 
 In making our deposits we naturally and properly 
 scan the statement of the bank in which we are plan- 
 ning to place our money without security, except that 
 afforded by its financial strength. In accepting life 
 insurance as part security for loans, it is now and 
 will become still more important for the lender to be 
 able to form an intelligent opinion as to the security 
 which lies back of that policy of life insurance which 
 will form an important part of his protection, and it 
 will therefore scarcely be inopportune to discuss some- 
 what briefly the question of surplus in life insurance. 
 
LECTURES ON LIFE INSURANCE 95 
 
 The Century Dictionary defines surplus as the 
 "excess beyond what is prescribed or wanted." In 
 financial institutions it is the excess of assets at their 
 real values over obligations. A bank has a surplus 
 if its property exceeds what it owes to its depositors 
 and others, and the amount of its capital stock. A 
 savings bank like those in the Eastern States which 
 have no stock has a surplus if its assets are greater 
 than its deposits and any other debts which it may 
 have. The surplus of an institution like these is 
 easily determined, but the liabilities of an insurance 
 company cannot be stated with perfect accuracy. A 
 fire insurance company has certain policies outstand- 
 ing, and the risk of loss must be borne so long as they 
 remain in force. The only way to estimate what it 
 will cost the company to carry them for the few years 
 during which they will run is to judge from experi- 
 ence what the losses will probably be. This amount, 
 called the "Reserve," is generally the chief item in 
 the list of liabilities. 
 
 "RESERVE" 
 
 That liability of a life insurance company which 
 is called the "Reserve" is that amount held at any 
 time, which, if improved at a given rate of interest and 
 added to the premiums to be received, will be sufficient 
 to meet policy obligations as they mature. The length 
 of an individual life is uncertain, but in a considerable 
 number the law of mortality is well known, if the lives 
 belong to a certain class.. A mortality table and a 
 rate of interest having been assumed, the present value 
 of the outstanding policies is easy to determine. It 
 is also a simple matter to calculate the premiums which 
 will be received on these policies prior to their ma- 
 turity, and the difference between the two is the re- 
 serve. 
 
 In other words, the reserve under any policy is 
 the difference between the present value of the sum 
 insured, and the present value of the future payments 
 which are to be made to secure that sum. If all the 
 payments contemplated have beein made, then the 
 liability is simply the present value of the sum insured ; 
 
96 LECTURES ON LIFE INSURANCE 
 
 if there are still payments to be made, the reserve is 
 the difference between the two amounts. The mortal- 
 ity table in most common use is called the American 
 Experience Table, and was constructed from an ex- 
 perience in this country. It does not differ materially 
 from itables which have been made from record's 
 in other countries, and in a well selected and pro- 
 gressive business the actual death rate will most cer- 
 tainly fall below that indicated by this mortality table. 
 
 THE DISTANT FUTURE 
 
 The assumed rate of interest was for many years 
 four per cent., but as the country grew older and the 
 supply of money seeking safe investment increased, 
 the rate which could be obtained on securities suit- 
 able for trust funds gradually decreased. Life insur- 
 ance has to do with the distant future, and a policy 
 once issued can never be recalled, and changed, and 
 it may continue for the greater part of a century. 
 Every possibility must be provided for at the outset, 
 and the assumed rate of interest has therefore been 
 reduced to three and one-half per cent, and three per 
 cent. 
 
 While the same theoretical standards are applied 
 to companies whose methods and experiences differ 
 widely, yet they are sufficiently safe to serve as a 
 test of solvency in the case of any company managed 
 with a fair degree of intelligence and care. Should it 
 appear that the death rate in any life insurance com- 
 pany runs persistently above the table, then one vital 
 element of its calculations is unsound. On the other 
 hand, if the raite of interest received should prove to 
 be less than that assumed, that element of the liabilities 
 would be deceptive and a dangerous condition would 
 exist. 
 
 All these calculations are based upon the receipt 
 of certain arbitrary net premiums, while in practice 
 the actual premiums charged in the policies are con- 
 siderably larger, a loading being added to provide for 
 expenses, taxes and contingencies. If these necessary 
 outgoes prove to be less than this loading, and if 
 
LECTURES ON LIFE INSURANCE 97 
 
 the net rate of interest received is greater than that 
 assumed, a surplus arises from time to time which 
 in mutual life insurance is distributed to members. 
 
 FINANCIAL STRENGTH 
 
 The question of financial strength is one of far 
 greater importance in case of a life insurance com- 
 pany than in any other financial institution, because 
 in case of failure, there will certainly be many instances 
 where the holders of policies by reason of impaired 
 health would be unable to procure insurance at any 
 cost. In deciding, therefore, as to the ability of a life 
 insurance company to carry out its contracts for the 
 time being and in the distant fuure, it will be necessary 
 not only to examine the assets and liabilities with a 
 view to determining whether they are conservatively 
 stated, but also so far as possible to ascertain the 
 mortality and the rate of interest. In a company of 
 considerable size and age, if there is sufficient property 
 conservatively valued and productive, to meet the 
 liabilities fully and safely calculated, the institution 
 will be sound, although as a matter of reputation and 
 to provide for possible temporary fluctuations, it will 
 be clearly desirable to have a margin. In a mutual 
 life insurance company, however, the policyholders 
 are entitled to surplus accumulations apportioned at 
 proper intervals to as great an extent as absolute safety 
 will permit. 
 
 While the disclosures of the past year (1905) have 
 wrought havoc with reputations and have brought 
 certain discredit upon individual institutions, the real 
 strength of life insurance has been brought out as it 
 scarcely could have been in any other way. The re- 
 sult of all this will probably be that the entire busi- 
 ness will go through a very marked and radical 
 change, and the feature of protection, for which the 
 business exists, will be far more prominent in the 
 future than it has been in the past. To the thought- 
 ful person life insurance has not suffered damage, but 
 rather there has been an education. What the institu- 
 tion has done, and what it can do for the individual 
 
98 LECTURES ON LIFE INSURANCE 
 
 and for the state is now much clearer in the minds 
 of the general public than ever before. The demand 
 for legitimate life insurance will not decrease, but 
 rather increase. Its importance and even necessity in 
 family and business affairs will be far better under- 
 stood in consequence of the attention which has been 
 given to it. The people will still take life insurance, 
 but they will demand that those companies to which 
 are committed this most important and sacred of all 
 trusts be conducted on sound principles, and with 
 honesty and economy. 
 
FINANCIAL SIDE OF LIFE INSURANCE 
 
 (Delivered before General Managers' Association) 
 
 I HE individual may invest his surplus funds in 
 
 whatever way may suit his needs or appeal to his 
 judgment. With him there is a wide range, from the 
 bond or stock which, by reason of its superior safety, 
 yields but a small return, to the property which prom- 
 ises a large increase in its market value. In either 
 case the revenue is his and he will enjoy the profit 
 or suffer the loss. 
 
 In a very different position are those who have 
 had placed in their charge property belonging to 
 others. Here unusual risks of the loss of capital 
 should be avoided and safety should be considered of 
 much more importance than large returns or the hope 
 of an increase in the principal. Among those whose 
 duty it is to preserve intact the sums which they are 
 called upon to invest are the officers of banks and 
 insurance companies. 
 
 Corporations engaged in banking for the purpose 
 of making profits for their stockholders receive the 
 money of their depositors, frequently allowing inter- 
 est for its use, under an agreement to return it when- 
 ever called for. This money must be invested at a 
 rate sufficient to pay interest to depositors if any be 
 allowed, meet expenses and losses, and in addition pro- 
 vide a profit to those who have furnished the capital 
 for the safe transaction of the business. 
 
 Savings banks without capital are mutual insti- 
 tutions conducted for the benefit of their depositors 
 who are led to expect such a rate of interest as is com- 
 patible with entire safety. In all these cases depositors 
 can call for their money at any time and preparations 
 must be made for satisfying these demands, although 
 experience has shown that apart from a panic induced 
 by fear of loss, no great sums will be required at any 
 one time. 
 
100 LECTURES ON LIFE INSURANCE 
 
 In all these institutions the risk of loss of the 
 principal sum should be guarded against with the 
 greatest care and foresight, but the rate of interest 
 which must be received is not essential to the carry- 
 ing out of their agreements. The interest allowed to 
 depositors may be reduced at any time when the rate 
 obtainable on safe securities falls. 
 
 Insurance companies receive their premiums in 
 advance and must lay aside sufficient amounts to meet 
 the obligations they assume whenever they mature. 
 The contracts undertaken by these corporations, other 
 than those engaged in life insurance, ordinarily run 
 but a limited time, and the premiums are calculated 
 to cover this hazard. The sums necessary to meet 
 the expected claims are required only for these short 
 periods and the interest question is, therefore, not 
 an essential element. In a large business the interest 
 earnings form an important item in the profits of the 
 operations, but they do not enter into the calculation 
 of the premiums or reserves, and hence there is no 
 restriction in this direction in the matter of invest- 
 ments. But while the claims incurred can be fore- 
 told with much accuracy ordinarily, there is always 
 a possibility that more than the anticipated amounts 
 will be required by some unexpected and widespread 
 disaster. These companies, therefore, usually invest 
 a large proportion of their resources in securities which 
 can be readily converted into cash. 
 
 A life insurance company differs in several very 
 important particulars from these institutions both as 
 to the calculation of its premiums and the investment 
 of the amounts held for the final payment of its policy 
 contracts. At the inception of such a contract the 
 premium which is to be received at stated intervals 
 perhaps for many years is stipulated, and in no way 
 can it be increased. It is of vital importance, there- 
 fore, that the basis of this calculation should be sound 
 beyond question. The rate of interest assumed must 
 consequently be somewhat less than will be realized in 
 practice. A part of the premium receipts must be set 
 aside at a rate which will surely be obtained for many 
 years, during which the conditions affecting the earn- 
 
LECTURES ON LIFE INSURANCB 101 
 
 ing power of money may undergo marked changes. 
 The calculation of premiums and reserves makes no 
 provision for losses on investments, or for any interval 
 between the payment of any sum falling due and its 
 reinvestment. The actual rate at which investments 
 are made must, therefore, be somewhat higher than 
 the assumed rate to make good the practical require- 
 ments without providing for any surplus for returns 
 to policyholders from this source. 
 
 As many of the contracts undertaken by life in- 
 surance companies provide for payment at stated times, 
 and as many contain agreements to pay cash values 
 upon surrender, liberal provision should be made to 
 meet any demands which may arise from any cause, and 
 an abundant quantity of convertible securities should be 
 held, although the necessity of providing for large calls 
 for cash is not so great as in the case of a bank. 
 
 While the system of surrender values would seem 
 to require liberal provision for obtaining cash, yet the 
 increase in instalment contracts and annuities will 
 serve to modify the possibility of very large demands 
 at unexpected times. But the character of a life insur- 
 ance company is such that not only probabilities but 
 also even remote possibilities must be taken into con- 
 sideration. The failure of a bank may entail embar- 
 rassment and even suffering, but for a life insurance 
 company to be unable to meet its obligations is a 
 disaster of a vastly more serious character. Distress- 
 ing as it frequently is to be deprived of money laid 
 aside for a time of need, the loss of a life policy upon 
 which dependents have relied, when it can no longer 
 be replaced, is a far greater calamity. 
 
 While the lives which are admitted to member- 
 ship are sound at the outset, and many of them con- 
 tinue so for long periods, some of them become im- 
 paired by sickness or disease and will not be taken by 
 any life insurance company on any terms. The fail- 
 ure of such a company will, therefore, inflict a damage 
 not only to the extent of the actual loss of reserves, 
 but in many cases a far greater one. It is clear, there- 
 fore, that the accumulations of a life insurance com- 
 pany are of the most sacred character and that they 
 
102 LECTURES ON LIFE INSURANCE 
 
 should be guarded against loss with the utmost care 
 and skill. 
 
 In investing these moneys, therefore, two points 
 must be borne in mind: First, that no possible risk 
 which can be avoided should be incurred, and second, 
 that the rate of interest which will be secured will 
 certainly be somewhat larger than that assumed in cal- 
 culating the liabilities. In view of the character of 
 these obligations, it is proper and safe to invest a 
 somewhat larger proportion of the total accumulations 
 in these securities which, while good in themselves, 
 bear a higher rate of interest but are not as easily con- 
 verted into cash as other properties like well-known 
 stocks and bonds. 
 
 The investor of life insurance funds must, there- 
 fore, have constantly before him two definite neces- 
 sities safety and the rate of interest. He must not 
 sacrifice safety for a high rate of interest, nor can he 
 confine himself to those securities which by reason of 
 their availability are sought for by a different class of 
 investors and therefore sell at prices which produce but 
 a small return. He must not only have a thorough 
 knowledge of the laws and history of financial affairs, 
 but he must also understand the nature of the liabil- 
 ities which are undertaken in policy contracts in gen- 
 eral, and those of the particular institution whose funds 
 he is handling. 
 
 In view of the sacred character of the funds 
 held by life insurance companies, the state of Con- 
 necticut has properly passed laws restricting these 
 investments in certain ways and imposing certain 
 duties upon those having control of them. The laws 
 of this state affecting these matters are as follows : 
 
 Sec. 3562. Investments by life insurance com- 
 panies. No loan or investment shall be made by a 
 life insurance company of this state without the unani- 
 mous approval of its finance or executive committee, 
 or the approval of a majority of the directors of such 
 company present at a meeting of such directors, and 
 the name of every director approving or disapproving 
 any loan or investment so made shall be entered by the 
 secretary on the records of the company. 
 
LECTURES ON LIFE INSURANCE 103 
 
 Sec. 3563. Officers to receive no compensation 
 for negotiating loan. No director or officer of a life 
 insurance company shall receive any money or valu- 
 able thing for negotiating, procuring, or recommending 
 any loan from such company, or for selling or aiding in 
 the sale of any stocks or securities to or by such com- 
 pany. 
 
 Sec. 3564. Loans of life insurance companies 
 regulated. No loan shall be made of the capital, assets, 
 or income, or any portion thereof, of any life insurance 
 company incorporated by or organized under the laws 
 of this state, unless such loan shall be secured by mort- 
 gage of unencumbered real estate worth at least double 
 the amount loaned thereon ; or by pledge of bonds or 
 stocks as collateral having a market value at least ten 
 per centum in excess of the amount loaned thereon ; 
 or by pledge of United States government bonds or 
 bonds of the state of Connecticut the market value 
 of which shall be equal to the loan; and any such 
 company may make loans on pledge of policies issued 
 by it to an amount not exceeding the net reserve which 
 it maintains upon the policy or policies pledged to 
 secure each such loan. 
 
 Sec. 3565. Loans and Investments regulated. 
 No portion of the capital, assets, or income, of any 
 life insurance company of this state shall be used in 
 the purchase of the stocks or bonds of any mining or 
 manufacturing company in any event, nor in the 
 purchase of the stocks or bonds of any other private 
 corporation, upon which last-mentioned stocks a regu- 
 lar dividend shall have been passed, or upon which 
 last-mentioned bonds a regular interest payment shall 
 have been defaulted at any time within three years 
 prior to such investment ; and no loan shall be made by 
 any such company upon the security of the stock of 
 any mining company. No loan shall be made by any 
 such company upon the security of the stock of any 
 manufacturing company whereof the market value is 
 less than the par value unless the same shall be accom- 
 panied by the individual guaranty of some responsible 
 party, or by other collateral security of equal value to 
 the amount of the sum loaned ; and in no case shall 
 
104 LECTURES ON LIFE INSURANCE 
 
 the amount loaned exceed fifty per cent, of the market 
 value of said stock. 
 
 Sec. 3566. Premium Notes. This chapter shall 
 not prevent any company from taking premium notes, 
 or giving credit for part of its premiums, in accord- 
 ance with its usual course of business. 
 
 Sec. 3567. Penalty for authorizing illegal invest- 
 ments. Every officer or director of a life insurance 
 company consenting to a loan or investment in wilful 
 violation of any provision of Sees. 3562, 3563, 3564, or 
 3565 shall be personally liable to the company for any 
 loss which may be sustained by such investment, or 
 loan, to be recovered in an action brought by the insur- 
 ance commissioner on complaint of any policyholder 
 or stockholder in the company suffering thereby, and 
 shall be fined not more than one thousand dollars and 
 imprisoned not more than five years. 
 
