NEW-YORK AN LIFE INSURANCE AGENTS, CANVASSERS AND SOLICITORS. BY N. W1LLEY, ACTUABY. C. C. HINE, 07FICBS OF THE INSURANCE MONITOR AND THK INSURANCE LAW 176 BROADWAY, NEW YORK. 187i Entered according to act of Congress, in the year 1874, by C. C. HIKE, In the office of the Librarian of Congress at Washington. CONTENTS. IKTBODUOTION. CHAPTER L General Idea of Life Insurance. PAGE Insurance as a criterion of progress 11 Life Insurance based upon the law of average human mor- tality 12 Life Insurance illustrated by Mr. Wright as a bet 12 Life Insurance a plain business transaction 13 Life Insurance not a charity but a duty 14 Money value of human life 15 Magnitude of the business 16 Life Insurance rests on solid foundations capital, legal re- strictions, publicity, public confidence 17 CHAPTER IL Life Insurance Explained by Diagrams. Insurance for one year .' ; 20 Increasing risks 21 Term insurance 22 "Whole life insurance 22 Single payment life 24 Limited payment life 25 Amount at risk 25 Simple endowment insurance 26 Endowment insurance 27 Practical suggestions 28 CHAPTER HI. The Application and Policy. The application, description of. 30 How it should be filled out 31 The policy, description of 32 Different kinds of policies 32 Whole life 32 Limited payment life 33 iv CONTENTS. CHAPTER IV. Habits and Qualifications of a Good Agent. PAGE Different kinds of policies 32 Term, or temporary 34 Simple endowment 35 Endowment insurance 35 Annuities 36 Payment of premiums and days of grace 37 Semi-annual and quarterly premiums 37 Changes of policies 37 Motives for accepting an agency 39 Respect for his calling 39 Appearance and manner 40 Tact 41 Social qualities 41 Cheerfulness 42 Good temper 43 Perseverance 43 Enthusiasm , 44 Honesty in soliciting 44 Consequences of misrepresentation 46 Some companies insist on the truth being told 47 Character in an agent 48 CHAPTER V. Information Needed by the Agent. Should know what insurance is 50 Adaptation of different plans 51 New plans and features 52 Agent must instruct the public 53 Should read insurance books and papers 53 Need not be an actuary 54 Should understand interest and discount 55 Well posted about his own company 55 Knowledge of human nature 56 CHAPTER VL What to Avoid. Toomuch talking 58 Denouncing other companies 59 Advising unprofitable plans 61 Odd forms of insurance 61 Extravagant statements 62 Newspaper criticisms 63 Bogus insurance companies 63 Unnecessary expenditures 64 Brokerage 65 Rebate 65 Intemperate men as risks 66 Improper use of leaflets, etc 66 CONTENTS. v CHAPTER VII. Choosing a Company. PAGE Old and New Companies 68 Mntual, mixed and stock companies , 69 Character and standing of the officers 70 New plans of insurance 71 Different methods of paying t'.ie premiums 71 Different methods of returning the surplus 71 Different privileges and restrictions 71 Method of doing business 72 Reputation of the company among its policy-holders 73 Past history of the company 73 Agents should work only for good companies 73 CHAPTEE VIII. The Company. The President and Vice President 75 The Secretary ; ; 76 The Medical Examiner 76 The manager of agencies 77 Devotion to the company 78 Influence of agents on a company's reputation 78 Contracts with the company 79 Commuted commissions 79 CHAPTER IX. The Agency. The field 81 Office headquarters '. . . 82 Making a specialty of insuring certain classes 82 Agent should build on a solid foundation 82 Securing the influence of prominent men 83 Minister of a parish 84 Owners of factories, etc 84 Influence of the medical examiner 84 Other events 85 Advertising 85 How to make an agency pay 86 Should endeavor to excel all other agencies 86 The reward of a successful agent 87 CHAPTER X. Accounts with the Company. Monthly statements 88 Office books, etc 88 Careless agents 89 vi CONTENTS. CHAPTER XL Soliciting. PAGE No uniform rules can be given 90 Introductions 91 A suitable opportunity 92 Stating the business 92 Arguments should be adapted to the condition of the person solicited 93 Prepared to meet the objections 94 Religious scruples 95 Is life insurance a safe investment ? 96 Rich enough already 97 In debt 97 The money is needed for business purposes 97 The money spent for insurance is lost 98 No one dependent on him , 98 Some other time will do as well 98 The policy may lapse 99 Reasons for insuring 99 Life is uncertain 99 Unwise to defer 100 Life insurance adds to the length of one's life 100 Every man can leave his family free from want 100 Immediate provision for the family in case of death 101 Views of Hon. Elizur Wright 101 Provision against old age 102 Money value of a policy 102 A safe investment 103 Examples of our best financiers 103 One plan of insurance 103 Filling up the application 104 Medical examinations 104 Remarks of Dr. Allen 108 Delivering the policy 105 Semi-annual and quarterly premiums 105 " Not-taken " premiums 106 Small policies 106 Habits and occupation of parties seeking insurance 107 CHAPTER XII. The Policy-holder. The agent's friend and assistant 109 Policies should not be allowed to lapse 109 Over-insurance a cause of lapses Ill Settlement of claims... ..Ill CHAPTER xm. Surrender Values and Paid-up Policies. Surrender values a source of dissatisfaction among policy, holders , .. US CONTENTS. vii PAdE Actual and tabular cost of insurance 114 Net values and surrender values 116 What is a policy ? 115 Payment of surrender values now generally adopted 116 Why companies cannot pay the whole of the reserve as the surrender value 118 Practical illustrations 119 Why companies cannot pay a surrender value at the end of the first year 121 Illustrations 121 Effect of premium notes and loans on surrenders 123 Ten annual, life and endowment policies 123 Illustrations 124 Paid-up policies 127 Little gained by lapsed policies 128 CHAPTER XIV. Distribution of Surplus. The premiums 130 Mortality 130 Interest 131 Margin, or loading 131 Period of distribution 132 Methods of distribution 133 Percentage on premiums 133 Percentage on reserves 134 Contribution plan 134 Its first application, by whom 134 Cost of insurance explained 134 Cost of insurance, table of. 135 Illustration of contribution plan 135 Application of surplus 137 Reduction of next premium 137 Reversionary insurance , 137 Purchase of term insurance / . . . 137 Purchase of term insurance, tables of. 138 Advantages and defects of different methods of applying the surplus 138 Tontine dividend insurance explained 139 A triple bet 140 Table illustrating accumulation of dividends 142 Explanation of the table 143 Advantages and disadvantages 141 Savings bank insurance 146 Table illustrating, by Mr. Wright 146 CHAPTER XV. The Law of Life Insurance. Powers of corporations 148 Powers and duties of agents 149 Agent's relation with the company 151 Insurance brokers 152 The law of contracts. . . 153 viii CONTENTS. PAGE Life insurance not au indemnity 156 Payment of premiums 167 Delivery of policy...- 158 Warranty and representation 158 Insurable interest 160 Waiver 161 Assignment 162 Prospectus 163 Policy-holder not heard from 164 Violation of conditions 164 Bights of married women 166 Suicide .. 166 INTRODUCTION. THIS manual is prepared for the purpose of educat- ing life insurance agents to a higher appreciation of their duties and responsibilities, and to give them some practical information which will enable them not only to be more successful in obtaining new business, but also in winning the respect and confidence of the pub- lic. The duties and responsibilities of agents have hitherto been almost wholly confined to the task of get- ting new business. Too many have gone into the field with no other motive or aim than to reap a harvest of first commissions, without caring whether the best in- terests of policy-holders were consulted ; too many officers of life companies have made the number and amount of new applications the only criterion of excel- lence in an agent ; too many applications have been written in a careless or perhaps designedly incorrect manner ; and when a policy based upon such represen- tations has become a claim, the payment has often been resisted on account of the ignorance or irregularity of the agent. In these instances the officers of compa- nies have been equally responsible ; they have acted as if new applications, like a mantle of charity, covered a multitude of sins. But the loss of insurance during the past few years equal to seventy or eighty per cent, of the new business, in lapses, surrenders, and not-taken policies, ought to suggest the importance of reform. When it takes place, honor and truthfulness will be the first requisites of a solicitor. Most agents need some practical hints about their business to enable them to succeed. Life insurance has become a science which few thoroughly under- stand, but all should be tolerably familiar with its lead- ing principles. It appears to be a practical absurdity for a man to commence soliciting, knowing nothing of the different plans of insurance, the effect of different premium rates, or of the relative advantages of the pe- culiar features of the different companies ; or to at- tempt to build up a business where the details and mi- nutiae are all to be learned. It is a waste of time and patience for an agent to persuade people to appreciate the benefits of life insurance when its principal advan- 10 INSTRUCTION BOOK tages and characteristics are unknown to him, and it is Btill more difficult to compete with other agents who have made this subject a special study. The young at- torney has spent months, and perhaps years, in learn- ing the routine of a lawyer's office, in attending courts and gaining a practical knowledge of his profession ; the young doctor has spent his time in hospitals, dis- secting-rooms, and in the office of a practicing physi- cian till he has obtained the knowledge and experience which will enable him to succeed. In every kind of business its general principles and practical operation must be learned before one can hope to meet with suc- cess. Eventually it will be so regarded in life insur- ance. A class of men will be carefully trained to the business, and while they devote their lives to this call- ing, they will make themselves so familiar with the science that they can advocate it successfully without having recourse to deception or without fear of mis- take. 1 he agent must first be educated in this manner in order to be properly appreciated and trusted by the public. An ignorant agent making preposterous state- ments about the infinite results of a series of finite pre- miums, and the working of particular plans, may suc- ceed for a time, but his prosperity will be an ephe- meral one. Ere long the policy-holders will find that they have been deceived, his expected success is not realized, and lapses, forfeitures and surrender values will be the results. But when life insurance is proper ly explained, and its truths are clearly unfolded , how beautiful the harmony of the mathematical principles involved ! how convincing the duty to insure ! how easy to see where the greatest advantage lies ! and how sat- isfactory to know that the agent consults the interests of the policy-holder as well as his own ! The principal requisite to success in any business is a general love for it. Unless an agent feels an enthu- siasm in his work, unless he believes he is conferring a great advantage on the insured by his efforts, unless he goes forth in the anxious pride of one who means to win, then he has mistaken his calling. But he cannot be heartily in love with it till he understands it till he is familiar with all the arguments which can be used for and against it, and until he is able to instruct those he wishes to convince. In soliciting, " knowledge is power," and the agent who thoroughly knows what his duties are, and how to perform them acceptably, will be the most enthusiastic and the most successful. CHAPTER I. GENERAL IDEA OP LIFE INSURANCE. Insurance a Criterion of Progress. INSTTEANCB of all kinds is a natural result of modern civilization. It is based upon two well-known facts: that we are exposed to the occurrence of certain mis- fortunes, such as having our buildings burned, our ships lost by storms, and our lives destroyed; and secondly, that these misfortunes happen with considerable regu- larity in classes containing a large number of members. The insurance consists in the unfortunate members of these classes being recompensed for their losses by the contributions or premiums of others who are fortunat e enough to escape a similar calamity. Hitherto man- kind has not succeeded in preventing these occurrences. Fires will break out and reduce valuable buildings to ashes. Ships will be wrecked notwithstanding all dis- coveries in meteorology. People will die from accident and disease before they have fulfilled their allotted three score years and ten, in spite of all discoveries in medi- cine or hygiene. These things happen every day, and the only way to make good the losses which they entail is for a large number of people exposed to any kind of disaster to combine together, and for those who escape to join in paying a definite amount of the loss to those who suffer. To discover the laws which govern the occurrence of these disasters, requires an amount of labor in collect- ing statistics, science in reducing them to nearly uni- form principles, and public confidence in binding the policy-holders together, which is found only in highly civilized countries. The ancients knew nothing of in- surance ; half civilized nations do not practice it ; they have not made sufficient intellectual advancement to enable them to collate the facts and master the princi- ples necessary to reduce insurance to a scientific basis. Only the most enlightened nations insure to any great extent. Insurance, then, may be regarded as a criterion of mo- dern progress, and life insurance as an example of its highest development. No other kind of insurance is based upon such exact laws or requires such profound 12 INSTRUCTION BOOK mathematical principles for its complete investigation, and none other is so important to a community, so lit- tle understood, or so universally neglected. Life Insurance based upon the Law of Average Human Mortality. The law which lies at the basis of all computations in life insurance is, that, in a large class of individuals of a certain age, we can predict with considerable certainty how many will die within a definite period of time. We cannot tell whether any particular individual will live or die during any future period, but a large number of persons, taken at any given age, loses its members in such regular order that we are compelled to acknow- ledge that there is a law of human mortality to which the facts in every-day life conform to a remarkable de- gree. If a person puts 1,000 white beans in a bag, and then adds 100 black ones, and, after the bag is fairly shaken , a blindfolded man proceeds to draw them out one by one, it will be found that in drawing a limited number, the probability that he will draw a white bean is just ten times as great as that he will draw a black one. This is an illustration of the principle upon which .nil tables of mortality are based. Mr. Elizur Wright illustrates the contract of life insurance by calling it a bet unfortunately, so far as nomenclature is concerned, because betting is intimately associated with gambliilg, whereas there is nothing essentially like gambling in insurance . A man aged 25 ' ' bets " $20 that he will die within a year, and he makes a still further bargain that he shall have the privilege of renewing this " bet" once a year diiring life. The company " bets " that the man will not die, and stakes $1,000 on the result. The company has a table of mortality prepared, which shows how many will probably die out of a thousand for each successive year of age from 10 years to 95 or 100, and having converted this average annual risk into a uniform rate through life, and added a margin for ex- penses and contingencies, it is ready to bet $1,000 against a premium of $20 that he will not die. The policy-holder puts up his $20 per annum, and the longer he lives the more likely he is to win. The com- pany will lose the " bet " in the end ; but if it obtains premiums and interest thereon enough in the mean- time to recompense it for the sum insured, and losses paid on others of the same age, it is the gainer. The same principle holds good in fire insurance. A man " bets " a certain sum say one per cent or $50 that FOR LIFE AGENTS. 