 It may now very properly be asked whether this 
 Company conducts its financial department in accord- 
 ance with these laws and what results have been accom- 
 plished. 
 
 The largest item of assets is that of mortgages 
 on real estate. The interest receipts on this item, 
 although the rate has been diminishing for many years, 
 have never been as low as 5 per cent, upon the amount 
 outstanding. These loans number about 8,000 and but 
 one foreclosure has been necessary in the past three 
 years. 
 
 The real estate owned by the Company, includ- 
 ing its Home Office building, amounted on the first of 
 January to about $640,000. Since then, sales of $50,- 
 000 have been made. A careful appraisal was made 
 within the past year of the various pieces and book 
 values were adjusted accordingly. 
 
 A list of stocks and bonds has already been pub- 
 lished and it is sufficient to say that the market value 
 placed upon these in the Company's statement exceeds 
 the cost by about $200,000. Another appraisal of these 
 items exceeds the Company's estimates by more than 
 $50,000. The liabilities are calculated at different 
 rates of interest, the old business at 4 per cent, and 
 the new at 3 per cent. Taken as a whole, the inter- 
 
LECTURES ON LIFE INSURANCE 105 
 
 est requirement is about 3.75 per cent. The interest 
 receipts of the Company last year amounted to 5 per 
 cent, on its reserve, so that there is a safe margin, in 
 fact over and above that adopted in calculating the 
 liabilities. This is an added source of strength which 
 does not appear in any statement of surplus. 
 
 The Company keeps two bank accounts, one in 
 Hartford and one in New York, and interest is received 
 in both on daily balances. Both in safety and produc- 
 tiveness the assets of this Company .will compare favor- 
 ably with those of any other similar institution, and this 
 feature of the business will be more and more appre- 
 ciated as the public become better and better educated 
 as to what life insurance means. 
 
LETTER TO INQUIRING POLICYHOLDER 
 
 THE QUERY 
 
 (copy) 
 
 Phoenix Mutual Life Insurance Co., 
 Hartford, Conn. 
 
 Gentlemen : I have for some years been paying 
 a considerable sum annually to your Company for 
 premiums on a policy of insurance. So far as I am 
 able to judge from your reports, this policy is well 
 secured, and the cost has been no more than I ex- 
 pected it would be from statements made to me by 
 your agent when he took my application. 
 
 In view of the considerable interest, however, 
 which I have in the Company, and of the further fact 
 that in consequence of my large business and increased 
 obligations I am planning to add to my life insurance, 
 I am desirous of learning something about your insti- 
 tution -which I cannot find out from the printed re- 
 ports. 
 
 The general subject of life insurance is attract- 
 ing much attention, and thoughtful people are asking 
 as to the policy of the institutions in which they have 
 taken their insurance or plan to entrust the protec- 
 tion of their families or their creditors. May I ask, 
 therefore, in a general way what are the principles 
 which the managers of your Company have in view 
 in conducting its business? 
 
 Very truly yours, 
 
 THE ANSWER 
 
 Hartford, Conn., 
 Dear Sir: We beg to acknowledge the receipt 
 
 of your communication of which has been 
 
 read with very great interest and satisfaction, for we 
 are glad of every evidence which comes to us that 
 
LECTURES ON LIFE INSURANCE 107 
 
 our members desire information not only as to the 
 condition of the Company, but as to the general prin- 
 ciples which the managers of the institution have in 
 view in conducting its business. 
 
 At the risk of giving you information as to some 
 things which you know already, or in which you are 
 not interested, we will endeavor to as briefly as pos- 
 sible explain to you the policy of this Company. 
 
 The Company was organized and commenced 
 business in 1851 under a perpetual charter granted 
 by the State of Connecticut. Its experience, therefore, 
 covers more than half a century, during which this 
 country has passed through periods of health and sick- 
 ness and of prosperity and adversity. The Com- 
 pany is, therefore, no longer an experiment, but an 
 established institution with an experience in its vari- 
 ous branches which enables it to conduct its business 
 on sound principles. 
 
 Its Members are selected from the best class of 
 the residents of the healthful portions of the United 
 States, and are in much the same condition so far as 
 their prospects of longevity are concerned. The Com- 
 pany's business is based upon a table of mortality 
 which shows a death rate considerably higher than 
 that experienced by the Company during the entire 
 period of its history. There is no fear, therefore, that 
 any embarrassment will be felt from any excessive 
 mortality. 
 
 The Rates it charges for insurance are somewhat 
 larger than the calculations provide for as probably 
 necessary, but as life insurance is the most sacred of 
 all trusts, so it should be guarded against all possi- 
 bilities which may arise in the distant future. Sur- 
 plus receipts are returned to policyholders in various 
 forms, so that they actually receive their insurance 
 at cost. 
 
 The Rate of Interest adopted in making its calcu- 
 lations is 3%, but its investments yield a considerably 
 larger percentage than this, which surplus is returned 
 in such ways as may be chosen by its members. The 
 annual statement indicates the class of securities in 
 which the funds of the Company are invested. It may 
 
108 LECTURES ON LIFE INSURANCE 
 
 not be improper to add that an experience of many 
 years has shown that loans on real estate, if honestly 
 and intelligently placed, are among the safest of all 
 investments, and have up to this time yielded a higher 
 rate of interest than almost any other security. It 
 is for this reason that this item is the largest of the 
 Company's assets. 
 
 It is not the policy of the managers to secure 
 rapid growth, for this is generally accompanied by a 
 considerable waste, and is not believed to produce the 
 most favorable results either as to the quality or the 
 strength of its membership. 
 
 The Company is a purely mutual one, conducted 
 solely for the benefit of its members. Such gains as 
 have been secured in any directions are placed to the 
 credit of its members in an equitable apportionment. 
 Its officers and other employees have no direct or in- 
 direct interest in the profits of its business or its in- 
 vestments, except the sais faction which they feel in 
 the success of their efforts. 
 
 It is not practicable in the limits of an ordinary 
 letter to give the detailed history of the Company, or 
 of all the circumstances of its condition and prospects, 
 but it is our pleasure, as it certainly is our duty, to 
 give all proper information to our members or to those 
 who are seeking legitimate insurance. 
 
 Our annual report shows the receipts and dis- 
 bursements for 1904, its assets and liabilities, a list in 
 detail of stocks and bonds, and other information 
 which will enable anyone interested to judge quite 
 accurately of the condition of the institution and the 
 way in which it is performing its duties. 
 Very truly yours, 
 
 John M. Holcombe, 
 
 President Phoenix Mutual 
 Life Insurance Company 
 
DETAILS OF A GEEAT BUSINESS 
 
 (Delivered before the General Managers' Association) 
 
 \\TE are here to discuss some of the details of a 
 great business one which involves not only 
 our individual interests, but also the welfare of the 
 people and even of the nation itself. 
 
 A distinguished writer has said that the family 
 "must be considered as the crucial social unit the 
 very keystone of society for it results from happy 
 association of the sexes by which (the human species 
 is perpetuated and extended, by which the affections 
 are developed, and by -which the interest which com- 
 pels one unit to protect, preserve and cherish another 
 is fostered. It should be the purpose of society as a 
 whole to protect the sacredness and integrity of that 
 relation. Without the family unit no other social unit 
 would be possible. It brings the individual out of his 
 seclusion into ethical relations, constitutes him a liv- 
 ing evolutionary force, lifts him out of intensive 
 selfishness to a more extensive selfishness, for in the 
 family relation he must live for others, although in 
 living for others he may live for his own higher enjoy- 
 ment. * * * It is the fundamental unit of civil- 
 ized society." 
 
 It is for the good of the morals of society as well 
 as for every other consideration, that the marriage 
 state should be entered into early in life, especially 
 among the intelligent and moral classes of society, 
 for thus not only will the moral tone of civilization as 
 a whole be maintained and elevated, but thrift and tem- 
 perance will be increased. There are of course some 
 who by reason of inherited wealth may safely enter 
 into the responsibilities of marriage, but by far the 
 greater part of the people can do so only by assuming 
 risks which should not or need not be run. How- 
 ever capable, industrious and thrifty a young man 
 may be, if he is without means marriage brings to 
 
110 LECTURES ON LIFE INSURANCE 
 
 him certain obligations and burdens, which he cannot 
 escape from except through life insurance. 
 
 The institution was organized for the purpose of 
 meeting the needs of such. It was brought into exist- 
 ence because civilized society recognized that progress 
 in the right direction could not be made without it. 
 It rests upon the value of a productive life, and pro- 
 tects those who are dependent upon this against 
 disaster. By reason of the ambitions of men and the 
 competition which has arisen, the true purposes of 
 life insurance sometimes have been obscured, but 
 the time seems to be at hand when the original pur- 
 poses of this institution will be more clearly under- 
 stood, and public opinion will force the various cor- 
 porations engaged in this business into a position 
 where they will base their arguments upon the true 
 idea of protection. 
 
 Not only is our business inseparably connected 
 with the family life, and in most cases absolutely 
 essential to contentment and happiness, but it also is 
 becoming more and more a vital element in the state 
 or nation. A very large part of the public expendi- 
 tures is of necessity devoted to the prevention and 
 punishment of crime and caring for those who are 
 unable to take care of themselves. Jails, almshouses 
 and orphan asylums are not filled with those who hold 
 policies of life insurance, or who have been the bene- 
 ficiaries of this greatest of all philanthropies, and you 
 may be sure that as you educate the public and insure 
 their lives, you are at the same time diminishing the 
 public expenses and elevating the moral tone of the 
 whole people. 
 
 It is not possible to conceive of an occupation 
 more elevating than that in which you are engaged. 
 You have constantly to consider and to discuss the 
 best instincts of the human race. 
 
 Our business is, therefore, by its nature a sacred 
 trust. There are accumulations of money which must 
 be safely invested at interest to provide for future 
 claims, some of which will not be presented for many 
 years. These funds are guarded by statute as well 
 as by moral laws, and are so peculiarly important in 
 
LECTURES ON LIFE INSURANCE 111 
 
 themselves as to demand the greatest honesty and 
 intelligence m their investment. The moneys and 
 property of a living man are under his own control, 
 but that fund which he contributes during his lifetime 
 to be cared for by others and to be paid out only after 
 his death is by far the most sacred trust in business 
 life. Therefore, the investment department of a life 
 insurance company is an exceedingly important one, 
 and should be in charge of men of the highest charac- 
 ter and ability. 
 
 But character is no more important in that depart- 
 ment than in the branch of its operations which 
 includes its agency force. If the money which you 
 send to the Home Office for investment to make good 
 the liabilities of the Company should be applied only 
 for the benefit of the policyholders, it certainly is 
 clear that your dealing with the men who furnish this 
 money should be quite as fair and upright. A life 
 insurance company cannot be divided into several 
 parts, some of which should be conducted with 
 scrupulous honesty and others without a due regard 
 to the same principles. Its mathematical, medical and 
 agency departments are no less bound by the rules of 
 good morals than is the investment department. 
 
 It .will be a good thing for the institution to add 
 to its membership, but no such addition will be of last- 
 ing value unless it be made in such a way that the 
 members shall know what they are getting, and, there- 
 fore, that they shall be satisfied with their contracts. 
 
HOW SHALL LIFE INSURANCE 
 OCCUPY ITS RIGHTFUL PLACE ? 
 
 (Delivered before Boston Life Underwriters' Association) 
 
 ET us try to imagine what this world of ours 
 would be without life insurance. For many 
 centuries before the system was ever formed or 
 even thought of, the human race was increasing in 
 numbers, tilling the soil, building houses, construct- 
 ing ships which led to the discovery and populating 
 of one country after another, erecting splendid 
 cities and forming governments which nourished 
 and decayed, leaving examples of the law that 
 nothing endures unless it has for its foundation 
 virtue, intelligence and industry. 
 
 Running through all the early history of the 
 world there were, however, unmistakable evidences 
 that superstition, cruelty and selfishness were the 
 controlling influences in human affairs. To these 
 qualities must be attributed the cheapness at which 
 life was held, the ruthless destruction of fair cities 
 whose buildings cost vast treasure and labor, and 
 the corruption and final downfall of governments 
 which have never been better than the individuals 
 by whom they are made. 
 
 Life insurance was for all practical considera- 
 tions developed in the latter half of the nineteenth 
 century. Long before that it had existed in one 
 shape or another, and had even been reduced to a 
 practical and scientific basis, but it had not be- 
 come a great force in the sum total of human affairs. 
 It was during this same fifty years that the civilized 
 world made greater progress than ever before and 
 very likely greater than will ever again be made 
 in any other half century. There came during that 
 time a more thorough investigation of the world and 
 its dwellers than ever before. The physical and 
 mental qualities of men and women, the history of 
 governments, the relations between different peoples 
 
LECTURES ON LIFE INSURANCE 113 
 
 and the effects of climates, were all subjects of ex- 
 amination, thought and discussion. All things were 
 considered more broadly, and thoughtful people 
 realized more clearly that the interest of the individ- 
 ual must often give way to that of the community. 
 Human slavery was recognized as an offense against 
 all right principles, the value of life was more 
 and more realized and acknowledged in efforts to 
 substitute arbitration for war, and to lengthen and 
 thus increase the lives of the people by greater 
 attention to methods of living. 
 
 What part life insurance played in this tre- 
 mendous growth and development, it would be diffi- 
 cult to estimate and impossible to prove. No doubt, 
 the growth of the institution has been very largely 
 due to advance in intelligence and to the result of 
 thought, and on the other hand, it is equally clear 
 that the business has had a very marked influence 
 in the progress of the best qualities of civilization. 
 Life insurance is a business enterprise. It is not 
 philanthropy, but it appeals more than any other 
 commercial institution to the best qualities of hu- 
 man nature. There are certain records which we 
 can study to advantage in this connection. The 
 aggregate amount of money which has been paid to 
 life insurance corporations and associations cannot 
 be even approximately stated, but we have records 
 which indicate the great place that this business has 
 come to occupy. In a period of thirty years from 1877, 
 twenty-eight companies of the United States received 
 in premiums, $4,888,000,000, and during the same 
 time they paid to their policyholders, $3,094,000,000, 
 and had at the end of this period, property to pro- 
 vide for the payment of outstanding policy obliga- 
 tions amounting to $2,453,000,000. While these 
 figures are very impressive, they form but a small 
 portion of the total amount paid to life insurance 
 corporations and associations in various countries 
 since the business was first inaugurated. 
 
 Where have these premiums come from, for 
 
 what were they paid, and what has become of them? 
 
 It may fairly be answered that the greater part 
 
 represented amounts saved by those in moderate 
 
114 LECTURES ON LIFE INSURANCE 
 
 circumstances and parted with for the protection of 
 dependents. Had they not been used in this way, 
 it is likely that much of this great sum would have 
 been wasted or spent to the injury of the health 
 and morals of those who earned it. It represented 
 toil and an acknowledgment of the obligations of 
 those who are strong to those who are weak. The 
 amounts disbursed saved many helpless ones from 
 want, protected many from temptation and aided 
 others in innumerable ways when no other help 
 could have been obtained. 
 
 The accumulations of those companies 'in all 
 these years have been invested in various ways ; 
 have been used to cultivate farms, to build cities, 
 railroads, and in general to develop the country, and 
 in many cases to relieve the necessities of those 
 policyholders who without the security of their in- 
 surances could not have obtained money at times 
 when it was greatly needed. 
 
 But beyond all this, the sentiment which prompt- 
 ed these payments should be considered as an ele- 
 ment in the world's progress. The man who pays 
 a life insurance premium for the purpose of protect- 
 ing those dependent upon him, is a more valuable 
 citizen on account of the thought which has inspired 
 this action. He is better fitted to cast his vote wise- 
 ly and to occupy public office. His relations with 
 his fellowmen are marked by more lofty impulses; 
 he has overcome a part of the natural selfishness 
 which impedes progress and weakens public stability. 
 
 It is not possible to imagine any other kind of 
 a corporation engaged in as useful a business and 
 one as valuable to the cause of civilization as a well 
 managed life insurance company. Not only does 
 it gather the contributions of the many to lighten 
 the disasters of the few, but it relieves the public 
 treasury from a part of the expense entailed by 
 crime, indolence and misfortune, and it makes better 
 citizens. It is reasonable to believe that had there 
 been no life insurance up to the present time, there 
 would now be a far greater number of almshouses and 
 asylums where the unfortunate must be cared for by 
 the public, that crimes of various kinds would be 
 
LECTURES ON LIFE INSURANCE 115 
 
 much more numerous, and therefore the expense 
 of guarding against them would be far greater than 
 it is now. 
 
 Let us suppose, if we can, that no life insurance 
 organization had ever before been in operation; that 
 certain men of well known intelligence and integrity- 
 had investigated the law of mortality and had formed 
 a corporation to do that which is now being done 
 by each of many companies engaged in this business. 
 Having thoroughly investigated the death rate 
 among different classes of people, and in different 
 localities, it is assumed that suitable rates have been 
 fixed, and the company has been organized and 
 equipped. However attractive this scheme might 
 be to thoughtful people, it has been realized that 
 to conduct an equitable and safe business of any 
 proportions, it is necessary to employ agents, not 
 only to explain the system to those near the home 
 office as well as to others living at distant points, 
 but also to guard the company against the danger 
 of admitting to membership those whose prospects 
 of longevity are less than the classes from whose 
 records the rates were derived. Reliable averages 
 and reasonable expenses can only be secured by 
 considerable business, and the steady progress which 
 is desirable can best be obtained by drawing members 
 from different localities. 
 
 If we can imagine such a condition of things, 
 then let us try to conjecture how such a plan would 
 appeal to the public! It seems clear that its success 
 would be immediate; that an agent would find ready 
 listeners; that he would be cordially received and 
 that his position would be regarded as dignified and 
 honorable in the highest degree. I do not think, 
 moreover, that we here will differ in the opinion 
 that at a moderate commission solicitors for this 
 institution would be able to make a satisfactory 
 income, and that the character of the business would 
 appeal to men of the highest intelligence and stand- 
 ing. If the reasoning up to this point is sound, and 
 if a good many who have heretofore been engaged 
 in this business have left it for something in which 
 they could more easily make a living, and if there 
 
116 LECTURES ON LIFE INSURANCE 
 
 is difficulty in interesting new men of high character 
 in the personal soliciting of life insurance, then it 
 must be due to one of two causes: either the business 
 has been over done, or else there have been some 
 things in the conduct of life insurance which have 
 created a false impression and prejudice in the minds 
 of the people. It is perfectly safe to say that life 
 insurance has not been overdone; that many times 
 the total amount now in force in all life insurance 
 companies ought to be carried by the people of this 
 country ; that many who have no life insurance ought 
 to have some, and that most of those who carry it 
 ought to have more. I am very firmly of the opinion 
 that this whole question in which we are all so deeply 
 interested at this time is narrowed down to one thing: 
 that there have been and still are practices in the 
 conduct of this great and good business which have 
 created prejudices against it, not only in the minds 
 of those who are glad to contemplate the faults of 
 humanity rather than its good qualities, but even in 
 the estimation of those who mean to be fair-minded 
 and just. 
 
 Life insurance exists for the purpose of making 
 good or modifying the loss occasioned by the ter- 
 mination of a valuable life. It is true that it is also 
 very properly used as a means of saving and to pro- 
 vide for the needs of old age, yet it is not banking, 
 and no legitimate policy that ever was or will be 
 issued can properly be considered as a pure invest- 
 ment. In the strife caused by the ambition to ac- 
 cumulate assets, the companies have urged the idea 
 that the investment feature should be made the 
 chief argument, and have minimized the insurance 
 element until it has been represented to be of little 
 or no account. No life insurance company ever 
 did or ever will issue an endowment policy which 
 could fairly be claimed to be a good investment, 
 aside from the risk which was carried. No tontine 
 or deferred dividend policy was ever written which 
 could fairly be claimed to be a good financial opera- 
 tion, taking into account not only the mortality risk, 
 but the hazard of losing a part or the whole of what 
 has been paid in. If our business is ever to occupy 
 
LECTURES ON LIFE INSURANCE 117 
 
 that place to which it is entitled, it will be on the 
 merits of life insurance, and the protection it affords 
 in the case of premature death, and not because its 
 policies are taken with the expectation that the 
 money paid in will be returned with a good rate of 
 interest and the life insurance feature thrown in. 
 Many have been led to believe that life insurance 
 is an investment or speculation. When these have 
 been undeceived, it is not surprising that they should 
 come to the conclusion that a part of their money 
 has been wasted in extravagance or has been used 
 for the personal advantage of those who have had 
 the care of it. Nor is it to be wondered at that legis- 
 lators have believed that corporations engaged in 
 such a business should bear a large part of the ex- 
 pense of running the various governments. 
 
 But the people are becoming educated, and are 
 getting a clearer view year by year. In this educa- 
 tion lies our future prosperity and our safety, and 
 especially our hope that the burdens of taxation will 
 not only not be increased, but will in time be equal- 
 ized and lightened. 
 
 The question which I believe to be of the great- 
 est importance at this time is, what is legitimate 
 competition? I believe that the great majority of 
 the substantial life insurance companies of this coun- 
 try are in better condition now than they ever were 
 before ; that they are better entitled to the confidence 
 of the public, and that the results they can produce 
 will be more satisfactory than they have ever been 
 in the past. It is clear to me that thoughtful men 
 will more and more come to this opinion, but I am 
 equally clear that the business will not reach that 
 standing which it should acquire until those who are 
 seeking to secure applications shall try to build up 
 the public confidence instead of pulling it down, by 
 confining their arguments to the merits of legitimate 
 life insurance, and shall cease to claim, and try to 
 prove that one company is better in every respect 
 than all others; and shall seek new subjects instead 
 of attempting to disturb present relations; and shall 
 refrain from unjustly criticising, even by implication 
 and innuendo, the acts and motives of others. I 
 
118 LECTURES ON LIFE INSURANCE 
 
 do not mean to be understood as objecting to fair 
 comparisons and proper arguments, but the agent 
 who openly claims that his own company is not only 
 in all respects the best, but is practically the one in 
 which everybody should insure, is doing as great a 
 damage to the institution of life insurance as any 
 disclosures of improper conduct have ever inflicted 
 upon it. 
 
WHAT IS NECESSARY FOR THE ORGANIZA- 
 TION AND SUCCESS OF A NEW 
 LIFE INSURANCE COMPANY ? 
 
 (Delivered before the General Managers' Association) 
 
 A BILITY, intelligence, experience and honesty are 
 essential to the lasting success of any human 
 enterprise, and it may fairly be said that a life insur- 
 ance company cannot be started, nor indeed can it 
 be successfully conducted at any stage of its history, 
 without a combination of these qualities. In all other 
 lines of business, transactions cover but a compara- 
 tively brief time. A merchant buys at one price with 
 the expectation of selling at a sufficiently higher price 
 to cover his expenses and yield him a profit. A 
 manufacturer gathers material, employs labor and 
 produces that which he expects to dispose of at a 
 gain over and above the total cost of production. His , 
 problem is a somewhat more complicated one often- 
 times than is that of the merchant, for he has to deal 
 with many uncertain and fluctuating elements; but 
 in either case when the sale is completed the trans- 
 action is closed. 
 
 A savings bank receives money, agreeing to pay 
 it back at any time it may be called for. A fire in- 
 surance company fixes in advance a rate with the 
 expectation that it will be larger than the losses and 
 expenses. If it is found that the general rates are 
 not high enough or that particular risks have in- 
 creased policies can be canceled at any time and 
 risks terminated; and thus rates can be adjusted 
 according to the conditions which may be found to 
 exist from time to time. 
 
 It would be quite possible to liquidate the affairs 
 of any ordinary mercantile concern or financial in- 
 stitution without prejudice to the interests of its 
 creditors, because its debts are definite and easily 
 ascertainable. 
 
120 LECTURES ON LIFE INSURANCE 
 
 But a life insurance company has to do not alone 
 with the present but with the distant future. A 
 rate must be fixed at the outset which it is agreed will 
 be accepted for many years to come, and if for any 
 reason it shall prove insufficient there is no way in 
 which a corporation undertaking such an obligation 
 can save itself from loss. It cannot increase the rate 
 and it cannot cancel the policy, while the insured has 
 the privilege at any time of discontinuing his part of 
 the agreement. This rate is based upon a mortality 
 table and rate of interest, and it must be sufficient to 
 cover policy claims and expenses in the near and dis- 
 tant future. Risks must be selected with such care 
 that the death rate will come within the tabular mor- 
 tality, and also do equity between the different mem- 
 bers. That portion of the premiums not needed for 
 current claims and expenses must be set aside and 
 invested not only safely but at a rate of interest at 
 least as large as that assumed. 
 
 It is for these reasons that a life insurance policy 
 differs from all other contracts, and it should be en- 
 tered into by all parties concerned with a full under- 
 standing of its meaning. The company is making 
 promises which should not be undertaken without 
 the most careful study of all the elements involved, 
 and a certainty of being able to promptly meet not 
 alone death claims, but all other obligations of cash 
 surrender values, loans to policyholders, and expenses 
 and burdens of taxation. 
 
 All these obligations have been met in past ex- 
 perience and there are now companies of such age 
 and strength that no conceivable fluctuations in hu- 
 man affairs can impair their solidity. These com- 
 panies all had their beginnings most of them at a 
 time when conditions were very different from those 
 which prevail today. 
 
 It would not be fair to say that no new life in- 
 surance company can be started at this time and car- 
 ried to success, but the obligations of a corporation 
 of this kind are so peculiar and so sacred, that they 
 deserve to be considered with the greatest care. 
 
 Practical experience is of the greatest impor- 
 tance in life insurance, and this is required in either 
 
LECTURES ON LIFE INSURANCE 121 
 
 starting a new company or managing an old one. 
 It cannot all be learned from books, although the his- 
 tory of the business is of very great value. 
 
 Writing a large number of policies may or may 
 not be advantageous. If they are on good lives and 
 can be secured at an expense both of office and agen- 
 cy forces within reasonable limits, a company may 
 grow and flourish, but it costs at the outset a great 
 deal to establish an office, secure experienced and 
 competent men and build up an agency force. There 
 is no possible way of avoiding this, and while an in- 
 vestment of this kind may in the end prove satis- 
 factory, yet if policy obligations are met fairly, much 
 money will inevitably be sunk before a solid founda- 
 tion can be constructed. 
 
 One of the chief dangers which a new company 
 honestly and intelligently managed will have to meet 
 is not in doing too little business, but in doing too 
 much. Devices for diminishing policy reserves are 
 misleading, and in the highest degree perilous, for 
 sooner or later they must be accounted for on sound 
 and well known scientific principles, and if by any 
 fallacy they are postponed, the chances are that they 
 will never be met. A favorable death rate at the 
 outset is desirable, but it may be very deceptive, for 
 death is sure to come, and the company which has 
 agreed to pay at that time must be prepared for it. 
 It is a very serious matter for the officers of a life in- 
 surance company to execute a contract binding the 
 corporation, with which they are at best only tem- 
 porarily connected, to meet an obligation which may 
 not mature for half a century, and to make such a 
 promise in consideration of the receipt of periodical 
 payments, the sufficiency of which depends upon 
 mortality, interest and expenses which can only be 
 controlled by skill, economy and a volume of busi- 
 ness large enough to insure stable averages. The 
 officers of such a company should consider the true 
 meaning of a life insurance policy with the greatest 
 care, and should reflect upon the present situation 
 and that which is likely to exist for many years to 
 come. It is quite as important, too, that a man who 
 is providing for protection for his dependents should 
 
122 LECTURES ON LIFE INSURANCE 
 
 be very sure that the company to which he entrusts 
 what is oftentimes hard-earned money is built upon 
 foundations which cannot be shaken by financial 
 and other disturbances which are sure to come sooner 
 or later. These questions should not be taken 
 lightly, for they involve the most serious of all 
 matters. 
 
 It is no more possible to establish a mutual life 
 insurance company for the benefit of its policyhold- 
 ers, or a stock company for the benefit of its stock- 
 holders, and to secure immediate profits, than it is 
 to sow a field with wheat and gather the harvest the 
 next day. 
 
 Life insurance is too sacred a matter to be trifled 
 with either by those who are establishing a new com- 
 pany or by those who are taking insurance upon their 
 lives. An old company naturally has certain ad- 
 vantages, but it is not good simply because it is old. 
 A big company may produce good results for its 
 stockholders or its policyholders, but it will not do 
 these things simply because it is big. A new com- 
 pany will not fail of success simply because it is new, 
 but it will fail if it makes promises impossible of per- 
 formance, and departs from those sound principles 
 which are absolutely necessary for success. 
 
AN UNADMITTED BUT REAL ASSET 
 
 (Delivered before the Life Underwriters' Association of 
 Central Massachusetts) 
 
 THE service which a life insurance company per- 
 forms is to furnish sound insurance at a reason- 
 able cost. Every policy which is put in force carries 
 with it an immediate pecuniary liability on the part of 
 the Company issuing it. If it is a life insurance policy 
 in its simplest form, and the death risk alone is carried 
 from year to year, the company must have a sufficient 
 amouiut of money to make sure that such claims as 
 they mature will be paid. If the policy is an ordinary 
 life or endowment, then not only must the current 
 death risk be sure to be met, but a portion of the 
 premiums must be reserved at interest to provide for 
 the time when the annual payments will not be sufficient 
 to meet the current risk, or to establish a fund for the 
 final liquidation of the policy. 
 
 Assuming that the premiums charged by a com- 
 pany are sufficient in amount to meet the expenses 
 and the calculated liabilities, two elements are to be 
 considered in estimating financial strength: The 
 assets must bear a rate of interest somewhat higher 
 than the rate assumed in the calculations, and it must 
 be certain that this rate can be maintained during 
 such time as any of the company's obligations may 
 remain in force. It is, therefore, easy to conceive of 
 a company solvent in one sense, but insolvent in 
 another, as, for example, if its assets should be invested 
 in government bonds, and its liabilities calculated at 
 4% or even 3%. The second element is that of mor- 
 tality. If this should be favorably compared with 
 the table rates, it would inure to the advantage of the 
 policy holders by reason of savings from vitality, 
 which would add to the company's strength and help 
 the distribution of surplus. 
 
 In order to estimate the financial strength of a 
 company, we are in the habit of looking over its 
 
124 LECTURES ON LIFE INSURANCE 
 
 annual statement, scanning the different items of its 
 assets, examining its receipts to learn whether the rate 
 of interest which it is receiving is sufficient, observ- 
 ing its mortality experience and examining its expense 
 account (to ascertain whether this is within the mar- 
 gins intended to provide for it. If we find that the 
 assets valued conservatively exceed the liabilities cal- 
 culated liberally, and we find that the interest account 
 is well above the requirements, the mortality record 
 below the tabular rate and the expenses reasonable, 
 we assume that the company is solvent and strong. 
 Any surplus it may have over and above these require- 
 ments adds to the substantial character of the institu- 
 tion. 
 
 The assets which we see in the statement consist 
 of mortgage loans, stocks and bonds, loans on security 
 of the company's policies or other collateral, and such 
 other items as go to make up the investments of the 
 institution, and we compare the liabilities with the 
 sum of these, in order to judge of the company's 
 strength. 
 
 But in all these statements, there is one item which 
 may be of very great value to policyholders, and 
 which may add to the security of their contracts and 
 returns of surplus quite as much as any of the other 
 tangible assets. 
 
 Any life insurance company in good standing, with 
 a well-seleoted business, and well-invested funds of 
 sufficient amount to cover its liabilities, can stop issu- 
 ing policies and by prudent and economical manage- 
 ment can carry its risks to maturity and pay its last 
 claim out of its funds, but it is not this kind of a 
 company which can furnish the most satisfactory 
 results. New business is not only desirable, but it is 
 essential to the most favorable experience, provided it 
 is well selected, honestly placed so that it shall be per- 
 sistent, and the members shall have confidence and 
 satisfaction in their contracts, and provided it shall 
 be procured at a reasonable cost. How can this be 
 done? The time has not yet arrived when the gen- 
 eral public sufficiently understands the subject of life 
 insurance to make it a common thing for a man volun- 
 
LECTURES ON LIFE INSURANCE 125 
 
 tarily to approach a life insurance company for a policy 
 upon his life. Such is the nature of the business that 
 he must be educated as to what the institution can 
 do for him, and then persuaded into doing that which 
 he ought to do voluntarily. 
 