13 his house, valued at $5,000, will be consumed, and the company "bets" $5,000 that it will not. Now sup- pose that there are several thousand people making just such "bets." In so large a class, a company can easily find out what is the average ratio of loss, and how high the premium will have to be made to bear it and pay all working expenses. Life Insurance a Plain Business Transaction. When we reduce life insurance to its elementary prin- ciples, we find that it is a plain business matter. The idea that it is a benevolent, charitable or sacred institu- tion, the protector of the widow and orphan, is an error which has been cherished altogether too long. There is no more benevolence or charity in it than there is in a savings bank which pays its depositors when they de- mand their deposits. Nor is there any more benevo- lence or charity in a man's insuring his life for the ben- efit of his family than there is in his providing them with food and raiment. It is his duty to provide for them as well as he knows how, and if he is convinced that life insurance is one of the means whereby this can be accomplished, then he is unfaithful to his trust if he does not take advantage of it. Nor is a life insur- ance company a benevolent or charitable corporation because it pays its losses promptly. Paying losses is a part of the contract of insurance, as paying for goods purchased is a part of the duties of mercantile life. It may be considered a heresy to expose a fallacy on which so many solicitors have depended for their arguments, and on which so much has been written in favor of life insurance ; but this is the simple truth, and the sooner it is generally understood the better. Life insurance has depended too much for its success upon sympathy, misrepresentation and mystery, which is the cause of so much dissatisfaction and disappointment among policy- holders. Since life insurance companies are purely business organizations, they must be conducted on sound busi- ness principles. In order to live and prosper, they should protect themselves, or rather their policy-hold- ers, against fraudulent claims, extravagance, and ev- erything which hinders their successful operation. A company which does not is unworthy of confidence and patronage, and so when the public or some ignorant ed- itor blames a life insurance company for contesting a claim which is evidently fraudulent, or for refusing to defraud the remaining policy-holders by paying too lib- 14 INSTR UCTION BOOK eral surrender values, he is discussing matters which ha does not understand. The company is designed to be- nefit those policies which remain in force in preference to those which drop out, and honest policy-holders in- stead of derelicts. Life Insurance not a Charity, but a Duty. But although life insurance is strictly a business mat- ter on the part of the company, it has a grand and no- ble mission to perform. On the part of the policy- holder it appeals to the noblest and tenderest feelings of bis nature. The care of those dependent upon him; the protection of offspring ; the careful preparation for the support of loved ones, years after the grave shall have covered the strong arm which labors and the man- ly heart which sympathizes with them this is the great mission of life insurance, and to this end should all its energies be directed. It is not a legitimate sub- ject of speculation. If men insure their lives to make inoney on the investment, it is because they know that they are short-lived, or because they have erroneous views on the subject of profits. If they know that they are short-lived, and get into a company by making deceptive representations, they intend to defraud the remaining policy-holders. If they insure as an invest- ment, and live to a good old age, they obtain a moder- ate interest on their money, less the tabular cost of in- surance. But passing over these baser motives, there is much real solid good done by insurance. It tends to length- en a man's life by giving him that assurance in the hour of sickness that his family is provided for in the event of his death ; it inculcates habits of economy and self- denial by compelling him to set aside a part of his in- come to purchase a future benefit; it discourages intem- perance as one of the means by which a policy may be lost, and by placing the policy-holder under bonds not to die by intoxication ; and finally, its whole tendency is to furnish him with the noblest impulses of action, which any mere business or selfish motive can bestow. There is no charity, no benevolence in this. None of the saintly virtues which some writers love to proclaim in advocating life insurance ; but there is an honest performance of duty ; there is a preparation for death as far as worldly matters are concerned , and there is the exercise of that forethought which distinguishes a civilized man from a savage, or prudence from reckless- ness. The man who is insured in a sound and pros- FOR LIFE AGENTS. 15 porous company has the feeling of security for the wel- fare of his family in case of sudden death, and this may be a boon whose value cannot be estimated in dollars and cents. There is many a man who would hardly rest a single night if his factory, warehouse or store were not in- sured to its full value ; but who will recklessly expose himself to death while his affairs are in a chaotic con- dition, with no certain provision for his family no in surance on his life. Men do not refuse to pay money for other objects of a similar nature. We live in a civ- ilized country where there are laws, civil officers, courts and policemen. We can sleep, knowing that there are watchmen to protect our property from being stolen or destroyed. We can travel by day and night, knowing that the arm of the law will protect us, and for these blessings we cheerfully pay taxes ; but in all this there is no insurance, only an imperfect protection. We in- sure our buildings against lire, when not one building in a hundred burns, and we pay our fire insurance pre- miums promptly and cheerfully; and sometimes, after u. great deal of argument and solicitation, and too often with an idea that it is a good speculation, we insure our lives. Let us hope that hereafter agents will divest life insurance of ail its clap-trap and sentimentalism, and look at it as a plain, straightforward bargain on the part of the company, and a simple duty of the policy- holder. Money Value of Human Life. Some people have the idea that life insurance is a speculation on a man's life, and is wrong, inasmuch as human life is too solemn and serious a thing to be made the subject of any such contract. It is just here that the whole thing is greatly misunderstood. A man takes a life insurance policy, so-called, of $10,000. It is not his life which is insured against death, so much as it is the value of his services; he insures that quality in him which is necessary to support his family. That is his income-producing power, or capacity to earn mo- ney. Men who are physically disabled, and who have no ability to support themselves and others, such as the insane, the badly crippled, or those in premature do- tage, cannot get insured if the company is aware of their condition, even if their health is good, because there is no money value to their lives. But if a healthy man gets killed by a railroad accident, his friends bring an action against the company and get damages, say $5,000. 16 INS TR UCTION B OK This is the sum which they claim is the money value of that man's future services to his family. So in life insurance ; a man insures his money value as a producer, or as much of it as he can afford. This is a kind of property which the law protects . If a man starts a malicious rumor or report against a merchant or doctor, which injures his business and di- minishes his income, the law gives a remedy and the slandered man brings a suit for damages against the of- fender, because a man's income-producing power is just as much his property as his bank account. Suppose a man gets a salary of $2,000 a year ; the present value of it at six per cent, discount if he were sure of living and earning it for twenty years is $23,000. This is his income-producing value as a man, and this is what he insures when he takes a life policy. There is no more speculation in this than there is in his insuring his house or factory, and his duty is just as plain in one case as in the other. If a man has a machine which will earn $2,000 a year for twenty years, and if that machine should be destroyed by fire, and he could not get another under any circumstances , he would instant- ly have it protected by a fire policy to its full value. We have taken this view of life insurance because we be- lieve that when it is stripped of all its mystery and false claims upon the public, and is presented as a sim- ple business matter, obligatory upon all men to the ex- tent of the risk which they run, the money value of their services, and the amount of annual income they can spare for this purpose, then the objections against life insurance will be confined mainly to the stability of the companies. Magnitude of the Business. Hardly any business in the United States has in- creased so rapidly during the last ten years as life insur- ance. It has taken so strong a hold upon the public confidence, and has become so firmly established, that it is now recognized as one of the leading subjects of financial investigation . Our prominent companies have been in operation twenty or thirty years, and have ac- quired a solid reputation for stability and honesty. Many of them are as sound and safe as the best banks in the United States, and their assets are reckoned at from one to sixty millions. There are now more than a hundred life insurance companies in active operation in this country. The returns of sixty-four of them, com- prising all those doing business in New York, and one FOR LIFE AGENTS. 17 or two more, and as given below, show their condition and standing December 31st, 1871, and in comparison we give the condition of all the companies doing busi- r.ess in New York just ten years previous : Condition Condition Dec. 31, 1S61. Dec. 31, 1J71. Companies 17 64 Policies in force 57,202 781,618 Insurance in force $164,256,052 $2,081,942,007 Gross Assets, 26,670,397 307,087,91 7 Income, 1871, 4,913,390 113,320,838 Payments of Losses and \ n .. 7q1 91 ., o Endowments, j .. .1,535.791 21,47o,362 Dividends to Policy-holders, 21,936,991 From this statement we see that the amount of busi- ness has become more than ten times as great as it was ten years ago. Since it has acquired such gigantic pro- portions it is impossible either to ignore it or to stay its onward progress. Such a business could never have been built up un- less the managers of these companies had the implicit confidence of the people, and nothing can destroy it but a general want of public confidence, caused by a gross mismanagement. Life Insurance rests on Solid Foundations. The public- confidence upon which the whole business of life insurance depends, rests upon four solid founda- tions, every one of which is yearly meeting with the most decisive tests : The first foundation is capital. Life insurance has. money for its basis. The assets of our leading lite in- surance companies range from five to sixty millions of dollars ; nearly all this is invested in interest-bearing securities. These assets are safely invested. No sav- ings bank in the country takes more pains or exercises greater care in the investment of funds than our life in- surance companies. Many of these companies have never lost a dollar from poor investments, although many millions have been entrusted to their care. Dur- ing the year 1871 half a dozen savings banks failed in the city of New York, occasioning a loss to the depos- itors of upwards of $500,000, while the life companies stand firmer than ever. The second foundation is the LEGAL EESTEICTION which is thrown around life insurance companies. No- other corporation is so jealously watched and guarded as this. Savings banks, banks of issue, and trust com- panies, can do more as they please with their de- posits or fund ; but the life insurance companies are 18 INSTIt UCTION B OK held to the strict letter of the law and watched with a jealous eye. In every State in the Union where life in- surance companies are organized, and where there is an Insurance Department, they are prohibited from in- vesting their funds in any speculative or doubtful se- curity.* They must keep up the required standard of reserve as prescribed by law. All new companies must have a capital slock of at least $100,000, and usually this must be deposited -with a State official to secure the prompt payment of all just claims. The third is PUBLICITY. The annual sworn statement of the condition and standing, including the business done, assets, liabilities, receipts, expenditures, and losses of every company doing business in a State where there is an Insurance Department, must be ex- amined by a competent State official, and published in an official manner, and every agent and citizen has an opportunity to read these reports understandingly and critically. Contrast this trait of our companies with the condition of life companies in England, where so many failures have occurred in life insurance, and where they are still occurring. There secrecy of ad- ministration is the rule ; the internal condition and working of every company is carefully hid from the public eye, and the policy-holder or agent knows noth- ing but the "glittering generalities" of assets and pol- icies in force which the directors and officers please to publish, till suddenly, like a thunderbolt in a clear sky, a crash like the failure of the Albert or the European sends consternation and dismay among thousands of homes. The fourth is PUBLIC CONFIDENCE. There is a grow- ing conviction among men that it is their duty to in- sure their lives in sound companies. Life insurance is not now regarded as a rich man's luxury, but it is the poor man's shield. The constantly recurring cases of men dying and leaving policies of insurance to be paid to their families a short time after their death, is having its effect on the minds of thousands who never would have had any confidence in it. Well-known ex- amples and every-day illustrations are the most convinc- ing of all arguments. Our great companies, which have weathered through a score of years without disappoint- ing their policy-holders, are examples of this kind of confidence. No one questions their soundness or abil- ity to pay their losses as they mature, and most of the younger companies are following their footsteps and reaping the same kind of reward. Public confidence is the vital health of a life insurance Company ; without FOR LIFE AGENTS. 19 it is paralyzed ; with it it can defy commercial crises, aiid when the money market is stringent, it can lend a helping hand to those policy-holders who are pressed by temporary embarrassment. But how is it with a bank of issue in a commercial crisis ? Will it ease the mo- ney market and accommodate depositors by making loans any more readily ? Not at all. Every year the public confidence in life insurance companies is growing stronger. They may change their plans and rates of in- surance in order to keep up with new discoveries in the science, but the time has come when they are firm- ly established iu the confidence of the people the firm- est foundation of all. 20 INSTRUCTION BOOK CHAPTER II. LIFE INSURANCE EXPLAINED BY DIAGRAMS. IN this chapter we propose to give a few plain arid simple illustrations of the science of life insurance, and the practical advantages and peculiarities of different kinds of policies. Insurance for One Year. The fundamental. idea of an insurance premium may be illustrated by a triangle: the perpendicular line A B representing the premium just paid, and the horizontal one, AC, the year, divided into twelve equal spaces denoting months in which the insurance is in force. FIG. I During every month and day after the first premium is paid, the company agrees to pay the amount expressed in the policy should a total loss occur. During this time it is earning the premium by carrying the risk, and at the end of the year, when the whole is earned, the entire premium is the property of the company. If no loss occurs on the policy during the first three months, the company has earned one quarter of the premium, and the unearned part of the premium may be separated by the second perpendicular line from the left, which is only three quarters as long as the first line, A B. If the premium is $100 a year, the cost of carrying the risk is between 27 and 28 cents a day. At the end of FOR LIFE AGENTS. 21 three months the company has earned $25, and the un- earned part of the premium is $75, as shown by the second perpendicular line. At the end of six months the company has earned $50, and at the end of the year the whole $100, and the unearned part of the pre- mium is reduced to nothing. The company has now fulfilled its contract. In fire insurance the company sometimes cancels the risk and returns the unearned premium. At the end of three months the balance due the policy-holder would be $75, at the end of six months $50, and so on. This unearned premium, whether in fire, life, marine or ac- cident insurance, is the reserve on liability, and is what the company, in equity, owes to the policy-holder at any given time before a loss takes place on the pol- icy. The policy-holder, on paying his premium, hires the company to stand ready to pay the amount insured should a loss take place during the period of 'insurance ; and the shorter the unexpired time the policy has to run, the less chance there is of its being called upon to pay it. This is the fundamental idea of all kinds of insurance. Let us see how it is modified in a life policy : Increasing Risks. Here the danger of dying is increased each successive year after the assured has arrived at early manhood. FIG. II At any age, if .the policy should be issued for only one year, its conditions would be governed by the foregoing principles ; but if, having arrived at an age when the risk gradually increases, he should take out a new poli- cy from year to year, the premiums on the same amount would have to be annually increased to correspond with 22 INSTRUCTION BOOK the risk. If the premium is $100 this year it may be $102 next, and then the unearned premium at the end of six months would be $51, and $25.50 at the end of nine months. If the premium the next year is $104, the unearned premium at the end of six months is $52, and $25 at the end of nine months. Since a larger premium must be paid each successive year to provide for increased risk, the corresponding perpendicular lines gradually increase in length toward the right. Term Insurance. The method of finding the uniform annual premium for a term policy of three years is illustrated as follows: Suppose we have a class 10,000 persons of the same age, and that during one year 100 die ; there are 9,100 re- maining. During the second year 101 die and 9,799 remain. During the third year 102 die. The first year there would be 10,000 premiums paid, the second 9,900, the third 9,799. Total, 29,699, to 303 deaths. If each person were insured for $10,000, the total loss would be $3,030,000, and the amount of each premium re- quired would be $3,030,000 4- 29,699 = $102 nearly. The policy-holder pays the annual premium of $102, but the cost of insuring during the first year according to the diagram is only $100 ; hence there is a balance or reserve at the end of the first year of $2, and is the unearned part of the first premium. The second" year the insured pays the annual premium of $102, which, added to the reserve of $2, makes $104 ; but the com- pany spends only $102, leaving again $2 reserve. The third year the annual premium of $102 is added to the reserve, making $104 ; but this year the policy-holder must pay $104 to meet the increased death-rates, and at the end of the year there is an exact balance. "Whole-Life Insurance. Should the insured allow his policy to lapse at the end of the first or second year he would lose the reserve of $2. Now a whole-life policy with equal annual pay- ments is merely a term policy ending at the age of 96, according to the American Experience Table of Mortal- ity, and if the insured should continue to pay an in- creasing premium, each year on the same amount of in- surance, the line A B in the last diagram would become the curved line A B in the following figure. The increase of risk is not uniform, but annually in- FOE LIFE AGENTS. 