 A company, therefore, to perform its best ser- 
 vice must have a corps of agents who shall go about, 
 and having educated the public as to the functions of 
 life insurance, explain to them not only what the insti- 
 tution can do for them, but what his own particular 
 company can perform. His work is one of education, 
 and is one in which while he is earning his own liv- 
 ing he is doing a service to his fellowmen. And he 
 is not only doing this, but he is also benefiting the 
 policyholders of his own company by adding to their 
 number, broadening the basis of their business, and 
 aiding in that growth which will bring better returns 
 to all concerned. The best results are produced by 
 a corps of agents who are not only harmonious among 
 themselves, but between whom and the home office 
 there exist the most cordial feelings of confidence and 
 friendship. A corps of this kind is necessarily a mat- 
 ter of growth. It takes years and the expenditure of 
 much money to establish a thoroughly efficient and 
 harmonious body of agents, but when this is done, 
 the result will justify the time, labor and expense. 
 
 My belief, therefore, is that to the ordinary 
 assets of a life insurance company, there may be added 
 the value of its agency force, and that so far as the 
 efficiency of the company is concerned, and the results 
 which it can give to its policyholders, this is as truly 
 an asset as any other item which is set forth in the 
 printed statements. 
 
THE PHCENIX MUTUAL LIFE INSURANCE 
 COMPANY 
 
 ITS CONDITION AND SOME THOUGHTS 
 ON COMPETITION 
 
 (Delivered before General Managers' Association) 
 
 P HE condition of a life insurance company is not 
 fully disclosed by the figures of its annual state- 
 ment. These are important in indicating certain 
 things, but they do not tell the whole story. It is 
 not possible even to draw comparisons between differ- 
 ent companies by inspection of the items which are 
 set forth in any reports. Assets should certainly 
 be valued on a conservative basis, but they must 
 also be invested not only safely but so as to produce 
 a rate of interest in excess of that assumed in the cal- 
 culation of premiums and reserves. The property 
 of a company might consist entirely of government 
 bonds, in which case, if the calculations of the lia- 
 bilities were based on four per cent, or even three 
 per cent., such a company would be practically in- 
 solvent, because its interest account would not keep 
 pace with the interest requirements of the liabilities. 
 Even these essential points are not altogether shown 
 in annual statements, because in some cases gross 
 interest receipts are included in revenue account and 
 expenses on the other side, and in other companies 
 the net receipts only are shown. 
 
 But having obtained a comprehensive and ac- 
 curate idea of the assets, the condition of the com- 
 pany is then only partly shown, for in life insurance 
 the liabilities are unlike those of any other class of 
 corporations. The obligations of such an institution 
 rest upon two assumptions interest and mortality. 
 If the earning power of the assets is less than the in- 
 terest assumption, the company is in danger. If the 
 mortality exceeds the table rate, another danger ap- 
 
LECTURES ON LIFE INSURANCE 127 
 
 pears. And these essential points cannot be learned 
 from an annual report. It is plain that a healthy- 
 condition requires an interest income in excess of the 
 rate assumed in the computation of liabilities, and 
 that the actual mortality should be less than that 
 shown by the table used in the mathematical depart- 
 ment of the company. 
 
 But even this is not all. The ability of the in- 
 stitution to carry out its contracts cannot be alto- 
 gether understood unless the nature of its policy con- 
 tracts shall be thoroughly analyzed. 
 
 Nor is this all. It is of the greatest importance 
 that the membership of a truly mutual company 
 should be composed of satisfied policyholders who 
 value life insurance for what it can do, and who be- 
 lieve in their company and will thus continue to 
 contribute to its income and resources. These mem- 
 bers must be so selected that substantial equity shall 
 be done, to the end that no one member or class 
 shall receive protection at a less cost than prevails 
 in the whole body. 
 
 The practices of the company not only in allot- 
 ing surplus earnings, but especially in the payment 
 of mattiring claims, is of very great importance in 
 considering the real condition of a life insurance com- 
 pany. If it shall appear that claims are met prompt- 
 ly, and in a liberal spirit, that no unnecessary and 
 technical requirements shall be made, and especially 
 that none shall be resisted excepting for good and 
 sufficient reasons, then this sentiment will soon be- 
 come known to members and will result not only 
 in satisfaction and profit, but in additions to the 
 number of policyholders. It is universally acknowl- 
 edged that reasonable growth in all directions is im- 
 portant. While growth in a life insurance company 
 of moderate size is desirable, its quality is extremely 
 important, and this is not indicated in an annual 
 statement. New members must in respect to the 
 risks assumed be on a practical equality with old 
 members and the cost of placing new policies on the 
 books must not in the end be so great as to prejudice 
 the rights of those who have already contributed 
 toward the building up of the institution. A state- 
 
3 28 LECTURES ON LIFE INSURANCE 
 
 ment may appear to show that premiums have been 
 secured at an unreasonable cost, and yet this may be 
 only appearance, for a part of the money spent may 
 be invested in the building up of an agency plant 
 which in the end will prove to be economical. It is 
 much more important that growth shall be steady 
 year by year, than that it should at any particular 
 time show a violent expansion. 
 
 NOT THE WHOLE STORY. 
 
 The percentage of dividends to premium receipts 
 does not necessarily tell the whole story of the value 
 which policyholders receive for their premiums. 
 Liberal features often cost money and are worth 
 what they cost, and policyholders can, therefore, bet- 
 ter afford to pay more for certain kinds of policies 
 than they can for those which in the end cost them 
 directly or indirectly something which cannot be told 
 in an annual report. 
 
 There are a number of assets which are of very 
 great value but which cannot be estimated in dollars. 
 A reputation for fair dealing is better than a certain 
 amount of railroad bonds without it. A loyal and 
 faithful and intelligent corps of agents is as real a 
 property as mortgage loans, but there is no way of 
 expressing its worth in money. A home office in 
 which there is an harmonious, fixed, and unalterable 
 sentiment in favor of conservatism, equity and fair- 
 ness is worth to members as much as a bank deposit. 
 
 There are also certain liabilities which cannot 
 be made public, and among these are sentiments of 
 distrust among policyholders and irritation among 
 agents which result in lawsuits, loss of business, se- 
 lection against the company in the ceasing of policies 
 and many other things which in the end cost money. 
 
 Every intelligent man who takes a policy on his 
 life for the protection of dependents, realizing that 
 it may run for many years, should inform himself as 
 to the real condition of the company assuming this 
 risk, for he will of course desire that his insurance 
 shall be absolutely safe ,1 that it shall be carried at a 
 reasonable cost and that when it matures it shall be 
 
LECTURES ON LIFE INSURANCE 129 
 
 paid in a spirit of liberality. He will want to be sure 
 that his family shall not be confronted with technical 
 requirements, and be obliged to resort to lawyers and 
 courts to secure that which he has provided for them 
 by his own economy and unselfishness. It is essen- 
 tial, therefore, that you should know the true con- 
 dition of your company in order that you may answer 
 all proper questions, and be able to inform your agents 
 of certain facts without which they cannot effectively 
 prosecute their business. 
 
 NO FLAW. 
 
 There is no flaw in the financial condition of your 
 company. Its assets are sound, well invested, pro- 
 ductive, and valued on such conservative lines that 
 no financial disturbances will affect them. Its liabili- 
 ties are liberally computed, and nothing in the 'way 
 of obligations is forgotten or overlooked. The rate 
 of interest assumed in the calculation of its policy 
 contracts is so safe that nothing in the future can 
 affect it adversely. The rate which the reserves earn 
 is such as to make certain that the contracts will be 
 provided for and surplus returns will be made to poli- 
 cyholders for all time. Its members have been se- 
 lected with such care that the mortality has been 
 and will be within the requirements. No foreign 
 agencies have ever been established, with possibilities 
 of a high mortality and low rate of interest, and other 
 dangers. Its policyholders have been chosen from 
 the class whose record is thoroughly well known. As 
 a result of all this its claims are fair and honest, and 
 are met promptly and fully. With more than 50,000 
 policyholders scattered over the country, there is no 
 suit pending to collect a disputed claim. 
 
 No company can have such a record as this with- 
 out a faithful, honest and loyal field force, for mem- 
 bers of an insurance company are, always have been 
 and always will be, gathered through the efforts of 
 agents, and the quality and results will depend very 
 largely on the character of the men who have taken 
 the applications. 
 
 The policy contracts have been framed and the 
 
130 LECTURES ON LIFE INSURANCE 
 
 rates have been calculated with two objects in view. 
 First, to make sure that the premiums charged shall 
 be sufficient under any and all circumstances, not 
 only this year, but for all future time, to enable the 
 institution to carry out these most sacred obligations 
 promptly and fully; and secondly, to grant policy- 
 holders all the protection, rights and privileges con- 
 sistent with safety and fair dealing. 
 
 Understanding, therefore, the basis upon which 
 the whole structure of life insurance rests that of 
 protection against the loss of a valuable life and the 
 condition of your company and its ability to give 
 this protection safely and in any form which can be 
 legitimately desired, your path is plain and straight, 
 and leads to the home office, where policies must be 
 written, premiums received and invested and claims 
 paid. 
 
 Life insurance is not a speculation, nor is it an 
 investment, although it may be the means of accumu- 
 lating. It exists for the purpose of distributing 
 losses, of continuing the value of human efforts after 
 the death of the producer. Having convinced your 
 friend for the sentiment of friendship is a legitimate 
 part of this business that he should provide for the 
 possible cutting off of his earnings, you can satisfy 
 him that you can give him this protection in any form 
 which may suit his particular need, and then you can 
 write his application. 
 
 But you may say that while you are traveling 
 this straight path and the home office is just before 
 you, the agent of some other company steps out of the 
 bushes and engages your friend in a discussion, in the 
 hope that he can lead him by some other path to some 
 other home office. Competition is inevitable, and if 
 it is conducted on fair lines it helps the business. It 
 educates the people as to what life insurance has done 
 and what it can do. It informs them how protection 
 can be carried in different ways. 
 
 COMPETITION. 
 
 Competition is very largely responsible for the 
 carrying of the protection of life insurance to millions 
 of families, and if the millions of people who are now 
 
LECTURES ON LIFE INSURANCE 131 
 
 uninsured but who need to have protection shall be 
 induced to take it, it will be very greatly through the 
 education which will be carried to them by compe- 
 tition. 
 
 But competition is of two different kinds: That 
 which seeks to secure business by legitimate methods, 
 and that which injures reputations and restricts the 
 spread of true life insurance by deception and de- 
 traction. 
 
 The class of business most satisfactory to a com- 
 pany and most profitable to an agent is that which is 
 secured by depicting the real quality of life insurance, 
 by showing that your own company is strong, founded 
 on correct principles, and is intelligently and honestly 
 managed, for members who are secured in this way 
 will be satisfied and will pay their premiums as the 
 years go by. It is proper and necessary that you 
 should believe and argue that there is no better com- 
 pany than your own, taking into consideration all the 
 elements which go to make up a good mutual life in- 
 surance company, but it should also be remembered 
 that there are other good companies companies 
 which will furnish satisfactory insurance at reason- 
 able rates. You may educate a man up to the point 
 where he is ready to take insurance, and some other 
 agent may step in and insure him. This is oftentimes 
 depressing and annoying, but it is best to realize that 
 you yourself may insure a man who has been edu- 
 cated by others. 
 
 Your own company restricts its business to what 
 it regards as the more healthful portions of the United 
 States. It is proper for you to urge that this policy 
 will produce the best possible results. Your com- 
 pany pursues a definite theory as to its investments. 
 It is just that you should claim and prove that this 
 theory is better than any other; but to unjustly criti- 
 cise another reputable company is only to injure the 
 public estimation of life insurance and damage your 
 own future prospects. 
 
 A very large part of the public prejudice against 
 life insurance, of the unjust and damaging legislation 
 which has been proposed, has come from the methods 
 adopted by those field workers who have not only 
 
132 LECTURES ON LIFE INSURANCE 
 
 led people to expect the impossible, but who have 
 cast discredit upon well-managed and useful insti- 
 tutions. 
 
 You may say that this is all very well in theory, 
 and can be easily talked about at the home office, but 
 that the competitor who steps into the path may be 
 armed not only with arguments, but with a club, 
 with which he proposes to knock you down. Just 
 here is where I cannot offer advice. No human be- 
 ing is perfect, and no corporation of which I have 
 ever had any knowledge is free from criticism. Fifty 
 years is a long period and the chances of mistakes are 
 many. No life insurance managers who have ac- 
 complished anything ever lived or will live, who have 
 avoided all errors. To dig into the past for the pur- 
 pose of finding mistakes which have been cured or 
 outlived is not only cowardly, but is also foolish. If 
 your competitor becomes an adversary and seeks to 
 destroy you by violence, you must protect yourself 
 with such weapons as you have, so long as you rely 
 upon the truth, but life insurance will not cover its 
 legitimate field until every department at the home 
 office and in the field shall be conducted on principles 
 of truth and mutual forbearance. 
 
MALADY ANALYZED 
 
 THE WHOLE SYSTEM OF LIFE INSURANCE 
 SHOULD BE IN PERFECT CONDITION 
 
 (Delivered before Chicago Life Underwriters' Association) 
 
 T THANK you, Mr. President, and gentlemen, for 
 your cordial greeting. It is a pleasure for me to be 
 with life insurance people. I hope I maybe pardoned 
 for a personal word. I have been in the life insurance 
 business longer than most of you, I am sure, having 
 been connected with one company for more than thirty 
 years. I have had the opportunity of observing many 
 things. I am something more, however, I hope and 
 believe, than a mere official of one life insurance com- 
 pany I am a life insurance man ; and, while my own 
 company is entitled to my best services, I believe that 
 my services can be made best by doing what I can for 
 the best good of the general business of life insurance, 
 for I believe that what is good for the public is good 
 for life insurance, and what is good for life insur- 
 ance is good for my company and for all connected 
 with it. 
 
 I have been greatly interested in some of the 
 things I have heard here tonight. I have been inter- 
 ested in the report of your executive committee. I 
 think that a grave responsibility rests upon us at this 
 time. I wish that I could say to you that life insurance 
 is all that it should be, that its practice has been and 
 is all that it ought to be, that the public have confi- 
 dence in it, and that all you have to do is to present 
 your case to the public and that they will accept what 
 you say. I wish I could say this, but I cannot; but I 
 am glad to say that in my judgment life insurance has 
 yet to see its best days. I believe that a great respon- 
 sibility, as I have said, rests upon you and upon all 
 of us, and especially in this great city are your respon- 
 
134 LECTURES ON LIFE INSURANCE 
 
 sibilities great. This city is one of the wonders of the 
 world; it has taken its place at the head of all the 
 communities of the world, and it seems to me that 
 it is the proper place to inaugurate a movement which 
 shall in the end make life insurance what it ought to 
 be, and bring to the public a realizing sense of what 
 it is and what true life insurance can do. Life insur- 
 ance is not everything today that it might be. I hope 
 and believe that we have it in our power to make it 
 so. Not in a day, not in a year, but we must lay our 
 plans, we must look into the distant future, and we 
 must steer our course in that way that we feel sure 
 that we shall come finally to that place where the pub- 
 lic will have confidence in us, in our business, in our 
 companies because they have found that we have told 
 them the truth. 
 
 When one is ill he seeks for the cause of his 
 malady in order to apply such remedy as will most 
 surely and speedily restore him to health. He does not 
 ask the advice of his lawyer, no matter how learned he 
 may be in the theory and practice of the law. He does 
 not seek the opinion of his minister as to his physical 
 condition, however eloquent and convincing may be 
 the sermons of the preacher. He does not demand 
 the assistance of the member of the Legislature from 
 his district to secure the passage of an act to regulate 
 the working of his various organs. He lays his entire 
 case before his physician, who has spent a lifetime in 
 studying the intricacies of the human machine, and in 
 investigating the methods which may best be employed 
 in regulating any of the parts which may be out of 
 order. A general examination will show the particu- 
 lar organs affected. Many of the vast number of 
 parts which make up the whole will be found in per- 
 fect health, but even these will sooner or later suffer, 
 unless the disease which affects the general system 
 shall be removed. A condition of health in the entire 
 body is essential to the proper working of each mem- 
 ber. A constitution which is sound may be attacked 
 by a fatal disease or a malady caused by contagion or 
 infection, but it may also be deranged by an unusual 
 strain of some part. It may be temporarily disturbed 
 
LECTURES ON LIFE INSURANCE 135 
 
 by over-eating or drinking, or by exposure to outside 
 influences of a harmful nature. Whatever the cause 
 may be, an expert will understand its condition and 
 attack the cause of the trouble. Proper remedies, 
 whether they shall be by taking medicines, or by diet- 
 ing, or by any course of living, cannot be determined 
 until the reason for the condition shall be known, and 
 then the remedies will depend upon many consider- 
 ations. The mind, the body, the occupation, sur- 
 roundings all must be studied. 
 