23 creases as the insurance grows older, so that while at age 41 the risk is almost one per cent, of the amount insured, at 70 it is about ten per cent., and at 80 about fourteen per cent. In the term insurance example, given above, we saw that it was necessary to charge a B FIG. Ill I 1 I I I I I 40 50 60 70 80 90 96 higher premium than was required at first, to provide for carrying the risk in the older ages, and this rule must apply with still greater force to a whole-life poli- cy with equal annual payments, as the above figures will show the dotted line denoting the equal an- nual payments as compared with the increasing pay- ments represented by the curved line.* In whole-life insurance this larger premium is required to provide for a fund or reserve, which, with the annual interest thereon, will meet the ultimate payment of the risk when the insured reaches the age of 96, or if he dies before, it will be added to the contributions of other policy-holders to pay his own claim. In these explanations we have not thought it neces- sary to show the effect of interest or discount in com- puting premiums or reserves. The only effect of this element is to make them considerably smaller, and for the sake of brevity and simplicity we omit it. * Owing to the limited space, the proportion of these figures is necessarily somewhat inaccurate, but it is exact enough for pur- poses of illustration. 24: INSTRUCTION BOOK Single Payment Life. In a single payment life policy the premium must be large enough so that the compound interest on it will enable it to make its due share of contributions to death losses of similar policy-holders of the same age, and still add enough to the original premium so that at age 96 the premium will amount to the policy. Take the case of a man 40 years of age : his single premium for $1,000 (American Experience 4J- per cent.) is $330.95. Adding interest at 44 per cent, $14.89, we have $345.- 84 ; deducting contributions to other death claims, $6.47, there remains $339.47 the single premium for age 41. The practical disadvantage of this kind of pol- icy is that a comparatively small amount of insurance is secured .by paying a large sum of money ; for the policy-holder pays the present value of all the future death-claims in advance, and this is just equal to the present value of the future net annual premiums. To show how unprofitable, compared with other methods, single premium insurance is, the following diagram is given. All the insurance obtained on a single premium life policy is represented by the space above the upper curved line, and the amount of the annual premium by the space above the lower curved line. The expensive- ness of a single premium life policy may be still further illustrated by the fact that $330.95 at compound inter- est 4J per cent, in 25 years will amount to $1,000, and FOR LIFE AGENTS. 23 at 7 per cent, will equal this in 16 years. At age 40 the expectation of life is about 28 years, or at age 68 ; and $330.95 at compound interest, 4 percent., amounts at age 68 to $1,135.06, and at 7 per cent, to $2,100.42. Unless the applicant is in very bad health, this is not a profitable kind of policy for him. Reversionary insur- ances from dividends are small policies of this class. Limited-Payment Life. A life policy with a limited number of premiums is better than a single-premium one, but unless the pre- miums cease at 70 or 75 it has little advantage over a whole-life equal annual premium policy. At the age when the premiums cease to be paid, it becomes a paid-up policy, and its reserve is equal to the single premium. Thus a ten-annual life policy issued at age 30 requires an annual premium just about one tenth of the single premium at age 40, for the premium must be large enough to amount to this single premium in ten years. The disadvantage of the ten-annual life policy is that the premiums are too large in the younger years for profit, and the less the number of premiums the more the policy resembles a single-premium one, and the greater the number the more it approaches to ordi- nary life insurance. But there can be little or no dis- advantage so far as the amount of insurance obtained is concerned, in taking a limited payment life policy, the premiums to cease at age 70 or 75. The ten-annual life premium is represented by the short curved line near the left of the last diagram. At age 40 it is merged into the single-premium line. Amount at Risk. In the foregoing example of term insurance (Fig. II. ) we saw that the reserve at the end of the first and sec- ond year was $2, and at the end of the third year no- thing. If the sum insured was $10,000, at the end of the first and second years the policy-holder would have a credit of $2, and the amount at risk which the com- pany actually carried during these years was $9,998. As we regard the reserve at the end of the year only for the sake of simplicity, the reserve on a three-year term insurance may be illustrated by the space below the curved line, (Fig. V.,) and the annual insurance done by the company by the space above it within the figure. The insurance done by the company is the benefit which the insured receives from his premiums ; 26 INSTRUCTION BOOK the rest is the unearned premiums ; and as far as any benefit is conferred upon the insured at the end of each year, this amount might as well be in his pocket ; but because he chooses to pay a level instead of an increas- ing premium, this amount must be reserved by the company. It is evident that the smaller the sum, the FIG. V greater is the immediate advantage the policy-holder obtains for his money ; that is, the less insurance he does for himself, the more the company does for him. Simple Endowment Insurance. Endowment insurance policies are illustrated as fol- lows : If a man should deposit $96 per annum in a savings bank without interest for ten years, on the con- ditions that if he were alive at the end of that time- he should be entitled to $1,000, and also if he died in the meantime the company would retain the whole amount paid, this would be a simple endowment (leav- ing out the item of interest,) and may be represented by the next diagram. The reserve at the beginning of each year is shown by the first ten perpendicular lines, and the last de- notes the sum payable in ten years. In this illustra- tion there is no insurance done by the company. The policy-holder pays $960 in ten years, and if living at that time is entitled to $1,000 ; the balance, $40, is the amount the company pays to the policy-holder for in- suring himself in favor of it ; that is, the policy-holder deposits his money with the company and carries his own entire risk of losing it for $40. In this case the business of life insurance is entirely reversed . FOR LIFE AGENTS. 27 Endowment Insurance. But suppose the insured wishes to " hedge" his con- tract, and takes out a ten-year term insurance policy in addition, entitling him to the full amount of $1,000 12 34 567 should he die in the meantime, the reserve on this pol- icy would be represented by the curved line at the bot- tom of the diagram. But a large part of the insurance he would get under a single-term policy is already earned by the money he has deposited with the com- pany. Adding these two reserves together, we have the upper dotted curved line, and adding the net pre- miums on the two policies we have the elongated per- pendicular hues. These two policies, the term and simple endowment combined, constitute an endowment policy of insurance. It is plain that this kind of policy is not the most profitable one for the policy-holder for the following reasons : He gets a small amount of insurance for the money paid, a large part of his premiums is locked up in his own deposits, and he has to pay more than his share of the expenses of the company in the ratio of the benefits received. The following diagram represents the practical work- ing of a ten-year endowment policy, age 30. The first year's reserve is shown by the quadrilateral over the figure 1, the second by a larger one over 2, and so on. If this is a policy of $1,000, the average amount of in- surance carried by the company (Ani. Ex. 4 per cent, interest) is only $562 per annum a little more than 28 INS TR UGTION BOOK one half the amount of the policy. The line A B is the net premium or reserve at the beginning of the first year, C D is the reserve at the end of the first year. The net premium DE being added, we have CE, the reserve at the beginning of the second yaar, and G F is the reserve at the end of the year, etc. 1.000 800 600 400 Fic,VlI 200 123456789 10 After the first year the lines EG, HI, etc., are not parallel to the bottom line, but incline upward, which shows that the interest on the reserves more than equal the cost of carrying the risk ; that is, all the actual in- surance done by the company is paid for not by the annual premiums but by the interest on the money de- posited to pay the final claim. But a long term endowment nearly resembles a whole life policy, (which is only an endowment or term insur- ance policy payable, according to the American Expe- rience Tables, at 96.) If there is anything to choose be- tween a whole life policy and an endowment policy ma- turing at 70 or 75, the advantage is rather in favor of the latter. The endowment premium is somewhat larg- er, to offset the contingency of having to pay premi- ums after this age, or to pay the claim at this period. Practical Suggestions. Every one solicited to insure his life should ask him- self the following questions : How much insurance do FOR LIFE AGENTS. 29 I get for the premiums paid, and how much do I insure myself? Will the advantages resulting from paying large premiums be sufficient to justify the in- creased expense ? Is it worth while for me while young or in middle life to make a contract for insuring my life between the ages 70 or 75 and 96 ? Since the working expenses are now assessed upon the gross premiums paid, will the advantages to be derived from these ex- pensive methods be sufficient to justify the payment of a high premium rate ? 30 IN8TR UCTION SO OK CHAPTER III. THE APPLICATION AND POLICY. The Application. THE application is a proposal, in which the party seeking insurance asks for a policy upon his life. As it is the basis of the contract of insurance between him and the company, the interests of both require that all the questions in it should be truthfully and explicitly answered. In it he gives a full description of himself sufficient for identification. His name should be writ- ten in full, without any abbreviations or initials, and the same rule should be observed with regard to the names of those for whose benefit the policy is made. The amount and kind of insurance should be explicitly stated, and also, in mutual companies, the method in which the surplus is to be disposed of when declared. The age of the party should be exactly ascertained, and the correct date of birth should be given in all cases where it can be procured, since the premium is always taken for the age at the nearest birthday. If required, the ages of his parents, grandparents, brothers and sis- ters, and the ages at which any of them died, should also be given with all possible accuracy, and also the diseases of which any of them may have died. The agent should also notice the present condition of his health, and all circumstances connected with his family history which it may be important for the company to know. If any of his relations have died insane or by consumption, it is important that the company should know it, however unfavorable the facts may be to the prospect of his being accepted. The occupation should be correctly and definitely stated. It is not sufficient to say that a man is a labor- er ; he may be employed in a powder-mill or nitrogly- cerine factory. The agent should be careful to explain that the application is a part of the contract of insur- ance, and that the policy is binding only in case the questions in the application are answered truthfully. The application should be duly signed and witnessed according to the printed instructions of the company, FOR LIFE AGENTS. 31 and great care should be taken to have this part of it exactly correct. If a witness is required, a suitable one should be procured. When the party insures for the benefit of any other person than his wife or child, the agent should see that this person has an insurable in- terest, * otherwise the policy will be null and void. When the application is finished, duly signed and witnessed, the medical examiner makes a careful exam- ination of the applicant's physique, and answers in writing a list of questions on another page of the appli- cation, and then he returns it to the agent or sends it direct to the company. As the application is usually the only means whereby the company can judge wheth- er the risk is a good one or not, both the agent and medical examiner should have all the questions an- swered definitely and completely. In an application there are usually some forty or fifty different questions to be answered, and upward of two hundred and fifty items to be noted. Every one of these should be carefully read by the agent, the applicant, and the medical examiner. It will not suffice to pass any of these over in neglect, because in a list of ten thousand applications all of these items will in some way or other be deemed worthy of special consideration, and the officers of a company will not fail to remark any negli- gence on the part of an agent in filling out the applica- tion. It is also very disagreeable for an agent, 'just at the time he expects a policy from the company, to re- ceive a returned application, and a note requesting some question answered more fully or some blank filled up. It gets the agent into bad repute, it puts the com- pany to a great deal of additional labor, and it disgusts the applicant to be called on a second time for inform- ation. Some companies require the family physician to an- swer additional questions respecting the habits and health of the applicant, and if the amount to be insured is very large, two separate examinations are required. Questions are sometimes given to be answered by an ' ' intimate friend " of the applicant, but in many cases they are simply added to enable the agent to get an in- troduction to other parties who may need insurance, by showing them the application and obtaining their indorsement on it. * That is, will the party in whose benefit the policy is made, suffer a pecuniary loss by the death of the insured -the loss being equal to or in some way commensurate with the amount of the ' policy ? For further explanation of " insurable interest," see the last chapter. 32 INSTRUCTION SO OK The Policy. The application and policy form the entire contract of insurance. The policy commences by making the representations in the application its basis, and the payment of the first premium to the company or to an authorized agent is a binding condition that the policy shall be in force. Then follows the declaration that the company insures the life of the applicant upon a certain plan and upon a given premium, and this poli- cy is to remain in force provided he does not unneces- sarily expose his life by certain acts which will render the policy null and void. These restrictions usually relate to travel and residence in foreign countries, or unhealthy localities, or engaging in extra- hazardous oc- cupations whereby life is apt to be shortened; or if the insured should die by suicide, the hand of justice, from gross intemperance, or a duel, then the sum insured iu the policy shall not be paid, and all the premiums shall be forfeited to the company. Hardly any two compa- nies agree upon all of these conditions and premises. In some companies, which profess to be "extremely liberal," and thereby hold out additional inducements to parties to insure, these restrictions are almost wholly removed, but others more "conservative" adhere to the ancient landmarks. When the policy is delivered and the premium paid, then it is binding upon the company. If the policy is delivered before the first premium is paid, and the in- sured should die in the meantime, the courts would probably hold the company liable for the sum insured, even if the special instructions to the agent were that no such delivery should be made. The act of the agent in delivering the policy would probably be considered as a waiver of the right to demand the first premium in advance, leaving it optional with the policy-holder when it should be paid. A proper appreciation of this fact will make an agent careful how he trifles with the interests of his company by the delivery of a policy without the actual receipt of the cash. Different Kinds of Policies. WHOLE LIFE. This is the oldest, the simplest, the most common, and in many respects the best kind of policy. One of its principal advantages is that it gives the greatest amount of whole life insurance for the least premium. It enables a man with a given sum of money FOR LIFE AGENTO. 