 Life insurance is suffering from illness. Its con- 
 stitution is sound, many of the parts which go to 
 make up the whole are in healthy condition thus far, 
 although they may show the scars of ancient wounds. 
 But it is a shortsighted and narrow view to take, that 
 any one member of this great institution can flourish 
 in the best sense of the word, unless the whole system 
 shall be in a condition of general health. 
 
 The man who is suffering from any form of tem- 
 porary illness will be pretty sure to get unsolicited 
 advice from his neighbors and associates. They will 
 tell him off-hand what is the matter with him 1 and what 
 will cure him. And so there have been many who 
 have expressed opinions as to the cause of the disorder 
 in the life insurance system and have prescribed 
 remedies. 
 
 If we go back to the beginnings, we shall find 
 that the system was originally based on perfectly 
 sound reasoning, and that it has grown in size and 
 strength through many generations. It flourished so 
 long as it was confined to those purposes for which 
 it was planned, but ambition took hold upon some of 
 its managers, and schemes were devised for diverting 
 it from its legitimate purpose. 
 
 I am not one of ' those who believe that the 
 deferred dividend is necessarily and essentially wrong, 
 and I am quite willing to admit that the protection of 
 life insurance has been carried into many families 
 which would not have had it but for this temptation. 
 But all the arguments that have been made to magnify 
 the value of a life insurance policy as an investment 
 or speculation, and minimize the importance of it as 
 
136 LECTURES ON LIFE INSURANCE 
 
 protection, have done much to cause the disorder which 
 now afflicts the entire body. 
 
 Life insurance exists for the purpose of repair- 
 ing the loss occasioned by the premature destruction of 
 a life which has a pecuniary value. It may incident- 
 ally be the means of accumulating money which other- 
 wise might be .wasted or lost, but a life insurance com- 
 pany is not a savings bank and is not an investment 
 bureau. It cannot take a man's money and return it 
 to him with the current rate of interest added, and 
 throw in the life insurance beside. It never could do 
 this, and that portion of the business which was done 
 on any such representation was like food which can- 
 not be digested. Some troubles can be cured at once, 
 but some which have been long coming on it will take 
 long to eradicate. 
 
 The malady which affects life insurance can be 
 traced to several causes mismanagement at the home 
 office and false methods in the field. Laws will not 
 cure human diseases, nor will they alone effect a healthy 
 and lasting recovery in corporations which are suffer- 
 ing from illness. 
 
 I think it is safe to say that the disease, so far as 
 it relates to the home office managements, has been 
 treated in such a way as to give hope of an early 
 recovery. This is not due so much to legislation as it 
 is to a much more powerful and far-reaching medicine, 
 and that is publicity. 
 
 It seems to me that you and your associates now 
 have it in your power, not perhaps to effect a complete 
 cure in a month or in a year, but to so conduct your 
 business that many of the difficulties which afflict the 
 system will gradually disappear. 
 
 A life insurance company can have but one object, 
 and that is to, furnish sound protection at a reasonable 
 cost ; and your sole purpose must be to explain not 
 that this protection can be assured at less than cost, 
 but that the price is one which the insured can afford 
 to pay for what he gets. Impossible estimates, unfair 
 competition and abuse have no place in your work, if 
 you wish to see the business placed upon a basis which 
 will yield you satisfactory returns in the future. 
 
LECTURES ON LIFE INSURANCE 137 
 
 The man who is induced to take a policy because 
 he thinks he will personally make a profit in the trans- 
 action, the person who is hesitating between two 
 reputable companies and finally takes one because he 
 is told that the other is not worthy of his confidence, 
 the one who accepts a policy contract because he can 
 get it for less than it is worththese are undesirable 
 policyholders both from the standpoint of the agency 
 and the company, for they will not continue to pay 
 their premiums and will join the multitude of those 
 who will have good reasons for saying that the system 
 of life insurance has flaws which its own management 
 will not rectify, and which, therefore, the Legislature 
 must control. 
 
 The policyholders of a company must of neces- 
 sity bear the expense of maintaining the home office, 
 and with the constantly increasing requirements of 
 analyzing the operations in all their vast details, this 
 cost will not decrease with a falling off of new busi- 
 ness or even a decrease of outstanding insurance. 
 To maintain a condition of health, therefore, and to 
 attain the most favorable results, a steady addition of 
 well selected new lives is most desirable always pro- 
 vided that they are informed in advance of the true 
 nature of their contracts and the real condition and 
 reasonable prospects of their company. 
 
 And what is true in this respect of the company is 
 equally true of each of its agencies. Your income and 
 what should be quite as important, your happiness and 
 contentment will depend upon the satisfaction of your 
 policyholders, every one of whom should be helpful 
 to you. If they have been honestly insured not only 
 will they continue to pay premiums, but many will take 
 additional insurance, and by their commendations will 
 make it easy to add to your members. Unfair attacks 
 in the newspapers and where men gather to exchange 
 opinions, prejudice against our business, hostile legisla- 
 tion, do not emanate from those who have been insured 
 fairly and .who are getting a fair return for the pre- 
 miums they are paying. Your policyholders should be 
 your friends and you may be sure. that such a condition 
 is worth more to you in money even than high com- 
 missions and bonuses. 
 
138 LECTURES ON LIFE INSURANCE 
 
 But the manager of some company may argue 
 that the general condition of life insurance, does not 
 concern him because his own company is strong, 
 and healthy, and growing sufficiently in membership 
 and resources. He may forget past illnesses which 
 have been cured and have left no trace, for no human 
 being and no corporation can show a perfect life. He 
 may feel sufficient in his own strength. But he and 
 you if you represent his company will surely be 
 affected by any disease which seriously impairs the 
 health of the great system of life insurance. 
 
 The public and legislators do not spend their 
 time in contemplating the virtues of corporations. They 
 form opinions and make laws from hostile investiga- 
 tions of a system as a whole. You and I know that 
 our business has saved thousands from lives of pov- 
 erty and crime, that it has spared the pockets of many 
 who never contributed to it a dollar from taxes for 
 almshouses and prisons and criminal courts, that it has 
 made it possible for the poor to conscientiously marry 
 and that it has elevated the moral tone of the civilized 
 world. We know all this and more; but when laws 
 have been proposed, calculated to curtail the spread 
 of this protection among those who need it most, and 
 even to finally destroy the whole fabric, has there been 
 a public protest against such a mockery of the liberty 
 for which our fathers fought? Have legislative com- 
 mittees sought for evidence of the good which life in- 
 surance has done, and tried to devise laws which 
 should eliminate its evils without checking its bene- 
 fits ? I think not. And contemplating all this, can any 
 one of the great army who are in their various 
 capacities engaged in this business say that he is not 
 concerned in the welfare of the whole system? 
 
 But a consideration of the obstacles in our path 
 will not avail unless we can find means for removing 
 them. A pathetic figure in mythology is the one who 
 was forever rolling up hill a stone which always rolled 
 back. But we are not condemned to such a hopeless 
 task. The rocks and boulders which have of late 
 seemed to obstruct the road, until many have sought 
 other avenues, have only been dislodged by rains or 
 
LECTURES ON LIFE INSURANCE 139 
 
 earthquakes, and they can be cleared away if we see 
 them distinctly and patiently remove them one by one. 
 
 I believe in life insurance, and I believe that the 
 time will come when the intelligent, right-minded and 
 thoughtful public will appreciate it at its true value. 
 Even when that time comes they will not voluntarily 
 apply for insurance and bear the expense of proving 
 from near and distant points that they are suitable 
 candidates for membership. The agent always has 
 been and always will be an absolutely necessary part 
 of the system if its benefits are to be generally spread 
 abroad, and I believe that his labors will be far bet- 
 ter rewarded in the future than they ever have been 
 in the past. Do not think that I am looking for the 
 early arrival of the millennium. When that happy 
 time comes the agent will not be needed, for every 
 insurable and valuable life will seek such an amount 
 of life insurance as will protect its dependents and 
 even the public against loss. 
 
 Human selfishness and procrastination will re- 
 main even with an appreciation of all that life insur- 
 ance means to the individual and the public. And 
 therefore the agent must urge his plea and write the 
 application and bring the doctor. But he will not need 
 to enter into elaborate arguments to show that life 
 insurance is as legitimate a business as fire insurance, 
 or as banking, and is conducted with as much intel- 
 ligence, economy and honesty as either. 
 
 If I am right then the question which presents 
 itself to us is how can we hasten the arrival of this 
 time. 
 
 We can base our arguments upon the value of 
 human life as shown by the experiences of many gen- 
 erations, upon the duty which everyone owes to others, 
 upon the stability of our business if properly con- 
 ducted, as shown by many examples. We shall show 
 our ability to give sure protection, but we shall not 
 feed the flame of criticism by claiming virtue for our- 
 selves and denying it to others. "He that is without 
 sin among you let him first cast a stone." Is there 
 any company of which it can be said that it has been 
 and is without a stain? Is there any representative 
 of any company of whom it can be asserted that he 
 
140 LECTURES ON LIFE INSURANCE 
 
 is without blemish ? There are frauds among farmers, 
 in banking, in the law, in the pulpit, in life insurance. 
 It is proper to expose them and to warn the unwary 
 against them. 
 
 It is best that a state government should by^ laws 
 protect its citizens not only against violence, but also 
 against adulteration in food, medicine, life insurance. 
 There are good laws and bad laws ; those which pro- 
 tect the people in their just rights, and those which 
 interfere with the privileges which belong to a free 
 nation and which instill into the public mind the idea 
 that the dishonest can be made honest and the foolish 
 wise by acts of the Legislature. Such are demoraliz- 
 ing and weakening to the independence of a country. 
 And yet general laws come from a general even though 
 mistaken demand, and if time shows that they are 
 wrong they will be remedied. 
 
 It has been shown that there have been serious 
 defects not in our business, but in the conduct of it. 
 We shall not profit by claiming that prejudice and 
 resulting distrust have no foundation. They are based 
 on facts but like many waves of criticism and theoreti- 
 cal reform, they have gone too far. We have been 
 charged with faults which we have never committed. 
 Purposes have been attributed to us which we have 
 never entertained. Men posing as reformers have 
 sought to gain public applause and political advantage 
 by trying to convict us of ignorance and a disregard 
 of our trust. It is for us to show that our experience 
 and our labors are devoted to the honest prosecution 
 of the best business known to the commercial world. 
 
 True life insurance is not overdone. The aggre- 
 gate value of the insurable lives in this country, lives 
 upon whom others have a right to depend, is many 
 times greater than all the insurance which is now 
 or ever has been carried on them. 
 
 It is for us to so conduct our affairs at the home 
 office and in the field that we shall be recognized as 
 the friends of the people and not their enemies. Then 
 will our legitimate field be opened to us and the public 
 and their representatives in the governments will 
 realize that we are performing a service which is en- 
 titled to their confidence and support. 
 
THE PHOENIX MUTUAL LIFE INSURANCE 
 COMPANY 
 
 An Analysis of Its Financial Condition and 
 
 Theory of Its Management, Plans and 
 
 Future Prospects 
 
 (Delivered before the General Manageis' Association) 
 
 T T behooves the prudent man to carefully consider 
 and fully understand the real condition of the 
 company to which he not only entrusts his money, 
 but, what is vastly more important, the protection 
 of dependents. 
 
 Financial strength in a life insurance company 
 is more important to its members than is that of any 
 other institution handling other people's money to 
 those who patronize it. A bank exists for the ac- 
 commodation of its customers in making collections, 
 receiving their money and paying it to them when- 
 ever they may need it. Its failure may be an un- 
 pleasant incident, and even in some cases distress- 
 ing, but the amount of the individual loss is definite 
 and the loser may be able to make it up. In case 
 of the failure of a life insurance company, however, 
 something more is involved than the mere loss of 
 money, for while some of its policyholders may be 
 able to get insurance in other companies, in many 
 cases they cannot do this, and the protection which 
 a policy represents will then be lost beyond the power 
 of recovery. 
 
 The real strength of a life insurance company 
 cannot be fully measured by an inspection of the as- 
 sets and liabilities appearing in an ordinary state- 
 ment. There are elements which do not appear on 
 the surface quite as important as the character of 
 its investments. Its liabilities are of a peculiar 
 character, inasmuch as the obligations assumed under 
 its policies may mature at any time, or may not be 
 presented for many years. 
 
142 LECTURES ON LIFE INSURANCE 
 
 We can conceive of a life insurance company 
 all of whose business might consist of paid-up in- 
 surance. Such a company would have no premium 
 income, and would be obliged to depend upon its 
 interest account and the sale of its securities for the 
 payment of its claims and expenses. It is true that 
 such a company might be perfectly strong and serve 
 its members efficiently, but a mere inspection of as- 
 sets and liabilities would not disclose its actual 
 strength. 
 
 Policy obligations are calculated upon a mor- 
 tality table and an assumed rate of interest, and un- 
 less the actual experience shows a death rate within 
 that assumed, and interest receipts enough in excess 
 of the rate used in figuring the liabilities to pay ex- 
 penses, such company would be as truly insolvent as 
 if the value of its assets were less than the liabilities. 
 
 On the other hand, a company might have a 
 large premium income, but unless it had reserved 
 from this a sufficient amount to meet its future ob- 
 ligations, and unless its actual premiums were suffi- 
 cient to cover all the future liabilities, such a com- 
 pany might not be able to pay its final claims. 
 
 The chief item of the liabilities of a life insur- 
 ance company is called the "Reserve", which is the 
 amount retained and set aside from past premiums 
 to meet future claims. Technically this reserve is 
 the difference between the present value of the sum 
 insured and the present value of the future pre- 
 miums which will be required to secure that sum. 
 In a single-premium or paid-up policy, the reserve 
 is the present value of the sum insured. If it is a 
 single-premium or paid-up life policy, and the in- 
 sured is 50 years old, the reserve is $555; if it is an 
 annual life policy which has been in force ten years, 
 and the insured is now 50, the reserve is $555 less the 
 future premiums which it is expected will be re- 
 ceived, amounting to $378, leaving $177 as the net 
 liability or reserve. These calculations are all on 
 what are called net premiums, but the actual pre- 
 miums charged are considerably larger than the net 
 to provide for expenses and contingencies of all kinds. 
 Some of the policies now being issued will still be in 
 
LECTURES ON LIFE INSURANCE 143 
 
 force fifty or even seventy- five years hence, and the 
 premiums, which cannot be increased, must be suffi- 
 cient for all future variations of interest and fluctua- 
 tions of mortality. Under existing conditions, these 
 premiums are somewhat larger than present neces- 
 sities require, but the members of a mutual life in- 
 surance company receive their protection at cost, 
 because surplus premiums and earnings are dis- 
 tributed to them in the shape of dividends. 
 
 Measured by any of these tests, what is the con- 
 dition of the Phoenix Mutual Life Insurance Com- 
 pany? Are its assets sufficient to meet its liabilities 
 under any and all circumstances, present or future? 
 Are its policy contracts and premiums liberal and 
 sure for this year and half a century hence? 
 
 These are questions which are of the utmost im- 
 portance to present members, and to those who are 
 considering whether they need and should have the 
 protection afforded by a life insurance company. 
 
 The premium income of this Company for the 
 past twelve months was something more than $4,000,- 
 000. The actual net premiums required to carry 
 its policies under the mortality tables and rates of 
 interest adopted in its calculations was $3,240,000. 
 The surplus of actual over net premiums, therefore, 
 was $760,000. Had the mortality of the Company 
 been the full table rate, there would have been this 
 margin to provide for expenses, taxes and all other 
 contingencies. As a matter of fact, however, the 
 actual mortality was 70 per cent, of the table rate, 
 and the death rate has not varied widely in the past 
 ten years, nor is it likely to greatly increase in the 
 future, certainly so long as a fair volume of new busi- 
 ness is secured. 
 
 The amount of interest required to maintain 
 the reserve in the year 1907 was $823,000 and the 
 actual interest receipts amounted to $1,129,000. 
 There is, therefore, an excess on this score of $306,000 
 to provide for contingencies and to contribute to the 
 payment of dividends. 
 
 Bearing in mind the principles adopted in cal- 
 culating the liabilities, let us now turn to the assets 
 to consider whether they are sound and sufficient to 
 meet the requirements. 
 
14-4 LECTURES ON LIFE INSURANCE 
 
 The real estate now owned by the Company was 
 appraised by the Connecticut insurance commis- 
 sioner at the time of his recent examination at an 
 amount, as a whole, about $85,000 more than the 
 book valuation. There does not, therefore, seem to 
 be any reason for providing for a loss on this account. 
 The mortgage loans, some eight thousand in num- 
 ber, are well secured, but one foreclosure having 
 been necessary in the past four years. No deprecia- 
 tion account is needed on this score. Policy loans 
 are abundantly secured and will not decline. 
 
 In the list of assets, therefore, there is but one 
 item which is liable to depreciation, and that is the 
 stocks and bonds. At the close of last year the mar- 
 ket values of those securities were lower than they 
 ever were before and probably less than they ever 
 will be again certainly much below what they are 
 today. This depreciation was met by placing in the 
 liabilities a fluctuation fund sufficient to make good 
 even this unusual decline. It is quite evident, there- 
 fore, that providing for all these liabilities and con- 
 tingencies, the Company is not only in a thoroughly 
 sound and healthy condition at this time, but that 
 its premiums and interest will be sufficient to meet 
 all possible future demands or the most violent fluct- 
 uations in the financial world. 
 
 The next statement will be made at the close of 
 the present year, and at that time the apportionment 
 of dividends for the coming year will be made. In 
 addition to the fluctuation and contingency reserves 
 in the present statement, therefore, the gains and 
 earnings of the year will be available for all pos- 
 sibilities and for the payment of dividends. A 
 healthier condition can scarcely be imagined. 
 
 We have now a mutual life insurance company 
 whose assets are sound and producing a higher rate 
 of interest than the requirements of the reserve, 
 whose mortality is steadily less than that provided 
 for by the tables, whose premium income is received 
 from a satisfied body of members, whose earnings 
 are healthy, and whose general condition, therefore, 
 is much stronger than the business statement indi- 
 cates. 
 
LECTURES ON LIFE INSURANCE 145 
 
 What now is the proper course to be pursued? 
 We here are policyholders, and it will be useful for 
 us to consider general questions as policyholders and 
 not as those who derive their incomes from the in- 
 stitution. If the theories upon which the business 
 is based are sound, and if the condition of affairs is 
 healthy, then the Company can cease issuing new 
 policies, gradually liquidate, and finally pay out its 
 last claim in full. I have no doubt that this could be 
 done, but inasmuch as policyholders are mortal, and 
 certain expenses would of necessity go on, the death 
 rate would inevitably increase and gradually ap- 
 proach the table rate, the expenses of administration 
 would show an increasing percentage to resources, 
 and consequently the cost of carrying insurance to 
 policyholders would increase by the necessity of di- 
 minishing dividends. If, on the other hand, new 
 members of the same class as those who now are in- 
 sured can be added, and steady and reasonable growth 
 can be secured, the mortality will continue favorable 
 and the expense will show a decrease. 
 
 It is of course possible that this increase might 
 be made upon terms which would prejudice old policy- 
 holders, for new business has been and probably is 
 now being done by some companies at a cost which 
 is greater than any value it can be to present mem- 
 bers. If, however, part of this cost can be fairly 
 said to be for the purpose of building up an agency 
 force which will in the future produce steady and 
 healthy results, that portion is not strictly an ex- 
 pense of new business, but rather in the nature of an 
 investment. 
 
 Under the present conditions this Company is 
 acquiring new business on terms which will be not 
 only not prejudicial to old members but directly for 
 their benefit. We, then, as policyholders, have a 
 direct pecuniary interest in the growth of the Com- 
 pany, and this growth cannot be obtained excepting 
 through agents, and no growth can be healthy and 
 permanently satisfactory unless these agents shall 
 be faithful both to their policyholders and to their 
 company. Each agent desires to increase his pre- 
 mium income, and therefore his compensation, and 
 
146 LECTURES ON LIFE INSURANCE 
 
 if this shall be accomplished at a reasonable expense, 
 he is continually strengthening the Company as a 
 whole. Each officer and employee of the Company 
 desires the same result, for upon its success must de- 
 pend his own position and compensation. As policy- 
 holders, therefore, as officers, and as agents, we have 
 a common interest to produce substantial growth 
 that we may be able to carry insurance for .our mem- 
 bers at a decreasing cost, and with an increasing in- 
 come to agents. All this can, best be accomplished 
 by the most cordial harmony between policyholders, 
 agents and the Home Office, which I believe exists 
 to a greater degree in this Company than in any other. 
 
HOW FAR SHOULD THE OPERATIONS 
 
 OF A LIFE INSURANCE COMPANY 
 
 BE REGULATED BY LAW ? 
 
 {Delivered before the Economic Club of Boston) 
 
 A MUTUAL life insurance company is a combina- 
 tion of persons who agree among themselves to 
 make good the losses occasioned by the termination 
 of valuable lives among their number. It exists by 
 virtue of an act of incorporation granted by some 
 government, which makes it possible to transact bus- 
 iness under the laws and to do those things which are 
 necessary to carry out the purposes for which it is 
 organized. Such an institution does not ask or 
 receive any favors or special privileges from the pub- 
 lic. It simply secures the right to carry its protec- 
 tion to those who wish it under conditions and in ways 
 which are set forth in its charter. It does not take 
 or use property belonging to the public, nor is the 
 protection or endorsement of the state employed for 
 personal and private gain. 
 
 Every productive life has a value not only to 
 those who are dependent upon it, but also to the state, 
 in accordance with the length of time during which 
 it will retain its earning power, and the termination 
 of such a life inflicts a loss upon the total wealth of 
 the country. The destruction by fire of a building 
 which produces an income for its owner reduces the 
 wealth of the world by just the amount of its value. 
 This loss may be distributed by the operation of in- 
 surance, but it is not made up. In no way except 
 by insurance can disasters caused by death, fire, storm 
 and accident be transferred from the individual to 
 the community. To illustrate this principle by a 
 common occurrence, let us suppose the following ex- 
 tract from a newspaper : "A fire broke out last even- 
 ing in the building, No. I Main street, owned and 
 
148 LECTURES ON LIFE INSURANCE 
 
 occupied by John Smith, druggist, and before the 
 flames could be subdued the building and contents 
 were practically destroyed. The loss is estimated at 
 $25,000. Insurance for $20,000." To this may be 
 added in explanation : By the prudence of the owner 
 $20,000 of this loss was distributed by the operation 
 of fire insurance among a large number of other per- 
 sons, whose individual contributions were so small 
 as to cause no inconvenience, while the remainder 
 falls upon the owner. 
 
 Another occurrence may be described as follows : 
 "Mr. Joseph Robinson died yesterday from an oper- 
 ation for appendicitis. He had been connected with 
 the First National Bank of this town for twenty 
 years, during the last ten of which he was its presi- 
 dent. He was a man of high character and marked 
 business ability, to .whom the success of the bank has 
 been largely due. He had always enjoyed robust 
 health until the attack which ended in his death at 
 the age of 50 years." To this may be added by way 
 of explanation : It is estimated by those in a position 
 to know, that the loss occasioned by his death was 
 not less than $60,000. Insurance for $10,000. In 
 other words, $10,000 of this loss was distributed by 
 the operation of life insurance among many other 
 people, whose individual contributions were not bur- 
 densome, while the remainder of the loss falls upon 
 his family. 
 
 A stock corporation exists for the sole purpose of 
 paying dividends to its shareholders who risk their 
 money for no other object. Mutual life insurance com- 
 panies and savings banks without capital are institu- 
 tions of a wholly different character. They are owned 
 and managed for the sole benefit of their policy- 
 holders or depositors. It must be assumed that they 
 are engaged in legitimate and useful work and that 
 they should be allowed to conduct their affairs with- 
 out interference, so long as it is reasonably certain 
 that they are guided by the laws of mortality and are 
 managed intelligently. It will not be denied that it 
 is the duty of the state which creates a corporation or 
 permits it to deal with its citizens to enact such laws 
 
LECTURES ON LIFE INSURANCE 149 
 
 as will be most likely to insure honest, safe and cor- 
 rect methods. 
 
 A life insurance company is made up of two dis- 
 tinct departments that which conducts matters con- 
 nected with the business of insurance, and that which 
 cares for the investment of the funds which it holds 
 for ithe final payment of its policy obligations. Its 
 assets may differ materially from those of any other 
 financial institution, because they are not liable to be 
 claimed at any time by their owners, like those of a 
 bank, nor will they be subject to the necessity of 
 prompt realization as may be the case in a fire insur- 
 ance company. Laws, therefore, which might be 
 proper for the regulation of investments of a savings 
 bank might be wholly unwise for the government of 
 a life insurance company, by depriving its members 
 of the benefit of the higher rate of interest obtainable 
 on some investments without increasing their security. 
 
 DEALS WITH THE DISTANT FUTURE 
 
 A life insurance company is a peculiar institu- 
 tion. It has to deal with the distant future. Its con- 
 tracts must rest upon an estimate of conditions which 
 will prevail many years hence. While the elements 
 which enter into its constitution are not at all mys- 
 terious, yet they are of a character which require a 
 knowledge of many intricate problems which the aver- 
 age man has neither the time nor the facilities for in- 
 vestigating. The nature of life insurance is such 
 that those who receive its protection must belong to 
 a class whose prospects of longevity can be safely 
 predicted. Its policy contracts must be protected by 
 accumulations of property bearing a certain rate of 
 interest, and assets rise in an extensive business to 
 large sums. It is proper, therefore, for the state to 
 prescribe a mortality table and a maximum rate of 
 interest for computing liabilities. It is also wise that 
 laws should be made for the guidance of those who 
 are inexperienced in the handling of trust funds, or 
 for the control of those who might be tempted to 
 sacrifice safety for the chance of profit. 
 
150 LECTURES ON LIFE INSURANCE 
 
 There are some things which laws can accom- 
 plish, and some which they cannot. Statutes may well 
 be enacted at this time to prevent those who manage 
 life insurance companies from employing the power 
 placed in their hands for personal profit or advantage, 
 from using the money under their control for any 
 purposes whatever except to meet policy claims and 
 the necessary and legitimate expenses of conducting 
 the business,, and from making false or misleading 
 statements. It is true that laws of this character 
 seem to be expedient at this time, although there are 
 many companies whose record does not show any 
 necessity for legal control in any of these matters. 
 It may be proper also, in view of the peculiar nature 
 of life insurance, and the necessity of large accumu- 
 lations, to limit the business to be done when com- 
 panies have attained a size beyond which they cannot 
 safely and properly go in investing their funds and 
 supervising their business. 
 
 PUBLICITY 
 
 The people have a right to know Row companies 
 are conducted, and the government can properly 
 obtain and make public all reasonable details of the 
 transactions and condition of those corporations which 
 it has created, and to which have been confided trusts 
 of a character so important and even sacred. But 
 the law cannot create honesty and intelligence where 
 these qualities do not exist. It cannot compel a safe 
 selection or graduation of risks, nor can it make sure 
 that each investment shall produce the necessary rate 
 of interest and return the principal intact. It can 
 do a great deal, however, toward making it unprofit- 
 able for dishonest men to engage in the business, and 
 guiding the ignorant and incompetent. 
 
 No other laws than those indicated have appeared 
 to be necessary or even desirable until a recent period. 
 But circumstances have now arisen which seem to 
 many to justify governmental control which under 
 ordinary circumstances would be pernicious, demoral- 
 
LECTURES ON LIFE INSURANCE 151 
 
 izing and an interference with those rights which 
 free citizens should have in a civilized country. 
 
 NEW YORK METHOD IN 1905 
 
 On July 20, 1905, the Legislature of the state 
 of New York appointed a committee "To investigate 
 and examine into the business and affairs of life in- 
 surance companies doing business in the state of New 
 York." 
 
 Under date of August 16, 1905, the committee 
 addressed a circular letter "To the Life Insurance 
 Companies doing business in the State of New York" 
 in which the following statement is made: 
 
 "Ait an early date it is the purpose of the com- 
 mittee to request specific information upon certain 
 subjects, and to proceed with the investigation. In 
 the meantime any communications from you embody- 
 ing suggestions which may tend to expedite the work 
 of the committee they will be glad to receive." 
 
 Under date of November 18, 1905, the committee 
 addressed a letter to companies organized in some 
 other* state, but doing business in New York, extracts 
 from which are as follows : 
 
 "Mr , 
 
 "President Life Ins. Co. 
 
 "Dear Sir: In the course of the investigation by 
 the committee of the Legislature into the affairs of in- 
 surance companies doing business in the State of 
 New York, your company will very soon be reached. 
 To facilitate our inquiry we would request your com- 
 pany to furnish the information mentioned below, 
 the list being practically the same as that which do- 
 mestic companies thus far examined have given." 
 
 Following this were numerous questions asking 
 for records of annual meetings and meetings of direc- 
 tors and committees, lists of various securities, state- 
 
152 LECTURES ON LIFE INSURANCE 
 
 ments of details of premiums, death claims, surrender 
 values, dividends and many other items concerning 
 the company's methods, both in its investment and 
 insurance departments. Among other questions were 
 the following: 
 
 "Any and all syndicate agreements entered into 
 by the company or any officer thereof, relating either 
 to the underwriting or purchase or acquisition of any 
 securities during the past ten years." 
 
 "List of all contributions to political campaign 
 funds for ten years last past, and payments in con- 
 nection .with legislation in any state." 
 
 The letter concluded as follows : 
 
 "The committee will be greatly obliged if these 
 data are collected and sent to the counsel for the 
 committee at your earliest possible convenience. We 
 shall be glad to receive this information on or before 
 November 25th. The exact date when we shall desire 
 the attendance of yourself and your actuary we shall 
 apprise you of a day or two in advance. It will 
 probably be shortly after November 25th. 
 
 "Thanking you for your attention to these .mat- 
 ters, we remain, 
 
 "Very truly yours, 
 
 "Chairman." 
 
 Answers to these letters were made to the com- 
 mittee. Their report is contained in a pamphlet of 
 442 pages. But one company outside of New York is 
 referred to in the contents of the report. The various 
 abuses which were discovered are set forth at great 
 length, and taking these as a basis certain legislation 
 was recommended. 
 
 THREE CLASSES OF COMPANIES 
 
 Without attempting to distinguish between those 
 companies whose conduct has subjected them to the 
 criticism of all right-minded people, and those whose 
 
LECTURES ON LIFE INSURANCE 153 
 
 record has been one of a faithful observance of duty, 
 the life insurance companies of the country may, for 
 the purposes of this discussion, be divided into three 
 classes : 
 
 First, those which have reached a size where 
 their accumulated funds are so great that they can- 
 not be safely and profitably invested, and where their 
 business is so vast and widely scattered that a greater 
 volume cannot be handled efficiently and equitably for 
 producing the best results. 
 
 Second, those which have attained sufficient size 
 and strength to make certain the fulfillment of all obli- 
 gations in a satisfactory manner, but which are seek- 
 ing to extend their field of usefulness for the benefit 
 of their members and the public by enlarging pres- 
 ent agencies and establishing new ones. 
 
 Third, those which, lately organized, have not 
 yet reached the point where the outstanding business 
 is sufficiently large either to insure permanence or to 
 produce reasonably satisfactory results, although, if 
 carefully managed, they may develop into strong and 
 useful institutions. 
 
 Each of these classes it is apparent should receive 
 careful consideration in legislation, and these dis- 
 tinctions should be kept in mind if laws are to be 
 wise and enduring. 
 
 It is probable that in the near or remote future 
 the best interests of the general public will be served 
 by the establishment of new companies. It is a costly 
 matter to organize an office and plant agencies before 
 a revenue comes in which will place such a company 
 upon a sound and economical basis, even if the great- 
 est skill, economy and honesty are to be found in the 
 management. 
 