33 to make & larger provision for his family at death, and it carries out the idea of life insurance more completely than any other kind of policy. But because there is a larger ratio of the premiums spent for the payment of losses and running expenses than in any other kind ex- cept term insurance, the surrender values and paid up policies on this class must necessarily be small. Ano- ther objection to it is that in extreme old age, when the insurance is no longer needed to protect one's family in case of death, the annual premium is a tax upon the policy-holder. The conditions of the policy are that the premiums shall be paid till death, and if this event does not occur till extreme old age, then the insured is paying for advantages which he has already received, in obedience to one fundamental law of all insurance, that the losses must be paid by the more fortunate who escape, and in life insurance the survivors must pay the losses of those who die early. LIMITED PAYMENT LIFE. A modification of the whole life plan is the limited payment life, or a policy paya- ble at death, but the premiums payable only during a limited number of years usually five, ten, fifteen, or other similar period. This has some advantages not found in the whole life plan. It enables a policy-holder to know definitely when his premiums will cease, and in taking a policy he can choose one in which the pre- miums will cease when he has arrived at an age when he has no longer any need for insurance, and when the continued payment of premiums would only be a bur- den from which he would reap no immediate ben- efit A life policy with the premiums ceasing at the age six- ty-five or seventy probably combines about as many advantages as any policy which can be named. The number of premiums is certain, and there is no anx- iety lest the policy may become a tax upon the ex- treme old age of the insured. Whatever is paid on a policy after the age of seventy is usually regarded mere- ly as a penalty for prolonged life ; it is contributing to the losses of those who die younger without receiving any other advantage than the prospect of its ultimate payment ; and unless men are perfectly certain that they will be able to afford it, they should so insure that this tax upon prolonged life may be avoided. It is usu- ally a privilege in this class of policies that the insured can obtain a paid-up policy for a definite amount, de- pendent upon the number of premiums paid. In whole-life policies this is not usually the case. As the 34 INSTR UCTION SO OK premiums in this class are limited in numbur, they are necessarily somewhat larger than those on the whole- life plan. TERM, OK TEMPOBAEY POLICIES. This plan provides for the insurance of a life during a limited number of years, and if the insured survives this pei-iod the policy expires by limitation, on the. same principle that a fire insurance policy expires on a certain day and hour, unless renewed. It is obvious that the annual premi- ums must be less in this than in any other kind, be- cause there is no insurance during an indefinite period of old age to provide for. It furnishes the largest amount of insurance for the least amount of money, during the limited period in which the policy is in force. In a life policy the insured will win at last if he keeps on betting, or pays his premiums long enough ; but in term insurance, unless he dies within a limited time, there is no payment of the policy. If he desires to keep insured after the policy has expired, he must submit to a new medical examination and pay a higher premium. In the Massachusetts Keports for 1865 we find the following testimony of the Hon. Elizur Wright in favor of this class of policies terminating at an advanced age : " The public still seems unaware of the advantages of temporary insurance especially of terms sufficiently extended to cover the whole of the active or productive period of life. It seems to be very generally believed that if a term policy should be outlived, all the pre- miums paid for it would be thrown away. This seems to be the reasoning of people who do not regard their fire insurance premiums thrown away when their houses have not been burned. A man aged thirty ought to be able to get a policy of $1,000 for a term of forty years by paying at least $4 per annum less than for his whole life ; that is, the company could well afford to make that reduction in consideration of the limit. Four dol- lars per annum, accumulated at six per cent, for forty years, will amount to $619. But if he pays it to the life insurance company in order to have the policy ex- tend over the whole life, and he is in sound health at the end of forty years, the company will not give him $619 as the surrender value of his policy, its value at four per cent, being only $594.38. But suppose he has taken the long term policy, investing year by year the $4 difference of premium, and dies at the end of thirty- five years. Then his heirs get the amount of the policy, FOR LIFE A&ENTS. 35 $1,000, the same as if the policy had covered the whole life, and also $445.72, the then amount of the invest- ment outside. If he had paid the whole life premium his heirs would get nothing outside." As a general rule this class of policies is not encour- aged by the companies, owing to the greater ratio of mortality which is experienced in persons who choose this plan of insurance, and some companies utterly re- fuse to issue term insurance policies, which clearly proves that in some cases they are the most profitable ones to the insured. SIMPLE ENDOWMENT. A policy of this class is paya- ble to the holder provided he survives a certain num- ber of years : otherwise the premiums are wholly for- feited to the company. There is no insurance in this class of policies, because the company assumes no risk, and the amount is payable only in case the policy-holder survives: Policies of this kind are very little used, and ought never to be issued, but a few " children's endow- ments " are. The money spent in premiums would be more profitably invested by depositing it in a savings bank. ENDOWMENT INSURANCE. This is a combination of term insurance and simple endowment. The net pre- miums of these two plans, taken for any age and num- ber of years and added together, will make the net pre- mium for an endowment policy. It is payable as a simple endowment at a certain period if the insured survives, and if not it is paid at death, as in term in- surance. The advantage of this kind of policy is that after the required number of premiums have been paid the insured, if living, will realize the whole amount of his policy. For this reason it has some attractions for those who insure for investment as well as for protec- tion. For several years until recently endowment insurance was very popular ; in some companies there would be thirty or forty per cent, of the business done on this plan, but lately there has been a change in the popular estimation of it, and only a small per cent, of the busi- ness is done in endowments. One reason is that the premiums are much higher than in other kinds, and the actual amount of insurance secured is much less. During the last year of the policy the cost of insurance is nothing. The practical working of high premiums is thus explained by Mr. Elizur Wright : " It is marvelous how little it is considered that the more you pay in advance the more you insure your- 36 INS TR UCTION B OK self. And the more you insure yourself the more you have to pay beyond your first share of the expenses." Another reason of their present unpopularity is that the people have been too often disappointed in divi- dends or return surplus on this class of policies, and as an investment they have not been found to answer the expectations which have been raised by a certain class of agents. Short term endowments will do for those who are rapidly making money, and who desire to invest it in a manner which will be safe and give their heirs no trou- ble to collect in case of their early death. Long term endowments, maturing at the age of sixty-five or sev- enty, are well adapted to persons of limited means, who are desirous of realizing their policies in old age, and therefore should be encouraged. Endowments are sometimes issued payable in a cer- tain number (as twenty or thirty) years, and the pre- miums payable during a less time, usually ten years. There is no advantage in this kind of policy, except in certain cases where the payment of premiums would be more convenient by this method. The premiums are larger than in the regular endowments, and the amount of insurance by the company is much less. ANNUITIES. A sum of money paid by 'a company at regular intervals is called an Annuity. It is called a contingent annuity when the number of payments de- pends upon the life of a person or any uncertain event. Insurance companies often sell annuities that -is, in consideration of a sum of money paid to the company, the latter promises to pay to the annuitant a certain sum during life. Annuities are directly the reverse of in- surance. The earlier the death of the annuitant the more profitable will it be for the company, and the longer he lives the more will he realize from his invest- ment. Annuities, which are quite common in England, are not popular in this country, probably because their true value to people well advanced in life is little known. Another reason is that the annual income from certain classes of losses will often realize quite as much as companies are willing to pay in an annuity. At the age forty, $1,000 will purchase an annuity of $64.36, according to the American Experience Tables, and four and a half per cent, interest, and at the age of fifty it will purchase $75.55. Because companies do not give any bonus or return surplus upon them, money can usually be invested in some other securities quite as profitably. But for people well advanced in years, FOR LIFE AGENTS. 37 who have a sum of money for their support, and no one dependent upon them , the purchase of an annuity is as safe and satisfactory a method as they can choose to make a provision for the remainder of life. If an an- nuitant lives beyond the expected period of death, the income every year is a clear gain to him. Payment of Premiums and Days of Grace. The premium of a policy should bo paid on or before the day when it becomes due. Owing to the tendency of policies to lapse, and in order to give the policy- holders every suitable chance to keep them in force, some companies have adopted the practice of granting thirty days grace in the payment of premiums. When the policy-holder takes advantage of this privilege, the company should be careful to collect the additional ac- crued interest on the premiums deferred. Formerly, when the lapsing of policies was considered a legitimate source of profit, the companies required all premiums to be paid by 12 o'clock M. on the clay they were due, or the whole of the reserve and all divi- dends or bonus was forfeited to the company ; but more recently it is admitted that there is often more profit in keeping a policy in force than by having it lapse after so much has been expended to obtain it. Semi-Animal and Quarterly Premiums. Premiums are also paid semi-annually and quarterly. This method makes considerable extra clerical labor for the company, although it may in many instances be more convenient to the policy-holder. Semi-annual and quarterly premiums are more apt to be followed by a lapse of the policy than those which are paid annually, and they occasion two or four times as much office work. The usual rule to find the semi-annual rate is to multiply the annual rate by 1.04 and divide the re- sult by 2 ; and to find the quarterly rate, multiply the annual rate by 1.06 and divide by 4. By this method the policy-holder pays sixteen per cent, interest on the deferred part of the premium. If this fact were gen- erally known and explained to policy-holders, deferred premiums would not be as popular as they are now. Changes of Policies. Policy-holders frequently want their policies changed from one kind to another, which they think will be 38 INSTRUCTION BOOK more profitable or less expensive. In the general ig- norance of the comparative values of the different kinds, they are sometimes imposed upon by unscrupulous agents, and persuaded to take a short term endowment or otlier high-priced policy, when something less costly would have answered just as well. As a rule these changes are not favored by the companies, for they make a great amount of extra work at the home office, and the changes must be noted in several different books. When the insured wants his policy changed he must first jeturn it to the company, and usually a new medical examination is required at his expense. The reason for requiring a new medical examination is that the kind of policy chosen may throw an increased burden of insurance on the company, which it did not agree to take when it issued the first policy. Thus a person may be insured on a ten year endowment, and suspecting that he may die in a few years he wishes to change it to the whole life plan, which cannot be done without additional risk to the company. The new policy will either bear a new premium cor- responding to the advanced age of the insured, or it can be dated back to the time of the first policy, and whatever surrender value there may be to the credit of the policy-holder can be used in paying the new pre- miums. If the policy-holder or agent discovers that any mis- takes have been made in the application or policy, no- tice should be given to the office of the company imme- diately, that they may be corrected. A post-mortem litigation over a policy is not a pleasant thing to con- template, and should always be avoided if possible. An agent should never induce the insured to change his policy for the sake of enabling him to obtain the first commissions. This is unjust to the policy-holder and brings the business into disrepute. VOE LIFE AGENTS. CHAPTER IV. HABITS AND QUALICATIONS OP A GOOD AGENT. Motives for accepting; an Agency. BEFORE a man commences the business of a life insur- ance agent, he should undergo a careful self-examina- tion, and ask himself what are the motives which influ- ence him. If he undertakes it just for a few months, because business is dull and he wants something to do till he can find some other employment, then he is tol- erably sure to accomplish but very little. When once he has accepted this calling-it should be regarded as a life work. If he sets out intending to make money by getting business anyhow, consulting neither the wel- fare of the company nor of the insured, if he works for that company which pays the highest commissions without regard to its reputation or antecedents, then he will probably find out before long that he has made some fatal errors. Having started with unworthy mo- tives, he has adopted unworthy methods of action. It is not required that a man should become an agent for the sake of benefiting his fellow men, and thereby constitute himself a home missionary of life insurance and a colporteur of. policies, but the company and the public do expect that he will bring with him the same honor, integrity and worthy motives which would lead him to enter upon any other honorable calling, and by which alone he can attain distinguished success. Respect for his Calling. Having started with proper motives, the first qualifi- cation which a solicitor of insurance should have is a consciousness that his calling is an honorable one. A belief in this truth should be firmly rooted in his mind. If other agents are a disgrace to the profession, let him resolve to be an exception. If he is engaged for a good company, he is conferring a much greater favor on the applicant by persuading him to take a policy than the applicant is upon the agent by making him the means of insuring his life. He should be fully impressed with the belief that life insurance is au antidote for half the 40 INSTRUCTION BOOK poverty which afflicts humanity ; that had it been gen- erally practiced by every able-bodied man during the last fifty years, mankind would have been more indus- trious in order to pay their premiums, the old and in- firm would now have a comfortable support, and many a child would have been assisted to obtain a good edu- cation or a more respectable position in society, instead of having to struggle on through ignorance, poverty and seclusion. He should remember that life insurance is opposed to intemperance, because every policy is fa- tally vitiated by death from drunkenness, or delirium tremens. It is the same with many criminal offenses ; in short, a life insurance policy p % uts a man under bonds to live and die an industrious, sober and peaceable citi- zen. Now there is a moral element in the business which we do not find anywhere else. The ' ' drum- mer," or commercial traveler, who sells dry-goods, hardware or machinery, knows that he is conferring no such lasting benefit on the public as the life agent. His goods may increase their physical comforts, but they will have no effect on the character of those who purchase and use them. But in life insurance it is different ; the agent is selling something which will make a man love his family more, which will tend to restrain him from one of the worst of vices, and will elevate him in his own estimation, and in the estima- tion of those who love him. And before leaving this topic we quote the oft-repeated words of Hon. Elizur Wright, an authority which stands at the head of life insurance literature in this country : "Among the honorable workers in the civilized world, to whom the public as well as the assured will die indebted, we give faithful and successful life assur- ance agents a high place, and no field that we know of is more inviting to an ambition that would devote the best of talent to the benefit of society at large and indi- viduals in particular." Appearance and Manner The agent should be careful not to offend by actions or manners which may be repulsive, especially by too abrupt a method of presenting the subject. His whole duty is to please, to inform and convince, and the two latter results cannot be accomplished if the first is ne- glected. A great deal depends upon first impressions, and if an agent, by his agreeable manners and easy in- troduction, secures the good will of a stranger he has called upon, his chances of success are greatly im- FOR LIFE AGENTS. 41 proved. Those men whose winning smile and silvery tongue have an indescribable fascination about them are they who succeed in gaining the attention and se- curing a willing hearing. Tact. There are some men whose personal magnetism is such that they will often persuade a man to insure who has fully resolved to have nothing to do with it. The applicant finds himself in conversation with one whose presence and manner are agreeable to him, and the subject of insurance, instead of being annoying, is made attractive, new views and features are presented, and finally, without intending it, he allows the agent to fill out his application. Such a quality cannot be taught by books or rules ; it can only be acquired by practice and example . If this agent, previous to this supposed interview, had meditated upon the task before him, he might have reasoned in this manner : "I have an arti- cle which this man needs : it will make him happier and better through life, but it is of such a nature that I cannot show it to him like an article of merchandise. It is a privilege which he can acquire in a certain con- tingency sure to occur ; it is also an obligation to be fulfilled by the company ; but I can only explain it, and allow him to purchase it if he sees fit. If it were a coat, or a hat, I could hold it up before him or let him try it on ; but now I must convince him that he needs this peculiar protection which a life poli- cy alone can give. How shall he be convinced ? Where are his weak points ? Is he prejudiced in favor. of or against life insurance ? In what way shall I approach him ?" It is tact which enables the agent to answer these questions, to introduce the subject in an agreea- ble manner, to watch the countenance of the party and discover if possible the thoughts which are passing in his mind ; to anticipate objections or parry them without seeming to contradict ; at the same time to interest and instruct, and finally to secure the application. Social Qualities. An agent should make friends wherever he goes. In all his intercourse with his fellow-men he should strive to leave a pleasant impression. If the circumstances are not propitious for introducing the subject of insur- ance, he should make his presence not only felt but de- sired again. This is not hypocrisy or deception ; it is 42 INSTS UGTION B OK what all men ought to practice. In some other kinds of business it is equally essential. The salesman is taught to be as polite as possible to his customers, and to make them desirous to trade for the sake of trading with him. But in advocating the cultivation of the so- cial qualities, it is not meant that the agent should get into the habit of treating his newly-made friends in ev- ery sample room or saloon. Such a course would in many instances defeat his intentions ; but an easy, graceful method of conversation, a general bonhomie is a quality w.hich will go far toward securing busi- ness. Cheerfulness. Whatever discouragements an agent may meet with, he should never allow himself to be betrayed into de- spondency or anger. A cheerful disposition is an es- sential quality to success. He should not get the idea that every man will insure whom he solicits; the news- boys in the street do not sell a paper to every man they ask to buy one. In a hundred men there are only one or two who will adopt anything new upon its merits without seeing how it has succeeded in the case of some one else, and then only after a great deal of delibera- tion and explanation. Such men should not be de- spaired of if they do not look favorably on life insur- ance the first time it is presented. Nor should the conduct of rival agents disturb his equanimity. If they publish false reports about the company he represents, let him write to the officers and ask them how to counteract them. If the business is dull and money scarce, the labors of an agent should not be relaxed. In dull times the seed can be sown in the minds of those who would willingly insure if they had the means ; or better still, it is the time above all others to urge insurance as the only sure method of making provision for one's family in case of death . In life insurance, as in politics, there are many things which must be forgotten. If one meets with a decided refusal in presenting the subject, there is no necessity for him to be angry or discouraged. Had the agent been aware of the motives which led the man to refuse to listen in this supposed case, he might have obviated his objections or stated some facts which would have produced a favorable impression on his mind. It is usually ignorance or prejudice which makes men refuse to listen to the claims of life insurance, and the only Way for an agent to do is to calmly and perseveringly FOR LIFE AGENTS. 43 prepare their minds for the reception of the truth. Men cannot be driven to insure, nor can they be brought into the fold in any other manner than in their own chosen way. Good Temper. Above all things, an agent should never lose his tem- per. The best way for an agent to disarm a person who treats him in a repulsive manner is to have a witty jest or a pleasant story to tell and watch the effect. In such a case we should say : Get a man to laugh with you, but do not laugh at him. It may be that you have pre- sented the subject at an unseasonable hour, when his attention is engrossed with other things; your tact and good sense will show you whether this is so or not. If so, leave him favorably impressed with yourself and your cause, with one or two facts to think about, and take another opportunity of iirging the matter upon him. There are some days and seasons of the year when trout will not bite, no matter how tempting a bait y.ou may place before them. Perseverance. An agent should never despair of accomplishing some great and good results in his work. A short, spasmo- dic trial in the business is not a sufficient test. Be- cause soliciting requires some of the highest qualities of a salesman, he should never deem any fact bearing on the business too insignificant, and no act too trivial in order to secure an application. Many men are a long time in making up their minds to take a policy. This delay may be caused by a constitutional slowness of perception, temporary financial embarrassment, or a prejudice which they have against it. It takes time for some men to examine the nature of the contract ; the agreement to pay a premium for a number of years or during life must be clearly considered. If one view of the subject does not produce conviction, another should be presented, the agent in the meantime endeavoring lo study his case and present the most effectual argu- ments and remove those objections which stand in his way. The same persistency to be exercised in regard to individuals should be followed in the management of an agency. The great companies, whose influence is co-extensive with the Union, were built up by men who made life insurance the one great business of their 4A IN8TE UCT10N BOOK lives, who allowed nothing to turn them aside or to in- terfere with their ultimate success. Enthusiasm. Another qualificatior which an agent should have is zeal and enthusiasm. By this we do not mean a noisy, boisterous manner, which repels more than it attracts, but an earnestness which shows that the agent is sin- cere in what he says. It is not sufficient to present the subject of life insurance to a stranger and await his an- swer yes or no. An agent should feel that he is endeav- oring to do a great kindness to the hearer ; that life in- surance is one of the most important subjects which can attract his attention, and an earnest, sincere man- ner of presenting it is the only way to accomplish great results. He should talk as if he believed in it, and as if the future financial welfare of the listener depended on his taking a policy. Nothing short of this will an- swer. Notice how the successful lawyer talks to the jury to win his case ; every muscle in his body speaks every word is instinct with feeling and argument. Ami those who have won the great prizes in life insurance have been men who could sit down and so interest the hearer, so lead him on from one point to another, pre- senting the truth in such a clear and convincing light, that he would find himself gradually and impercepti- bly convinced in spite of all his previous resolutions to the contrary. There have been and still are men in the field whose persuasive powers are so great, and whose earnest appeals so irresistible, that about all they need to secure an application is a fair hearing and a good op- portunity to present the subject. Earnestness, then, is a trait which should be carefully studied, for without it the agent has little chance of success. Honesty in Soliciting. We have now come to one of the most important sub- jects in the whole work, because one of the greatest present curses of the business is the way in which agents misrepresent it. Some agents seem to think it necessary to tell larger stories about dividends and sur- render values than any other agent, and to give the most positive assurances that the company which they represent is far better in every respect than any other. In discussing the qualification of truthfulness, we pro- pose to speak on the subject with exceeding plainness, FOR LIFE AGENTS. 45 ami not to leave unsaid anything necessary to purify the moral atmosphere of the agency business. An agent should deal honestly with the applicant. By this we mean that he should not allow himself to re- commend any plan of insurance which will not con- tinue to be satisfactory to him. He should not let his greed of first commissions urge upon him a five or ten year endowment, with a costly annual premium, when a whole life policy, or life policy with fifteen or twenty annual payments, would do just as well, and be a great deal more appreciated by the policy-holder, as soon as he learned the difference between them. A great part of the disgrace into which life insurance has fallen among a certain class of men, and the greatest part of the lapsed and paid-up policies, are traceable to the misrepresentations made by agents in procuring the ap- plication. An agent should never tell a man in moder- ate circumstances and with a growing family that he had better take a ten year endowment instead of a whole life policy, costing the same annual premium. Agents have been greatly to blame in this, and the con- sequence is that the popularity of short-term endow- ments has justly suffered during the last few years. If a man offers to invest his money in this manner, he should be informed that the same amount of money in another form would confer a much greater benefit on him, while in costly short-term premiums, expectations are raised which are hardly ever realized. But the compa- nies have been as much to blame as the agents, owing to the ignorance or carelessness of the officers in not grading the commissions properly, or because it is made more lucrative for the agent to insure upon- the high-priced short-term plans than any other. But more information now prevails in regard to this sub- ject. Men are insuring now for insurance and not for the promised dividends ; they are buying insurance as a protection to their families against want, and not as an investment. They begin to see the mistakes they made when they leaned implicitly upon the judgment of the agent. In all cases when the applicant does not express any preference for some particular plan of in- surance, after finding out what one is really best for him in his present condition, the agent should urge that which is the best adapted to his circumstances . Then the policy will not be so apt to lapse, the renew- als will be more promptly paid, and the company will have a better reputation for the honorable dealing of its agents. In all these matters the agent is not working for himself alone, but for the company, which is inter- 46 INSTRUCTION BOOK ested in having a class of business which will stay on the books till the claims mature. By taking a manly, straightforward course, by consulting the real interests of the insured, and recommending only such forms of policies as will be really satisfactory when clearly un- derstood, the agent is honoring his calling and laying a foundation for many future renewals. Consequences of Misrepresentation. A dissatisfied policy-holder, one who believes that he has been misled by an agent, is capable of doing an im- mense deal of harm. Perhaps he rushes into print, showing how the agent promised one thing and the company performed another ; how he does not get the expected dividends ; how the company will not give him any surrender values ; and all the neighborhood is excited about the swindle of life insurance. If the company does not fulfill all the promises which the agent made when soliciting, he is very apt to hear of it when he collects the renewals. Other policy-holders will. listen to his statement, and the policies will gradu- ally, drop off and few if any be added. It is a lamentable fact that the policies, as a class, taken during the past few years, are short-lived ; in the best companies only seven or eight years is estimated the average, while in France the average age of a poli- cy is upwards of twenty years, or about three times as great as ours. And this is mostly owing to the dissat- isfaction of the public and the misrepresentations which agents have made about future dividends, surrender values, liberality of the company, etc. Life insurance in this country has not been overdone, but it has been badly done, and a thorough reform is imperatively de- manded. But the fault is not wholly on the part of the agents; the officers of many companies are equally to blame for furnishing the means and the opportunity of misrepre- sentation. They supply agents with printed documents giving wonderful hypothetical statements which may be realized under certain conditions ; they cause ' ' great expectations " and give infinitesimal results. The agent is taught that his business is merely to get applications and to forward the premium, no matter what state- ments have been made to procure them. No attempt is made by such companies to elevate or purify the bu- siness. If the agent succeeds in bringing in a sufficient number of applications, he is honored with a front seat, if not, he is of no importance. FOR LIFE- AGENTS. 47 Some Companies insist upon the Truth in Solicit- ing. But in contrast to this there are some companies which take a noble stand against all kinds of misrepre- sentation and deception in soliciting. They are not so numerous as they should be, but we hope their number is annually increasing. Such companies will be the most prosperous when once the people learn that they are never deceived or disappointed by their agents. When Mr. A . T. Stewart was once asked what was the greatest difficulty he had to overcome in his business, he replied, it was to make his clerks speak the truth. In his immense palatial stores, the largest on the conti- nent, no misrepresentation of the quality of goods is allowed. The same rule should be insisted upon in so- liciting life insurance ; the standard of veracity should be placed high, and then the business will be more honorable and more profitable. The following extract from a letter of the secretary of a life insurance com- pany to an agent, expresses our opinion so fully that we deem it worthy of a place here. " With a full knowledge of the fact that there are in the field of life insurance a few men who belie the be- nevolent nature of the institution, and give evidence of a want of that high honor that bears a man above the tricks of charlatans, and of that strict veracity which will sacrifice gain to truth, the officers of this company have from the first set their faces against the employ- ment of any such men, on any terms whatever. They will have nothing to do with falsehood or deception in any form or any degree. They do not believe that they are necessary to the success of the business ; on the contrary, they are fully persuaded that they are an in- jury and a disgrace. They cannot therefore tolerate for a moment the idea that one of the company's agents shall use such means for success. The company seeks and de- sires men as agents who not only witt not, but who can- not get their own consent to resort to falsehood or de- ception in order to succeed in any case. The company wants truthful men, men who cannot stoop to a mean act for the sake of gain ; who esteem honor and truth as rubies above all price. Such men give character not only to the institution, but to the company they repre- sent, and redeem life insurance from the obloquy which a few men here and there have thrown upon it by false representations. The institution is all that it claims to be, and truth and probity will build it up more rapidly than falsehood and deception." 