 An inflexible law limiting expenses to meet cer- 
 tain arbitrary and theoretical requirements may be a 
 wise check to one class of companies, uncalled for but 
 harmless to another, and destructive to still another. 
 
 AS TO MUTUAL COMPANIES 
 
 And it should be borne in mind, particularly, that 
 a mutual life insurance company has no money except 
 
154 LECTURES ON LIFE INSURANCE 
 
 that which it receives from its policyholders ; also that 
 this money is paid for certain well-defined purposes, 
 namely, to meet policy obligations and to defray the 
 necessary and legitimate expenses of conducting the 
 business. When a person accepts a position in the 
 management of an institution of this character, he may 
 reasonably expect a fair compensation for his services, 
 but he voluntarily withdraws from those pursuits 
 where great pecuniary rewards are possible. It is not 
 improper that the use of these moneys should be 
 limited by law to the purposes for which they are in- 
 tended by those who contribute and own them, because 
 the actions of some persons are regulated largely by 
 the fear of consequences. 
 
 It is clear that whatever laws are enacted should 
 have a certain, definite and well-defined principle, as 
 a basis, and before placing statutes upon the books, 
 sufficient time should be taken by those who enact 
 them to clearly understand not one side of a question, 
 but all sides. The faults which have been found in the 
 administration of life insurance companies should not 
 be taken as the sole basis for new laws. Many mutual 
 life insurance companies have conducted their affairs 
 for the sole benefit of their policyholders; they have 
 furnished to them sound insurance at reasonable cost ; 
 they have extended protection to those who needed it, 
 performing a service to the public, without prejudicing 
 the rights of their members; they have invested their 
 funds safely and profitably without any personal bene- 
 fit to their officers ; they have selected their business 
 carefully and equitably. Those who are framing laws 
 should consider all these things before they take any 
 action which may do damage without corresponding 
 benefit. 
 
 A mutual life insurance company not only should 
 treat its present members equitably and fairly, but it 
 should select its policyholders in such a .way that each 
 shall pay a fair and equitable premium for the risk 
 incurred. Mutuality does not consist alone in arbi- 
 trary rates and an exact distribution of theoretical 
 surplus. No law can compel the managers of a mu- 
 tual life insurance company to choose members from 
 
LECTURES ON LIFE INSURANCE 155 
 
 a certain class, all of whom are in exactly the same 
 condition as to their prospects of longevity. No law 
 can be made which will result in the investment of 
 money at high rates of interest without incurring any 
 risk of loss. No law should be made which removes 
 reasonable responsibility from the managers of a cor- 
 poration. 
 
 PUBLIC OPINION 
 
 Much thought has been given to the matter of 
 the control of mutual life insurance companies, and 
 many plans have been devised seeking to give to the 
 owners of these institutions the power to control the 
 management. If life insurance could be carried on 
 without the accumulation of assets, the temptation to 
 obtain control of these institutions would not perhaps 
 be very great, but the nature of the business is such 
 that large amounts of property are necessarily accumu- 
 lated for the payment of obligations running into 
 the distant future. The control of these is a great 
 temptation to those who could make use of them for 
 personal advantage. In devising schemes for policy- 
 holders' participation in the election of directors, the 
 dangers of improper control seem to be lost sight of. 
 Much has been said of the power of a management 
 to perpetuate its hold upon the institution. To those 
 who consider this question carefully and in a broad 
 way, it will be clear that a change in the management 
 of a well-organized and honestly and skillfully con- 
 ducted mutual life insurance company might be about 
 the greatest disaster that could happen to its policy- 
 holders, and to prevent this is as much the duty 
 of the managers as any other matter -which must 
 be considered by them. The changes which have 
 recently taken place in the management of certain 
 life insurance companies have not been brought about 
 by the action of policyholders, but by the force of pub- 
 lic opinion, and the changes which occur in the future, 
 and which do not bring with them great perils, will 
 not come about by the action of policyholders them- 
 selves, but by the opinion of right-thinking men, 
 
156 LECTURES ON LIFE INSURANCE 
 
 whether they are interested in these institutions or 
 not. 
 
 The law -which was at first proposed by the com- 
 mittee of the New York legislature provided for the 
 control of foreign companies in many ways, but upon 
 a careful consideration of all 'the questions involved, 
 it was so modified that foreign companies are not af- 
 fected by its provisions, excepting in certain matters 
 which have to do with the expense of conducting their 
 business. lit is clear that the state which charters a 
 company should exercise whatever control it is proper 
 that the law should assume, in all those particulars 
 which have to do with its government and its manage- 
 ment, excepting so far as a foreign state shall make 
 requirements for fair business dealing and financial 
 strength, but inasmuch as there are certain principles 
 in this act which are being considered at this time, 
 it may be interesting to take up three points of special 
 importance. 
 
 As it has appeared, the peculiar nature of life 
 insurance! makes neoessary large accumulationis of 
 property. These must be managed and controlled by 
 somebody. A board of directors must be chosen 
 either by stockholders or policyholders. Stock can 
 be bought and sold, acquiring its value sometimes 
 because of its earning capacity, and sometimes because 
 of the value of the comtrol of property which its own- 
 ership carries with it. No way has yet been devised 
 for eliminating the dangers to policyholders which 
 are always present in a stock life insurance company. 
 
 In what way can the danger of abuses in a mu- 
 tual life insurance company be done away with by 
 law? After a thorough discussion of this subject, 
 the Legislature of New York has passed an act, af- 
 fecting of course only companies of that state, which 
 it would be .wise for other legislatures to consider very 
 carefully before enacting any similar law. The pub- 
 lication of lists of policyholders without the consent 
 of those interested, and in many if not most cases 
 against their wishes, may lead to results not in ac- 
 cordance with good morals or the best interests of 
 those persons whose future the state is bound to pro- 
 
LECTURES ON LIFE INSURANCE 157 
 
 tect. Policyholders will need leaders. Some will be 
 found who are willing to give their time and money 
 for the public good, but the question may well be 
 considered : Who will be most likely to incur the 
 necessary expense and for what purpose? No law 
 should be passed which may bring greater dangers 
 than those which it seeks to avert. Publicity and a 
 strict accountability to the public officials, appointed 
 by the various governments to inform the people of 
 the conduct of the corporations conning under their 
 observation, will protect the interests of policyholders 
 far more effectually than any of the plans which 
 have been devised for controlling these companies. 
 
 STANDARD POLICIES AND EXPENSES 
 
 The question of standard policies is one which 
 has received much attention, and many have argued 
 that inasmuch as fire insurance companies have been 
 compelled to issue certain prescribed forms of con- 
 tracts, similar requirements might result in benefit 
 to the community if applied to life insurance. The 
 cases are very dissimilar, for reasons which it is not 
 neoessary to detail. The development of life insur- 
 ance has brought about many different plans for 
 meeting the varied needs of those who seek life insur- 
 ance as a protection for various persons under many 
 dissimilar conditions. It may well be asked at the 
 outset, then, whether there is a condition of things 
 which demands a standard policy. Have people been 
 deceived by the wording of these contracts to such an 
 extent as to require the intervention of the law? If 
 this is the case, then the best talent obtainable should 
 be employed to arrange for the proper protection of 
 the public. It is not too much to say that this talent 
 is now to be found in the offices of the companies. If 
 after the excitement has subsided it should appear 
 that no real need exists, it is clear that the govern- 
 ment should not interfere in the proper exercise of 
 the right of contract. 
 
 The provision of the New York law which ha.s 
 
158 LECTURES ON LIFE INSURANCE 
 
 attracted the most attention is that which limits the 
 expenses of all companies doing business in that state. 
 Much can be said in its favor, especially as it applies 
 to the companies coming within the first two classes 
 already mentioned, but whether the regulation is wise 
 or not will be decided by those who study it out, ac- 
 cording to their views of life insurance what it 
 does and what it can do. If it is proper that laws 
 should regulate the details of the existing companies 
 solely for the benefit of present policyholders, many 
 arguments may be advanced why the expenses of the 
 various companies should be limited by law. If on 
 the other hand life insurance performs a public ser- 
 vice, if it is for the benefit of the state that people's 
 lives should be insured, if the spread of this business 
 encourages tihrift, brings to the people a greater 
 realization of the duty they owe to others, and espe- 
 cially the obligations of marriage, if the distribution of 
 life insurance payments curtails the public expendi- 
 tures to prevent crime and to care for the unfortunate, 
 then it may well be carefully considered whether any 
 laws should be enacted which would result in a check 
 to the spread of this business. 
 
 GOOD NOT TO BE LOST SIGHT OF 
 
 It has been said that life insurance is a business 
 and not a missionary enterprise, w T hich is true to the 
 same extent that it might be said of savings banks, 
 but both classes of institutions serve the public in 
 other than business ways, and if they are valuable 
 agents in improving the general condition of the peo- 
 ple, while the public, money should not be spent in 
 maintaining or developing them, it is clear that the 
 law should not impose restrictions upon them except- 
 ing such as may be necessary for the protection of 
 depositors in one and of policyholders in the other. 
 No law can be wise, fair and useful unless it is based 
 on facts, and unless its framers have a comprehensive 
 and well-founded knowledge of all the circumstances 
 which make it necessary. No such law should rest 
 on the theorv that all life insurance companies have 
 
LECTURES ON LIFE INSURANCE 159 
 
 been conducted dishonestly, extravagantly or igno- 
 ranitly, because certain officials of certain companies 
 have been shown to have been guilty of all these 
 offenses. Much good has been done by each and every 
 one of these companies. Many similar institutions 
 have been free from all of these elements, and have 
 been conducted for the benefit of their policyholders. 
 The evils which have been discovered and ex-posed 
 have been made much of by ithe newspapers, and by 
 well-meaning men, but the good has been lost sight 
 of, in a measure at least, and has not had its proper 
 influence in shaping public opinion and enacting laws. 
 If we can discover the facts, right-minded men will 
 not go far astray in making laws, although there 
 may be honest differences of opinion as to the general 
 subject of life insurance. Most of those who have 
 spent their lives in observing the operations of life 
 insurance companies believe that the institution has 
 been a great force in educating the public, bringing 
 them to the realization of their responsibilities and 
 saving the governments of states and municipalities 
 from much of the expense arising from crime and 
 poverty. 
 
 It cannot be doubted that life insurance cannot 
 be generally spread among .the people, excepting 
 through the work of agents. No life insurance com- 
 pany can accept all applicants and live, nor can it do 
 equity among its members without making sure that 
 they are practically on an equal footing as to their 
 prospects of longevity, and therefore will contribute 
 their reasonable share of the funds necessary to meet 
 policy obligations. A savings bank need not inquire 
 about the health of the depositors, but a life insurance 
 company must ask many questions about personal and 
 family history, and must cause an examination to be 
 made of the applicant. These things cannot and will 
 not be done excepting through agents who understand 
 the necessities of the business. Wealthy men seeking 
 to benefit their fellowmen have not yet devoted them- 
 selves to soliciting life insurance without compensation 
 for the good that it will bring to the individual and to 
 the state, although some of them perhaps might ac- 
 
160 LECTURES ON LIFE INSURANCE 
 
 complish great good in this way. The life insurance 
 agent must have a living, and the policyholder must 
 support him if the business is to be widely extended. 
 
 No matter what one's views may be on this sub- 
 ject, it will not be denied that companies should be 
 held to a strict accountability, should, so far as possi- 
 ble, be required to be financially able to meet their 
 obligations. If the sentiment just described is sound, 
 however, then these companies should be left to their 
 own judgment ; they should not be taught to rely upon 
 rules set forth from time to time by laws which of 
 necessity are enacted by those who know but little of 
 the principles of the business. The best results to the 
 public, and for that growth of private virtue which is 
 so desirable, will come from placing responsibility 
 upon individuals who are supposed to carry it, and 
 in requiring public officials to be sure that the laws are 
 observed. Too many laws are worse than too few. 
 Condemnation of wrong wherever it is found to exist 
 is useful, but undeserved censure is disheartening. A 
 man with a muck rake with his eyes eagerly scanning 
 the low places is an important member of an investi- 
 gating committee or a legislative body, but at his 
 side should be one who sees the fields whose crops sup- 
 port life and whose flowers uplift and beautify it. 
 
A PLEA FOR DECENCY 
 
 (In the Insurance Journal) 
 
 H HE business of life insurance is as honorable an 
 * occupation as a gentleman can engage in. The 
 officer who dictates the policy of a company or invests 
 its funds, the clerk who performs the detail work in the 
 office, the general agent who supervises the collection 
 of premiums and the placing of policies, and the solici- 
 tor who urges upon the public the need of life insur- 
 ance and the merits of his company, all contribute to 
 the general cause. Each one is dependent upon the 
 other, and no distinction can fairly be made between 
 them so far as the character of their occupation is 
 concerned. Surely any one in any way connected 
 with this business should remember that he is a gen- 
 tleman, and conduct his business as befits the char- 
 acter of a gentleman. 
 
 There is every reason why this most honorable 
 business should be conducted on a high plane, and 
 should command the unreserved respect of the public. 
 And yet in the minds of many there seem to be doubts 
 as to the purposes which animate the actions of those 
 who conduct the fortunes of the life insurance com- 
 panies. These feelings find expression in the un- 
 friendly attitude of some newspapers, a prejudice 
 which frequently exists against the institution in the 
 courts, and the laws which are enacted by the various 
 state legislatures. The reason for this hostility can 
 be traced in part, no doubt, to the thoughtless and 
 unreasoning prejudice against corporations control- 
 ling large amounts of money; but there are other 
 causes tor which life insurance men themselves are 
 directly and definitely responsible. 
 
 A need which can be filled in no other way exists 
 for life insurance, and the agent naturally and prop- 
 erly emphasizes this in the course of his daily 
 occupation. This argument, properly presented, 
 should elevate the business and inspire confidence in 
 
162 LECTURES ON LIFE INSURANCE 
 
 it. The agent, furthermore, represents the merits of 
 his own company, and explains how its particular 
 forms of policies will meet the peculiar needs of the 
 person whom he urges to become an applicant for 
 insurance. But he does not always stop here. 
 
 A letter, from which were taken the following 
 extracts, was recently addressed by the general agent 
 of a great company to a man who was being urged by 
 an agent in his employ, and one representing another 
 company, to take a policy on his life. 
 
 "At the request of Mr. , I desire to state 
 
 very briefly the points of advantage of the A company 
 in comparison with the B company. First of all, the 
 B company has been for a good many years under a 
 cloud, and serious anxiety was felt for its safety; 
 and while now I think that anxiety has been removed, 
 and its present managers are doing all they can for 
 it, . . . 
 
 "This arises from the fact that a much larger part 
 of their insurance is paid up, and brings no income, by 
 reason of their members getting discouraged or dis- 
 gusted, and taking paid-up insurance, . . . 
 
 "A firm in liquidation may have more of its money 
 in hand than one in active business, but may be, and 
 generally is, a very weak concern. . . . 
 
 "This will be your money loss, besides a far 
 inferior company. If you feel justified in making this 
 loss to promote the interest of your friend, of course 
 that is a matter for you to decide." 
 
 The gentleman to whom this letter was addressed 
 took his insurance in the B company, no doubt reason- 
 ing that the agent who would make false statements to 
 bring disrepute upon a strong and prosperous institu- 
 tion, which the B company unquestionably is, would 
 not hesitate to falsify the figures which he represented 
 in favor of his own company. 
 
 This is not given as an exceptional or by any 
 means an extreme case, but it is a fair sample of the 
 methods which are often practiced in the business. 
 Whether or not the course is successful in an indi- 
 vidual case, it does not end there; for a seed is sown 
 which sprouts and bears the fruit which might fairly 
 
LECTURES ON LIFE INSURANCE 163 
 
 be expected. The popular mind is disturbed, and dis- 
 credit and doubt are cast upon all life insurance, for 
 the man to whom such statements are made will pres- 
 ently come to think that the whole structure is built 
 upon frail foundations. 
 
 Sound business rests upon honorable methods, 
 upon truth, upon decency, and that company which 
 is to be permanently successful will tolerate no one in 
 any department who will under any circumstances, and 
 for any gain, either permanently or temporarily, act 
 the part of a blackguard. 
 