48 INSTS UGTION BOOK Character of an Agent. In addition to what has been snid is it necessary to discuss the importance of an unblemished reputation for veracity and honesty in an agent ? In some kinds of business a man's reputation is his stock in trade ; there are manufacturing establishments whose trade- mark is worth a fortune ; when people buy their goods they know that no deception is used in trying to sell fhem as anything different from what they really are. There are some lawyers whose advice would be cheap at one thousand dollars, while that of others would be dear at ten. Why this difference ? Because in the one case a man has spent years in building up a reputation which will last his lifetime. Men believe what he says, and they know he would not make any incorrect state- ment. It should be so in life insurance ; every agent should strive to have such a reputation for veracity and honor, and be so well known in the community where he is at work, that his word would never be questioned. And if every agent would make this his aim, and if com- panies would take special pains to see that their agents made no misrepresentations, we should have far less dissatisfaction with the companies than at present, and one of the most troublesome features in the business would be removed. An agent passing a few weeks in a town, and talking with hundreds of people, soon be- comes a marked man; people remember his statements and talk of them to each other, and if he insures a number of people, they remember him as long as their policies are in force. If he has secured their applica- tions by some exaggerated statements about dividends or profits, or told some preposterous story about the advantages of his company, they will talk of it to oth- ers, and neither himself nor his. company can do any business there afterward. And this is the more palpa- ble because people feel more sensibly when they are duped by a life insurance agent than by almost any other person If a man buys a horse he seea the ani- mal; he takes the reins and drives him, and in his pur- chase relies upon his own judgment ; but the contract of life insurance is one which he seldom or never sees till he has paid for it, and he cannot tell whether the agent has misled him or not for several years afterward; he does not see the company or know anything of its affairs ; he takes everything on the word of the agent, and if he is disappointed, he lays the whole blame upon the company. The company may never have given the agent any authority to make these statements ; that 49 makes little difference as long as he has procured ap- plications by deceptive methods. The reputation of the whole company and that of every other agent suf- fers by the conduct of one who is unable or unwilling to maintain a rigid adherence to the truth. If an agent, in returning to a place, finds those whom he for- merly insured are satisfied with his company, he is far more likely to get new business than a stranger ; he can point to his old appli cants and say, " here are men whom I insured some years ago ; they keep their poli- cies in force, and are satisfied with them." His charac- ter now bears its fruit. 50 INSTRUCTION BOOK CHAPTER V. INFORMATION NEEDED BY THE AGENT. Should know what Life Insurance is. SUPPOSE a lady calls at a drygoods store, the clerk shows her a piece of goods, and the following conver- sation takes place: "What kind of material is this made of?" she asks, "is it cotton, woolen or silk?" "Oh, I do not know," replies the clerk, "it is cloth, and that is all I know about it." " But is it the spring style or is it a remnant left over from last year ?" "I do uot know, madam; it is cloth, and it is my business to sell it for so much a yard." " Is it fast colors will it wash ?" "I do not know ; you had better buy it and try." " But this is for gentlemen's wear; I want some- thing for a dress." " Oh, that will make no difference, if the dress is made to fit, it will wear just the same. " Now how valuable would such a clerk be to a merchant who wished to work up a first-class retail trade in a fa- shionable street ? To sell goods readily, a clerk must know what the goods are, and their various qualities. But a good clerk will often sell a piece of goods to a customer when she had no idea of purchasing. "Now, madam," he says, "here is a new style of silk ; it is just imported, and you are the first customer who has had the pleasure of examining it. See what a gloss it has, and how fine its texture," and as he holds it up to the light, the customer is perfectly enchant- ed with it, and as the clerk dilates upon its beau- ty and good qualities, she is more and more convinced that she needs it, and finally concludes that she cau- not do without it, and the clerk sells her a bill of goods. If an agent goes before the public like clerk No. 1, and says, " Gentlemen, I have several kinds of insur- ance for sale here, with the prices given in this little book, but I do not know the difference between these plans which are adapted to your peculiar situations and which are not; like the boy at the show, you pays your money and you takes your choice ; but this fact you may depend upon, the more money you pay for premi- ums, the higher commission I shall get, so let me have FOR LIFE AGENTS. 51 your applications for $10,000 apiece," it cannot for a moment be supposed that these inducements would be very efficacious, or that his proposal would be immedi- ately accepted ; but this is almost the very course which many agents take. With no preliminary training or study of the subject, with no fixed ideas of insurance as a business, they stuff their pockets with pamphlets and commence soliciting. When asked any pertinent questions they will say that their company will do as well as any in the United States, or that all plans of in- surance are good, but as high-priced articles are usually of a better quality than cheap ones, so short-term en- dowments are much better for a man than whole life rates. On this subject Mr. Cornelius Walford, of En- gland, makes the following pertinent remarks : " With agents of insurance companies the proverb that 'knowledge is power,' applies with peculiar force. The man who knows-most of the theory and practice of the particular branch of insurance which he is en- gaged in advocating, should, all other things being equal, be the most valuable agent to his particular com- pany. In addition to a general knowledge of the busi- ness, the agent requires to know not only every point concerning his own office, but also a great deal con- cerning others ; by these means only will he be able to make way in these days of increasing competition." Or, in the words of Mr. Philip Sayle : "Perhaps the most damaging and most incomprehen- sible evidence of the narrow-minded agent is found in the limited view he takes of the principles and applica- tion of the science with which he is associated. Su- perficially he knows the application of the different modes of insurance put forth in the prospectus, but ask him for the reason of certain processes, and he is all ' at sea. ' He fails to observe that the ' sign of the times ' is to require not merely a human machine that can fill up a proposal form and collect a premium, but an intelligent, thinking agent, who can freely converse on the subject, and explain the principles on which the matter is conducted. The great publicity which is now given to assurance matters, and the evident reaction which has set in in favor of the subject both here and abroad, will compel all who intend to prove themselves valuable agents to post themselves up in that informa - tion which once belonged exclusively to the actuary." Adaptation of Different Plans. But suppose that the agent, educated to know the dif- ference between the different classes of insurance, talks 52 INSTRUCTION HOOK to men in this style: " My dear sir, you are engaged ill extensive stock speculations; you are making money ra- pidly, but in a manner which is not without its dan- gers. An endowment would be a good investment for these reasons : you will get a fair rate of interest on your money, even if you live till your policy matures, and if you die, you will have your life insured ; if re- verses should come in a few years, a proportional amount of your policy would be secured to you, and you can afford such a kind of policy." To a single man who has a liberal salary he says : " Let me urge you to take a ten year life policy. In a few years you will be married and your family expenses will be increasing. After ten payments, you will have no more premiums to pay, but if in a mutual company, the amount of your insurance will be increasing as long as you live. This is exactly the kind of policy you need." To a man in moderate circumstances with a large family he says : " You need an annual payment life policy ; you cannot afford anything more expensive, and in this man- ner you will get the greatest amount of insurance with the least expenditure of money. It is precisely what is adapted to your circumstances." Now the agent who understands the advantages and disadvantages of the various plans, will not offer every man the same kind ; he will take care to inform him- self what is best adapted to the wants of the applicant, and then he will explain to him how and why it is he needs that particular kind of insurance. Biit in order to judge correctly, he must know the fundamental prin- ciples of the business. A few years ago it was very different; then nearly all the policies were on the whole life plan ; it was Hobson's choice with the agent and the assured ; now nearly every company has about thirty or forty different rates for the same age, and new plans are being invented every year, with more or less excellences or defects. An agent must understand these differences ; he must be able to explain them and point out their faults. It is not necessary for him to go through the whole list, discussing each rate, but when called upon for an explanation of a particular premium, he should be able to give it in a clear and satisfactory manner. New Plans and Features. Every year new plans and new features are presented to the public. Some companies adopt them, and by a series of hypothetical calculations, explain how the in- surance will be afforded almost or quite for nothing. FOR LIFE AGENTS. 53 One agent is told that another is doing a successful business on this " new plan," and he wants his compa- ny to adopt it. If the officers of the company see through the shallowness of any pretension and refuse to touch it, he thinks they are too conservative. But an agent with a clear understanding of life insurance will be able to tell the wheat from the chaff, and the new plans of other companies will not give him much trouble. Agents must instruct the Public. Another reason why agents should be well posted in the principles of the science is that the outside public depends almost wholly upon them for its knowledge of the business. Men who have never made it a subject of careful study know no more how to analyze the an- nual statement of a life insurance company than how to dissect a corpse. Usually those only who come in contact with agents have any clear idea of the import- ance of such knowledge. Since it is a part of the duty and mission of agents to educate the public on this subject, how important it is that they should be able to do it welL How can we account for the fact that juries, in a life insurance case, are so often prejudiced against the company, and no matter what the evidence may be, they so often decide against it ? Are not the companies to blame for this ? Had they employed trustworthy and well-informed agents, who would not or could not make misrepresentations, there would not be so many peo- ple who look upon life insurance as a scheme to get their money and return them little or none. Insurance Literature. The best men in any profession are those who keep themselves fully informed of the latest news and disco- veries in their business. It is so in law, medicine, and every science. Within the last few years nearly every business has produced its special organs. Even the manufacture of paper, iron, and tobacco have their reg- ular journals devoted to these trade. Insurance is no exception to this rule. Insurance books and papers must be read if agents mean to succeed. There is no need of reading all of them ; but a judicious selection can be made which will not involve a great expense and which will be of great value. In insurance periodicals they will find articles explaining the science, the plans adopted by different companies, charts, tables and sta- tistics, showing their standing and progress. There are elementary books which explain the science, reports of 54 INS TR UGTION BOOK insurance officials, giving the standing of the compan- ies in detail, and their opinions, which are often impor- tant and instructive. A little careful observation will show that the most successful men in any business are those who are fully posted in it, and are the first to seize every advantage as fast as it is offered. Need not be an Actuary. A private in the ranks should know the company movements, but it is not necessary for him to compre- hend all the manoeuvres of a brigade drill. It is the business of his captain and colonel to understand them. His duty is simply to obey intelligently the orders of the captain, and they are confined to the school of the company. This example illustrates the wants of an agent. There is a certain amount of information about insurance which he must possess in order to succeed ; but there are many things which are not necessary for him to understand. If an agent has only a smattering of actuarial knowledge, and relies mainly upon it to con- vince the public of the need of insurance, it is apt to be a damage rather than a benefit to him. If he perplexes his customer with formulas, figures and ratios, and ci- phers it down to the nearest cent just how much his death claims and surplus interest will be, and what rate per cent, he will make on his investment, the man loses his way in the chaos of figures, and the probability is that the application will be lost. This sort of discourse should never be voluntarily offered. If explanations are asked, they should be given in a simple, clear and correct manner. It is well enough to make a few sim- ple statements, such as the premiums during any peri- od, or an illustration of the benefits of insuring, but if an agent attempts to demonstrate to his friend that by the contribution plan or any other plan his annual pre- miums will net him from thirty to forty per cent, divi- dend as a clear profit in the transaction, if the listener is a man of much intelligence, he will suspect that life insurance companies depend upon exaggeration for their prosperity. An agent makes a great mistake when he undertakes to explain the whole science in order to se- cure an application. The agent should be able to give satisfactory answers, but a man's attention should not be drawn away from this leading thought, that he needs insurance as a protection for his family in case of death. If he- objects that the science is deceptive, that the co- operative style of insuring is safer and cheaper, or is skeptical on any point, the agent should be able to meet FOR LIFE AGENTS. 55 these objections in a clear and conclusive manner ; bat ordinarily he will do well to avoid abstruse mathema- tics. It is sometimes said that "there is no need of an agent's knowing anything aBout the science of insur- ance, because he gets an idea that figures will not lie, and by placing constant reliance upon them, he loses the application." It is not the knowing, but it is the telling of this kind of information at unseasonable times which causes the trouble. It is important for a minis- ter to understand Greek, and for a lawyer to know some- thing of Latin, but the former would make but few con- verts by quoting the Septuagint, and the latter would not influence a jury by repeating passages from the Pandects in the original. A life insurance agent, like any one else, can make himself ridiculous by an osten- tatious parade of his knowledge, if he has a weak un- derstanding or excessive vanity. But if he shows the same discretion as other business men, he will find that all the information he can acquire will aid him in pre- senting the truth in new and forcible ways . Should understand Interest and Discount An agent should have sufficient knowledge of arith- metic to perform all the ordinary operations in interest and discount in a rapid and accurate manner. It some- times happens that a man wants to count the cost for a series of years ahead, or know the comparative profits of investing in insurance or -some other security. On such occasions a simple illustration, neatly and correct- ly prepared by means of the tables, which are easily ac- cessible, will be of great service in producing convic- tion. Well posted about his own Company. An agent should be thoroughly informed about the financial history, condition and success of his own company. This information can easily be obtained from the State reports or from the printed circulars is- sued from the home office. He should be thoroughly acquainted with all its plans and peculiar features, and if necessary, he should spend time in giving them a careful investigation. If practicable, he should have a few special examples, showing the benefits derived from certain policies. He should examine every table of rates and be able to select any premium on the slight- est notica He should read all the advertising pam- phlets of the company , and thus he will know just what 56 INSTEUCTION BOOK is needed. If there is any new feature which the com- pany makes a specialty, he should know all about it and how it compares with the plans of other compan- ies. If the company has any definite rules about sur- render values, he should k"now what they are, so that he can always avoid making misstatements on the sub- ject, but if this information is withheld from him, he has no right to assert that the company adopts any par- ticular practice or rule, but he can only say that the matter is in the hands of the officers, and that they consider both the wants of the policy-holder leaving the company and the rights of those who remain. Whenever the company makes any change in its meth- ods of doing business, every agent ought to be in- formed of it and clearly comprehend its nature. But although an agent should be so familiar with his own company, he should not make this the principal basis of his argument when soliciting. He must talk some- thing else besides " company " to a man in order to in- sure him. The old and familiar name of the company, the respectability of the directors, its favorite plans, conferring unheard-of advantages all these will not suffice unless the agent makes the need of insurance the principal motive for taking a policy. Knowlede of Human Nature. We have come now to the most important qualifica- tion of an agent : He should understand human net- ture thoroughly. He may understand life insurance well, he may know all about his company, he may be able to demonstrate the financial value of insurance to the nearest cent, yet all this will fail unless he knows men. A physician may know all about the properties of me- dicine, but if he knows nothing of the human sys- tem in health or disease, then he will make some fatal blunders in attempting to cure patients. A phy- sician comes to the bedside, he feels the pulse, looks at the tongue, and hears the story of the patient, and then decides what ails him, and what medicine is need- ed. So in life insurance, an agent talking with a man about his business, his prospects in life, his circum- stances and family, can determine what plan of insur- ance will suit him, or whether he cares very little about the subject. When he makes a new acquaintance, he should ask himself, ' ' What arguments will have the most influence on him ? Where are his approachable points ? Is he an impulsive man, one whom I can in- sure at a single interview if I get a fair chance to pre- FOR LIFE AGENTS. 67 sent the subject, or is he slow in coming to a conclu- sion one who will need to ponder over the matter a long time ? It is this power of reading character at a glance which gives some agents their great superiority over others; they form their conclusions with lightning rapidity and act accordingly. 58 IN8TR UCTION BOOK CHAPTER VL WHAT TO AVOID. IN this chapter we shall discuss some of the faults which agents are apt to adopt, and endeavor to give them a word of caution which may save them from mak- ing fatal blunders. Too much Talking. It sometimes nappens that an agent believes that the way to insure a man is to talk insurance to him as long as he is willing to listen. This is often a fatal mistake. In purchasing insurance, men are laying themselves un- der obligation to make a regular payment of money for several years, or for life, and as a general rule they can- not decide upon the matter at the first interview, espe- cially if the policy is a large one. Most men are rather slow in making up their minds about incurring further obligations, and conviction must come gradually. If a man has had arguments in favor of life insurance pre- viously presented to him by other agents, and has a clear idea of what life insurance is, then one or two convincing arguments may be all that is needed, or if the sum is so small that he feels that it makes little or no difference with him financially, the agent may be able to insure him with little hesitation. The first question in his mind should be, " Do I need this insur- ance ?" This is the main point in persuading a man to insure ; if he can be made to believe this, then the rest is not so difficult. When this is answered in the affirm- ative, the next is, " How much can I be sure of paying for ?" Neither of these questions can be promptly an- swered, unless he has carefully considered the matter beforehand. The agent should confine himself to argument and avoid lecturing. The applicant should be encouraged to ask questions and suggest objections if he feels dis- posed. In this way he will take more interest in the subject and give greater attention. Having discovered the strong points in a man's character, and the princi- pal reasons which have hitherto caused him to remain uninsured, the agent should make those his principal FOR LIFE AGENTS. 59 points of attack. If the man is convinced that he needs insurance, and is resolved to take as much as he needs, the work is done ; there is no necessity of ex- plaining the whole science to him. It looks too much as if the agent tried to drive him into the company nolens volens. Men may be induced, but not compelled to in- sure. In all cases no favorable opportunity should be lost, no advantage neglected, but'when the man is evi- dently tired of the subject and wishes the agent any- where else, then it is time to try some other method, or leave the matter until another opportunity. By too much talking he discusses many matters which may not be necessary to secure conviction. Any definite statements about dividends or surrender values should be avoided, unless the agent has the terms which the company authorize him to make, and which the company is pledged to fulfill. The same is true in regard to other companies; all reference to them should be avoided if possible. When not needed, all allusion to these subjects is so much ammunition thrown away, but if insisted upon, the agent should state clearly and precisely what the company will do according to the terms of the policy, or what has been its practice here- tofore ; or he should merely say that these matters are entirely under the management of the officers. It is al- ways the safest to leave out all those topics which are not absolutely necessary to win the case. Denouncing other Companies. It is unwise for an agent to make an indiscriminate onslaught against other companies. By so doing more enemies than friends will be made. If a young physi- cian should commence practice in a large town, and be- gin by denouncing all his medical brethren as quacks, he might get some patients, but it is far more likely that he would have the whole town arrayed against him. Almost every man who has paid any attention to life in- surance thinks favorably of some particular company ; either he has been solicited for it, or has some friend in- sured in it, or has read some flattering statement about it. For an agent to say that his company is the only one in the country worthy of confidence, and that all others are vastly inferior and worthless, is sheer non- sense. No matter what company an agent may repre- sent, there are others in the country just as good in many respects as his, although there may be points in which his company excels. An intelligent agent of al- most any company can take an insurance report and 60 INSTRUCTION BOOK show that in some particulars his company is to be pre- ferred to many others. But if an agent endeavors to make progress by "running down other companies," some one equally intelligent as he is may take a chart out of his pocket and say : " Your company is far behind others in this and that particular ; look at these ratios, these assets and expenses." Constant abuse of other companies lays an agent open to suspicion as a man whose statements must be taken at a discount. Many will say, " How is it possible, while there are a hundred life companies, that this agent has got hold of the only reliable and safe one ? Life insurance is open to all for competition, like any other business, and I know that there are many companies honorably conducted in which I -would trust my savings, with the hope that my family may some day be benefited thereby. " Another reason why other companies should not be indiscrimin- ately denounced is because an agent cannot always make goo d such assertions. If a man contemplating in- surance once detects an unsound or exaggerated state- ment in ail agent who is a stranger to him, he regards him with suspicion afterward, and confidence once lost in this manner can seldom be regained. This mode of warfare has been tried by companies as well as by agents, and. uniformly fails. Some of our most pros- perous companies have been the most bitterly assailed by others through the press and by agents, and what has been the result ? They seemed to thrive under abuse ; their own agents took up the cause with new ardor and greater success. Abuse is not the weapon which wins ifa soliciting ; it is a sword which cuts the hand of him "who uses it, and he who draws it in an of- fensive warfare is usually the first to sheathe it. When a rival company is mentioned to an agent, it is far bet- ter to say : " Such a company is a good one ; if you have insured in it you have done well, or if you have promised to insure in it you will find it worthy "of your trust; but I can offer you advantages just as good, and in some particulars, I think you can do better with me." Such an answer will go much farther toward securing a patient hearing and be more likely to secure a policy than abusing it as a dangerous rival. If, however, an agent is confronted with a company which is evidently unsound and unworthy of confidence, he should not hesitate to say so, if he can give substantial reasons for his opinions and prove his assertions by official reports and statistics. JBut under all circumstances we do not think it is best for him to make a Don Quixote of him- self, and spend his time on all sorts of windmills. FOR LIFE AGENTS. 61 Advising Unprofitable Plans. Most people, when called upon to insure, know little or nothing of the kind of a policy they need ; unless they are somewhat informed about life insurance, they do not know why they will not get just as much insur- ance out of a ten year endowment as out of a ten year term policy. They usually take such kind of a policy as the agent recommends to them, and some agents, who look more to their first commissions than the good of the company or the policy-holder, make a specialty of short' term endowments. It is the agent's duty to know what kind of policy is best suited to a man, tak- ing all his circumstances into consideration, and then to advise him without regard to self-interest. As a gen- eral rule, the best plan for a policy-holder is the best for the company, and also for the agent. If the agent talks nothing but ten year endowment, which the poli- cy-holder does not need, and which he cannot always continue to pay for ; after a year or two the latter will surrender it and get a paid-up policy, and having been disappointed once, he will resolve never again to have anything to do with life insurance, and it is not unlike- ly he will denounce the business to his friends and neighbors as an unmitigated swindle. Doubtless a part of this trouble is due to the officers of the company in not grading the commissions so that it would be as pro- fitable for the agent to work on one plan as on another ; but the fact cannot be denied that a great part of the insurance annually effected has been hitherto on unpro- fitable plans, simply to get the first commissions. Now we hold that an agent should insure a man in such a way, if possible, that he will stay insured and will ne- ver want to change, but will continue to pay his pre- miums year after year as long as they are due. While agents should be taught by the companies not to work for first commissions only, the people who insure should be urged to keep their policies in force as long as pay- ment of premiums is required. Agents should avoid Odd Forms of Insurance. If the tables of rates limit endowments to five, ten, fifteen years, etc., the agent ought not to take an endow- ment payable in eleven, sixteen, nineteen, or any other odd number of years. Such policies usually require a special premium rate to be made, and they are a source of great annoyance in the home office. The same may be said of all kinds of insurance not specially author- 62 INSTB UCTION BOOK ized by the company. An agent picks up a circular of another company, containing some peculiar rates of children's endowments, or some queer kinds of poli- cies, and he thinks, " If my company would only adopt those plans, how much business I could do !" The fact is that the great mass of people who are insured have policies on the usual rates, and a much larger pro- portion of policies lapse on these odd plans than on the regular methods. Extravagant Statements. The business of life insurance and the record of the companies have been so well known during the past few years, that it is highly important that an agent should be very careful in making any statements about the future dividends or future progress of the company, which cannot be substantiated. It may be well enough, when asked, to tell what the company has done in the past, and to leave the applicant to conjecture the future by the previous record. The less he has to say about this subject the better, but people will make inquiries, and the only way to satisfy them is to appeal to the past, or to show that his company will do as well as oth- ers have done. The same is true about future business. No one can predict what progress any company will make during the next few years. Some companies which were formerly doing a small and quiet business, have suddenly entered the front ranks, and others which were noted for their prosperity, manifest but little de- sire to obtain new risks. If the policy-holder is con- vinced that he will be justly dealt by, he need have lit- tle concern about the rest. The same is true about the different classes of dividends which are heralded abroad as being a wonderful success. Now in all kinds of div- idends these postulates are true : A company cannot divide surplus which it has not got. In order to get this surplus the policy-holder must pay it. And last- ly, if one man gets more than his share, some others must get less, or it must be made up from lapses. Any specious claim that some new arrangement for distrib- uting the surplus is going to produce wonderful results to the average policy-holder is simply absurd. We have spoken thus freely about dividends because the extravagant statements made concerning them have been the principal cause of disappointment and vexa- tion among policy-holders and the lapse of their poli- cies. We hope that this state of things is passing away; that the time is near at hand when the public mind will FOR LIFE AGENTS. 63 be so well educated on insurance that all " Great Ex- pectations " will be abandoned ; that people will know how to distinguish the true from the false, and that all agents or companies whose principal stock in trade is boasting and extravagant promises, will find their ' ' oc- cupation gone." Newspaper Criticisms. An agent should pay little or no attention to the com- ments of the newspaper press upon life insurance. Not one writer in a thousand understands the science thor- oughly enough to give a proper criticism upon any com- pany or plan of insurance. Nor should an agent ever rush to the editor's sanctum to ventilate his own griev- ances, or to traduce another company. That is a game which two can play at, and in the end he will injure the whole business the innocent as well as the guilty. If a policy-holder in another company imagines himself wronged because he does not get sufficient dividends or surrender value, an agent should not lend his assistance toward making the fact public in the newspapers. This is the wrong method of dealing with other companies. Bogus Insurance. Agents should beware of all companies or organiza- tions which deal in bogus insurance, such as co-opera- tive benefit societies, mutual aid companies, or any of the concerns which pretend to insure people and collect the payments by voluntary assessments. No agent can have anything to do with them without being disgraced among the insurance fraternity, as much as any citizen would be if he set up a mock auction store, a faro bank, or a brass jewelry establishment Again and again these companies have been proved to be swindles of the basest kind, practicing upon the credulity and ignor- ance of the public, and gathering a rich harvest of fees from their certificates of membership, which, as far as insurance goes, are seldom worth the paper on which they are written. They pretend to form classes of five thousand each, and at the death of each member in the class, each of the survivors makes a contribution of one dollar to be paid to his heirs. Hundreds of these co- operative companies have been started in this country during the last few years, and when their promoters have reaped a harvest of initial dues from ten to twenty dol- lars each, the society has disappeared. In some of the 64 INSTR UCTION BOOK States the arm of the law interposes and prohibits their operations within its limits, in others they are allowed to flourish in full vigor. Let them alone ; no honest agent can touch them and retain his self-respect and standing. Dishonest agents will find but little aid and comfort in this book, except motives for reform. Unnecessary Expenditures. Agents should avoid too great expenditure in getting new business. A costly office for one who is just com- mencing, elaborate furniture and huge gilt signs, do not always pay. Policy-holders are not taken by any such kiud.of bait. Selling life insurance and selling drygoods in a retail store are done on different plans. In the former case the agent must go about and hunt up his customers and talk the subject to them ; but in selling dry goods, the greater the display that is made at the shop windows the better. Not one man in a hundred or thousand in this country ever comes into an office to get insured of his own accord. Some agent has presented the subject to him, has talked and argued with him, and finally has persuaded him to make an application. The gilt sign did not attract him, it was the leaflet put into his hands by the agent, and the earnest words which accompanied it. An ex- traordinary expenditure and costly adornments of an office are apt to excite suspicion in the public. They look upon his style and manner of spending money as an unfavorable symptom for the policy-holders ; 'they regard it as a weakness or fault of the company, and hesitate long before they will commit their funds to such a guardianship. Nor are good agents attracted toward a company by any such means. They form their opinions from the official reports of the State In- surance Departments more than from any such sensa- tional displays. An extravagant style of carrying on the business operates unjustly upon the members of the company. A life insurance company is the treasu- ry of the hard-earned savings of its members, and not a dollar ought to be wasted. But experience has shown that it does not pay to get business in this manner. The most prosperous companies are those which have united energetic measures with economy in expendi- tures, while nearly all that have started off with high commissions and other evidences of extravagance have done little solid business, and now make a sorry dis- play in the official reports. FOR LIFE AGENTS. 