LETTER TO AN INSURANCE COMMISSIONER 
 
 December 20, 1906. 
 
 Dear Sir : In a recent conversation with 
 
 he suggested that I should write you express- 
 ing some opinions which I hold on the subject of 
 deposits by life insurance companies in various states, 
 and it is for this reason that I venture to communicate 
 to you some thoughts which I expressed to him. 
 
 This matter must be viewed from two stand- 
 points first, that of the company affected by any 
 requirement of this kind, and second, that of the 
 state whose representatives propose it. 
 
 First: A mutual life insurance company is 
 organized and conducts its business for the sole pur- 
 pose of furnishing sound insurance to its members 
 in an equitable manner, and at as low a cost as is 
 consistent with safety. All the policyholders should 
 be on, an equality not only as to rates and dividends, 
 but also as to personal conditions and prospects of 
 longevity. To accomplish the best results the mem- 
 bership should be drawn from a considerable terri- 
 tory and great care should be used that strict equality 
 is preserved in selection of risks, to the end that no 
 one member shall get more for his money in the shape 
 of insurance risk than another, and especial care 
 must be used that these risks are of a character which 
 will not experience even in the distant future a mor- 
 tality greater than that provided for in the tables 
 upon which the business is based. 
 
 The funds of such an institution should be 
 invested in the most careful manner possible, that 
 losses shall not be such as to imperil the financial 
 strength at any time even in the distant future. Life 
 insurance premiums are based upon the receipt of 
 some fixed rate of interest, and some of the policies 
 now being issued will still be in force from half to 
 three-quarters of a century hence. Such a company's 
 investments must, therefore, be made at a rate of 
 
LECTURES ON LIFE INSURANCE 165 
 
 interest which will certainly be more than that 
 assumed, after making due allowance for investment 
 expenses and losses. Restrictions as (to where and 
 how these funds shall be invested may serve, there- 
 fore, to either imperil the principal or reduce the rate. 
 
 A mutual life insurance company should have no 
 preferred class of policyholders. It should be managed 
 from a central office, to which every member should 
 look for the carrying out of his contract not only in 
 the letter of its actual terms, but with the most favor- 
 able results possible. Its funds should always be held 
 available for all its policyholders, and it cannot place 
 various properties in the hands of public officials at 
 different points without inconvenience, expense and 
 possible loss. With laws requiring the deposit or 
 investment of reserves in states whose citizens con- 
 tribute them, it is not easy to see how any mutual 
 life insurance company could do a general business 
 throughout the country with a due regard to the best 
 interests and rights of all its policyholders. 
 
 This company has for many years enjoyed a high 
 rate of interest. Among other investments we now 
 have more than 8,000 mortgage loans in many differ- 
 ent states, and the past three years there has been 
 but one foreclosure. Our policyholders have enjoyed 
 the favorable results accruing from these investments, 
 which have been made as the result of the study and 
 experience of the mortgage loan business for the past 
 forty or fifty years. 
 
 It has been urged that life insurance companies 
 concentrate wealth and deprive one section of money 
 for the benefit of another, and especially of those 
 places where the home offices are situated. I do not 
 think that this is well founded. This company has 
 been doing business in Connecticut for fifty-five years 
 and has a large amount of insurance outstanding on 
 the citizens of this state. Our mortgage loans on 
 property in Connecticut have never been over $150,000, 
 and now amount to $105,000, and we have not made 
 a single new loan for a good many years. We have 
 no state, city or municipal bonds in New England, 
 and it is our settled policy to invest the company's 
 
166 LECTURES ON LIFE INSURANCE 
 
 money where it will be safest and produce the best 
 return. In some states our investments are far greater 
 than the reserve on policies; in many they are much 
 less, but we feel that legal requirements as to the 
 places in which we shall do this business would ham- 
 per us and result in loss to our policyholders. For 
 these and other reasons, it is clear to me that our 
 members will fare best if there are no restrictions 
 as to where our investments shall be made and -where 
 our scurities shall be deposited. 
 
 Second : While these considerations may be well 
 founded from our standpoint, I recognize that they 
 may not of necessity control the action of a legislature 
 seeking to serve its own people, unless reasons can 
 be advanced why the interests of the company and 
 the state can both be guarded. 
 
 I am firm in my conviction that it is best for 
 any community that life insurance should be spread 
 among its people, for I believe that their character 
 will be elevated, that they will be better citizens, and 
 that the public expense of jails, almshouses and orphan 
 asylums will be diminished as life insurance is spread 
 abroad, and, therefore, that the companies honestly 
 furnishing sound insurance should be encouraged, 
 and should not be regarded in any way as enemies of 
 the state and its people but rather as their friends. 
 It is true that some portion of the premiums paid by 
 the public go out of the state, but it is best to remem- 
 ber that by far the greater part of these payments are 
 returned from time to time or .will be in the future, 
 excepting of course those portions which are used 
 in the necessary expenses of conducting a home office 
 which cannot be avoided in any way. Moreover, it 
 seems to me well to consider whether laws can be 
 made which will affect the general supply and demand 
 of money, and -which will in the end benefit any state 
 adopting them. Capital seeks investment where it 
 can get good security, and the best rate of interest. 
 It is possible that a state may compel certain corpora- 
 tions to invest certain moneys within its borders, but 
 this will create a fictitious condition of affairs which 
 
LECTURES ON LIFE INSURANCE 167 
 
 will not be permanent and which will not work to the 
 advantage of the commonwealth. 
 
 I fear that much of the sentiment which has 
 brought about these suggestions of special deposits 
 and other ideas has sprung from the disclosures of 
 wrong doing in life insurance companies, but I con- 
 tend that this feeling should not have any weight 
 whatever in a question of this kind. 
 
 It is proper to make laws regulating the affairs 
 of corporations, imposing penalties for wrong doing, 
 requiring publicity, but the great question affecting 
 investments should not be considered in any way 
 excepting upon a broad reasoning and upon the 
 assumption that a mutual life insurance company per- 
 forms a service to the public. 
 
 Very truly yours, 
 
 John M. Holcombe, 
 
 President. 
 
THE MONEY VALUE OF A HUMAN LIFE 
 
 {In the North American Review) 
 
 [HAT which we call a human life has always 
 been recognized as having to its possessor, 
 and perhaps to others by reason of affection, a para- 
 mount and immeasurable value. That it may have 
 also a money value has been acknowledged in various 
 ways, notably in the institution of slavery. From 
 early times the ownership of the services of a human 
 being has had a worth in accordance with the excess 
 of earnings obtainable above the necessary cost of 
 subsistence. This value has not usually been com- 
 puted with accuracy in each individual case, but in 
 a general way a price has been fixed for a slave, taking 
 into consideration his age, physical condition, and 
 capacity for the kind of service desired of him. 
 
 It is clear, however, that certain important 
 elements are either wholly lacking or but partially 
 developed, in the case of the life of a person held 
 in bondage, which may be present if the possessor 
 of the life is free and independent. Self-interest, 
 ambition, and family ties are needed to develop 
 the highest value of a human life, and it is my pur- 
 pose to show that such a life has qualities which 
 may impart to it a worth as real and as ascertainable 
 as that of other property. 
 
 In the markets of the world, that which is 
 commonly known as property depends for its value 
 upon what can be obtained from it over and above 
 the cost entailed by its possession. Sometimes this 
 surplus is sure and constant; sometimes it is uncer- 
 tain and fluctuating, and sometimes it is wholly 
 prospective. In fixing the price all these qualities 
 will be considered, and the result will rest upon a 
 combination of probabilities. The purchaser of 
 a business block, for example, will calculate the 
 rentals on the one hand, and the taxes, repairs, and 
 
LECTURES ON LIFE INSURANCE 169 
 
 necessary expenditures on the other. The re- 
 mainder will show upon what sum as a principal this 
 will offer a fair return as compared with other in- 
 vestments. But this is not all, nor, indeed, is it 
 the most important consideration. If the building 
 is composed of, or surrounded by, inflammable 
 materials, so that the hazard of its destruction by 
 fire is great, its value will be seriously and unfavor- 
 ably affected. It is true that institutions have been 
 organized to distribute such losses, but as the proper- 
 ty-owner must pay for protection his full share 
 of the risk, which will be accurately and intelli- 
 gently estimated, the value which his building would 
 have, were it not for this hazard, will be diminished 
 by just the chance of that contingency. The pre- 
 sent condition of the structure, viewed in the light 
 of natural decay and its adaptability to the needs 
 of the location and times, will demand intelligent 
 discrimination. 
 
 The amount, therefore, which an investor 
 will pay for the block will be determined by his knowl- 
 edge of what it now produces and his estimate 
 both of what it will yield in the future and the time 
 when, either by gradual deterioration or by sudden 
 accident, it will become unable to afford an income. 
 If there can be obtained from it more than will suffice 
 to meet necessary expenditures, then the property 
 has an actual value which will vary according to 
 the estimate that may be made of its future. That 
 neighborhood which to-day attracts business by 
 the elegance of its buildings or its nearness to lines 
 of travel or transportation may to-morrow be swept 
 by fire or damaged by changes in modes of con- 
 veyance. No human foresight can provide with 
 certainity for these contingencies, but the general 
 future of a section is estimated by the careful student 
 of the laws underlying commercial transactions, 
 with an accuracy which, on the whole, enables him 
 to reap the profits that legitimately belong to high 
 intelligence. In the change of ownership the pur- 
 chaser thinks that he is receiving more than an 
 equivalent for his money; else he would not buy. 
 The seller differs as to the probable future, and 
 
170 LECTURES ON LIFE INSURANCE 
 
 believes that what he now receives will be of greater 
 value; otherwise he would retain his possession. The 
 result, in almost any particular transaction, will 
 show that one or the other has materially erred in 
 his estimate, but, as a whole real estate, or any 
 other property which is valued for its income, will 
 be found to conform to the general law which governs 
 the value of money. 
 
 Can human lives possess attributes which 
 will give to them real values? It would not be 
 difficult to enumerate many lives which cannot be 
 considered of any pecuniary worth, because, for 
 various reasons, they produce nothing, Such are 
 those of the very old, the imbeciles, and the 
 confirmed invalids. But our purpose is to show 
 that a life surrounded by fairly supposable circum- 
 stances, such as exist in every community, has a 
 definite value. 
 
 Every man who earns or produces more than 
 suffices for his actual personal expenses is of pe- 
 cuniary value to some one besides himself. It may 
 be that a family is dependent upon him for support, 
 or he may accumulate his surplus income for 
 the benefit of heirs or charity. No matter what 
 the purpose is, there is a value to someone in his 
 services. Suppose he has earned $2,000 during 
 the year, and his food, clothing, shelter, and other 
 strictly personal expenditures have amounted to 
 $500. Then clearly he has been of the value of 
 $1,500 to someone during that time. We can 
 measure the value of the years which have passed. 
 Can we estimate with accuracy those which are to 
 come? 
 
 Careful observations, extending over many 
 years, in widely-separated countries and among 
 various nations, have demonstrated that the mor- 
 tality of the human family is governed by a law 
 which is constant in its operation. That inevitable 
 power, death, working through its numberless 
 agencies, by disease, accident, and violence, and 
 seeming to seek its victims by chance, is ruled by 
 an intelligence which preserves the balance of popu- 
 lation, directs the laws of supply and demand, and 
 
LECTURES ON LIFE INSURANCE 171 
 
 renders possible the various calculations upon which 
 the commerce of the world is based. 
 
 The most extensive compilations of statis- 
 tics, and the most precise calculations which have 
 been made in search of the law of mortality, are 
 those derived from investigations among what are 
 known as selected lives or those which are unim- 
 paired by hereditary taint, and are found by the 
 examination of physicians to be practically free 
 from disease. A mortality table was constructed 
 in 1843 from careful observations among a large 
 number of such lives whose course could be ac- 
 curately traced, and numerous more recent investi- 
 gations have served to confirm the substantial 
 correctness of the death-rate which was then 
 shown to exist. 
 
 Let us suppose that the man whose surplus 
 earnings are $1,500 a year is thirty years of age and 
 in good health, and that money is worth 4 per cent, 
 per annum. By the mortality table, to which allu- 
 sion has been made, the present value of the future 
 surplus earnings of this life is $25,560. 
 
 It is true that this value is based on aver- 
 ages, and that the assumption that he will, through 
 his life, receive and spend just the amounts here 
 set down will not probably be realized. It is well- 
 nigh certain that his death will occur either 
 before or after the date here fixed. Disease or 
 accident may rob him permanently of his pro- 
 ductive power. Circumstances which no skill 
 guided by research can calculate, and no judgement 
 foretell, may change the current of his life, and 
 enhance or diminish the values of his efforts. 
 And yet this value rests upon a foundation composed 
 of elements no more uncertain than those which 
 determine the worth of the business block. Both 
 the building and the life are constantly exposed to 
 the danger of destruction, but that chance can be 
 measured even more accurately in the latter case 
 than in the former. 
 
 The natural ability of one man is greater than 
 that of another, and this advantage will be shown 
 in the value of their respective services. These 
 
172 LECTURES ON LIFE INSURANCE 
 
 qualities, as well as those of industry and perseverance 
 are inborn traits, and will, considered in connection 
 with education and training, determine the amount 
 for which the possessor can lease his efforts to others 
 or employ them for independent profit. What 
 nature has done for the man corresponds with the 
 location of the building. What experience has 
 taught him is like the quality of the structure. 
 In each case there are certain necessary expenditures 
 which must be met before any real value can exist, 
 and in each case the worth rests upon estimates. 
 
 Calculate the value of your life from the 
 following table: 
 
 Present value of future surplus earnings of $1,000 a year 
 
 at different ages. 
 
 Age 20, $18,451. 00 Age 36, $15,948.00 Age 52, $11,884.00 
 
 21, 
 
 18,329.00 
 
 37, 
 
 15,744.00 
 
 53, 
 
 11,585.00 
 
 22, 
 
 18,204.00 
 
 38, 
 
 15,534.00 
 
 54, 
 
 11,283.00 
 
 23, 
 
 18,075.00 
 
 39, 
 
 15,317.00 
 
 55, 
 
 10,978.00 
 
 24, 
 
 17,941.00 
 
 40, 
 
 15,093.00 
 
 56, 
 
 10,670.00 
 
 25, 
 
 17,803.00 
 
 41, 
 
 14,861.00 
 
 57, 
 
 10,359.00 
 
 26, 
 
 17,660.00 
 
 42, 
 
 14,621.00 
 
 58, 
 
 10,046.00 
 
 27, 
 
 17,512.00 
 
 43, 
 
 14,374.00 
 
 59, 
 
 9,731.00 
 
 28, 
 
 17,360.00 
 
 44, 
 
 14,119.00 
 
 60, 
 
 9,415.00 
 
 29, 
 
 17,202.00 
 
 45, 
 
 13,857.00 
 
 61, 
 
 9,098.00 
 
 30, 
 
 17,040.00 
 
 46, 
 
 13,590.00 
 
 62, 
 
 8,780.00 
 
 31, 
 
 16,872.00 
 
 47, 
 
 13,317.00 
 
 63, 
 
 8,464.00 
 
 32, 
 
 16,698.00 
 
 48, 
 
 13,039.00 
 
 64, 
 
 8,149.00 
 
 33, 
 
 16,520.00 
 
 49, 
 
 12,757.00 
 
 65, 
 
 7,835.00 
 
 34, 
 
 16,335.00 
 
 50, 
 
 12,470.00 
 
 
 
 35, 
 
 16,144.00 
 
 51, 
 
 12,179.00 
 
 
 
 The Phcenix Mutual Life Insurance 
 Company, of Hartford, Conn., undisturbed by 
 financial panics and with ample resources to meet 
 promptly all obligations, offers to assume the risk 
 of this loss. 
 
 Will you compel those dependent upon you 
 to bear a burden, from which you can easily and 
 completely relieve them? 
 
14 DAY USE 
 
 RETURN TO DESK FROM WHICH BORROWED 
 LOAN DEPT. 
 
 This book is due on the last date stamped below, or 
 
 on the date to which renewed. 
 
 Renewed books are subject to immediate recall. 
 
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 BEC.CIR.OCT 30 
 
 3 
 
 LD 21A-50m-8,'57 
 (C8481sl0)476B 
 
 7%.*% 
 
 General Library 
 
 University of California 
 
 Berkeley