65 Brokerage. Unless the policy-holder lives in the vicinity of a home office, every premium should be paid to an agent who has a direct interest in its collection. By this means the company is less liable to have the policy lapse than if it were left entirely to the judgment or inclination of the policy-holder whether to keep np his policy or not. In collecting renewals the agent has a good opportunity to ask the policy-holder if he does not want additional insurance, or if he has not some intimate friend who would probably insure, and he can leave him some statements respecting the finan- cial condition of the company which will strengthen this confidence in it, and prevent his policy from laps- ing. By the brokerage system all these benefits are lost ; it is bad for the company and for the agent. It is the fruitful source of much of the lapsed and surren- dered business of the present day. The company pays a higher commission to the agent for the first pre- mium on the condition that all future commissions will be avoided. But such policies are usually short lived ones, and in many instances the agent persuades the policy-holder to change his policy to that of some other company for the sake of getting another first commission. Such practices tend to degrade the busi- ness. One fundamental idea in life insurance is per- manence, a regularity in paying the premiums as long as they are due ; but this course leaves the policy-hol- der entirely to his own inclinations, and he is apt to lose all interest in the company. It injures the agent ; he should accustom himself to look upon the renewals as a part of his own property, and take a pride in hav- ing them paid from year to year. Rebate. This is an evil which has grown up during the last few years among some agents, owing to the excessive competition they have to contend with, and it has a very pernicious influence on the business. The prac- tice of giving a part or the whole of the first commis- sion to the insured in order to induce him to take a policy is what no honorable agent will allow. It de- ranges the business. If a man wants insurance enough to pay his premiums promptly during life, or a series of years, he can pay the whole of the first premium ; i'f he will not pay it, what dependence is there to be 66 INSTRUCTION BOOK placed ou his implied promise to pay the renewals ? It injures the success of other agents. If such a practice is once commenced and openly proclaimed in any town or city, other agents will have to make the same terms or lose some of their business. An agent who begins to cut under in this style will find other agents combining against him to injure his company, and he will not be able to accomplish much. It is a confession of inferior capacity in an agent ; it shows that he can- not succeed in the regular way, aud has to resort to some such underhanded means. If an agent honestly earns his commissions he is entitled to them, and he injures himself and gets a bad name among his fellow workers if he does not insist upon obtaining them. Intemperate Men. An agent should never attempt to insure the life of a man who is intemperate or is given to occasional ine- briety. Such people usually live only about one third as long as strictly sober men of the same age, and the risk is so great that no respectable company will know- ingly issue a policy to such an applicant. The words of most policies read that if the assured shall die by intemperance or delirium tremens, the policy shall be void, but even partial intemperance brings with it a host of diseases, any one of which may suddenly carry off the victim, and the good-natured family physician, anxious to keep on good terms with the family of the de- ceased, will generally certify that he died of brain fever or apoplexy, or anything else than intemperance ; and too often his friends will confirm the doctor's profes- sional opinion on the subject. Let such men alone. If it once gets about that an agent is insuring such a class of risks, sound and healthy men will avoid his company. Leaflets and Premium Tables. An agent need not make a practice of giving away the leaflets and prospectus of the company to every one with whom he converses on insurance. As a gen- eral rule they are immediately thrown aside with hard- ly a passing glance, like all other advertising matter, and only a very few persons will take the trouble to notice them. But if the man entertains any particular objection to life insurance, and the agent has a leaflet which precisely meets his case, it is advisable to pre- sent him with one and urge him to read it FOR LIFE AGENTS. 67 " To the mass the prospectus is a mysterious and unintelligible document which no pains or scrutiny can unravel. Again, as a rale, not one in a thousand as- sures from the influence of a prospectus alone. One of the most perhaps the most successful canvassers of past times never gave a prospect'us to any assurer, but simply wrote the amount of premium the proposed pol- icy would cost, on a slip of paper. As this gentleman remarked to us, the assurer did not want a whole book full of tables; all he wanted to know was, what it would cost him to assure a specific sum, at his present age, on a certain table ; beyond that information only be- came confusing." PHUJP SATLE, JB. 68 JZfS TR UCTION BOOK CHAPTER VII. CHOOSING A COMPANY. Old and New Companies. PEOPLE generally separate life companies into two classes the old and the new. The prevailing idea among them is that the former are those which are twelve to twenty years old; that their assets are usually reckoned by millions ; they have their agencies firmly planted in most of the States, and enjoy the reputation of being slow, safe and conservative. They profess to take only the best risks ; they pay lower commissions, because their reputation is already made ; they have comfortable and often elegant offices, and are disposed to take things quietly, looking out with indifference upon their younger rivals who are striving hard to overtake them. The popular ideas of new companies are not much more correct or favorable. Many regard them as experiments, having their reputation to make and sustain, and coming in competition with older com- panies, they have a difficult task before them. To get new business they must make greater sacrifices and pay greater commissions. They may make greater prom- ises, but it is doubtful whether they will be realized. Now neither of these popular views is always correct; there are some old companies which are very progres- sive, and some new ones which are very conservative. Some old companies have this advantage, that they are so well known that it is less difficult to insure a man in one of them than in a new company, provided the ap- plicant has no preference. He is more likely to recog- nize it as an old acquaintance, than to express surprise that it ever existed so long. In new companies, an agent has often the choice of more favorable territory than in old ones, and in most instances he can make quite as favorable contracts, but he must go forth with the understanding that he is a pioneer. The name of his company is a new one; people are not familiar with it ; he must convince them that it is sound and well managed ; that its policies will be duly paid at maturi- ty; that the insured will receive a due share in the sur- plus premiums if it is a mutual company, and, if there are some new plans or peculiar features, he must ex- FOR LIFE AGENTS. 69 plain them and convince the public that here are some decided advantages. As a general rule, young companies have greater ini- tial expenses, such as establishing agencies, paying first commissions, etc., and on the other hand, a smaller ra- tio of death claims, owing to the more recent selection of lives. But there are other qualities which should have more influence with an agent than the age of a company. Mutual, Mixed, and Stock Companies. The three generic classes into which all life compan- ies may be divided are : Mutual companies, which have no capital stock as a basis, and whose surplus premiums are wholly divided among the policy-holders. Mixed companies, Lu which there is a capital stock, usually of $100,000 or more, as a basis upon which the company was started, and upon which a stock dividend is paid to the shareholders. Stock companies, with a large capital stock as a basis, and which pay no surplus to policy-holders, but issue policies at reduced rates of premium. Without discussing the merits or disadvantages of any one of these classes, we shall simply set forth the claims which each presents to the public. In regard to the first two of "these classes there is practically but little difference in the advantages they offer. About the only difference bet ween them is the $100,000 or more capital stock as a basis, which is lost sight of when the assets amount to a few millions. Some mixed companies which are well managed confer quite as large benefits upon the insured as others which are purely mutual. Some of the oldest and largest companies iu this country were started without a dollar of capital, and solely through the energy, popularity and rectitude of their officers, their assets are now numbered by tens of millions. During the past few years the legislation of many of the States has prevented any new company be- ing put into the field with less than $100,000 capital, and some of the mixed companies have become mutual by retiring their stock. In choosing a company, the distinction between mu- tual and mixed companies should have very little weight with the agent ; he should look more carefully to other things its officers, management, etc. In regard to stock companies, the csise is somewhat different It is evident that during the next few years 70 IN8TR UCTION BOOR the great battle of facts, arguments and statistics is to be fought between these two systems of insurance. The mutual companies (which will include the mixed) are in the majority more than twenty to one; claim that they furnish safer insurance than stock companies, because the margin or loading protects the company against the consequences of extraordinary mortality ; that the in- surance in the end is cheaper because all the surplus profits are returned to the insured, and that the success of mutual companies is an established fact, while that of stock companies is still an experiment. On the other hand, the advocates of stock companies claim that the rates of interest in this country fully jus- tify the reduction of premiums to the present standard; that their capital stock is fully sufficient to carry them over the trial period of youth, until the interest on the reserves will render their ultimate safety certain ; that the insurance is cheaper, because the reduction of pre- mium is practically a dividend in advance ; that the contract is simpler, more definite, and less liable to cause dissatisfaction, because there is no room for mis- understanding about the quantity of surplus premiums or the method of its division ; and finally, that the facts and statistics upon which the stock companies are based are taken from the experience of the mutual com- panies during the past twenty or thirty years. Character and Standing of the Officers. This is the most important point for the agent to ex- amine, but unfortunately it is the one which is usually the most neglected. It is the official staff of a compa- ny which gives it its standing, and unless their charac- ters, business qualities and professional skill will bear a rigid inspection, an agent is perfectly safe in looking somewhere else for employment. Now an agent, before he accepts an agency, has a large number of companies to select from, and it is his own fault if he does not choose one which is properly managed. It is not enough to say that any company will do if it pays high commissions. High commissions are sometimes the penalty which companies, or rather the policy-holders, have to pay for bad management or want of public confidence. It is not so very difficult for an agent to learn the truth about the officers of a company. By making the necessary inquiries in the place where the company is located, all the necessary information can be had. If lie was going to deposit his own money in a bank, he FOR LIFE AGENTS. 71 would probably find out something about its standing and creiit. The same rule applies with still greater force to an agent. It is a duty which he owes to those whom he insures. He should not ask a man to pay money into a company unless he is satisfied that it will be taken proper care of, and when any of his appli- cants ask him about the standing of the officers, he ought to be able to give them a satisfactory and truth- ful answer. There are companies enough whose offices answer the description given above, and no honorable and trustworthy agent need fail of finding one which is fit to be trusted with the funds of policy-holders. New Plans of Insurance. An agent should not place too much dependence upon new plans and features. A new plan may be attractive, or may be an improvement, but it cannot be depended upon to get business. A man buys an overcoat because he needs one to keep him warm. He does not often buy one just for the sake of getting one of a peculiar style or cut. It is so in life insurance ; a man insures for compensation in case of death, not for the sake of some peculiar idea. If he really wants in- surance, he may choose the new plan, but if not, the new feature will be hardly any temptation to him. Nearly all new plans can be reduced to three classes : 1. Different methods of paying the premiums. If a man has a ten premium life policy he must pay a larger annual premium than if the payments were con- tinued during his whole life ; the more premiums he pays the smaller they will be on the same amount of a life policy, and vice versa ; just like filling a measure with apples, the larger the apples the less number will be required. In this matter the agent should clearly understand the effect which large and small premiums have on the amount of insurance actually obtained. 2. Different methods of returning the surplus. Here there is more room for misunderstanding and deception. A company cannot distribute surplus which it has not got, and it is absurd to suppose that by any particular plan each one of all the policy-holders in a company will get a larger amount of surplus by one plan than by ano- ther. A new patent or copy-righted arrangement for computing surplus is usually a method of robbing Peter to pay Paul. 3. Different privileges and restrictions. The gen- eral tendency of companies is to allow policy-holders many privileges which were formerly denied them. 72 IN8TR UGTION BOOK. How far this letting down the bars is advantageous we do not decide. Travel and residence in unhealthy countries, and occupations which tend to shorten life, may be necessary for some men to support themselves, and some companies see fit to charge such policy-hold- ers an extra rate for the extra risk incurred. But since some companies hold out these " liberal features " as special inducements to policy-holders, the agent should give them a proper examination. Experience has proved that a new plan or a new fea- ture may be a good thing ; but some companies with several new plans have done little business, and others with no new features are among the most prosperous in the country ; and therefore in choosing a company an agent should consider all these specialties as of little consequence. There are other qualities of far more importance. Methods of Doing Business Every company of any prominence has some peculiar ways or methods of its own in the management of its business, depending entirely upon the ideas and indi- viduality of its officers. The administration of some companies is conducted on the principle that they must get business at any cost, applications must flow in by every mail, the medical examiner must let in all who can show a reasonable probability of living, and the agent's ability is gauged by the amount of insurance obtained. Expenditures are of no account, for to make money the company must spend money. After a while such companies wake up to a consciousness that this does not pay. They find that their policies are short lived, and their ratio of death-claims is great. Then comes a spasm of economy : expenses are cut down, agents' contracts are changed, less insurance is done, and the company settles down to a conservative method like those companies which they so much denounced for their old fogy traits. There is another extreme : A company may be so very conservative that it never succeeds ; its plans of insurance may be faultless, its officers may be men of spotless reputation and undoubted honesty, the affairs of the company may be carefully managed, but it never grows very fast. Agents do not like to work for it ; they leave for other more wide awake companies, and it does not prosper. The trouble here is that the com- pany is not managed on correct business principles. A want of liberality to agents, of energy on the part of FOR LIFE AGENTS. 73 the officers, and a failure to adopt such methods of winning the favor of the public have caused this state of things. What was expedient ten or fifteen years ago is pass6 now. The officers have not the tact to adapt themselves to the changes which have been going on, and the company falls behind. An agent should make up his mind that, next to his own energy and perseverance, his success will depend greatly upon the views which the president or manager of the company takes of the business ; and if the latter is not adapted to his place, or if his views are absurd or obsolete, his own career with the company can never be a profitable or an agreeable one. Reputation of the Company with Policy-holders. A company should have a good reputation among its own policy-holders. If they are dissatisfied with the company after having been insured in it for several years, then there is good reason to examine their objec- tions. One way of looking at this is by examining the State Insurance Reports, and to keep posted by reading reliable insurance journals ; but outside of journals devoted strictly to insurance the newspaper opinions of companies are worth little or nothing. Past History of the Company. Thanks to the American system of publicity, the past history of almost any company doing business in the United States can be pretty accurately known. The Insurance Reports are accessible to all and in them we find the complete statistical history of all the impor- tant companies. There is no excuse for an agent to say that he had no opportunity to investigate the com- pany before he became connected with it. This is knowledge which it is absolutely necessary for him to have before he can meet the objections of the agents of other companies. Agents should work only for Good Companies. If this chapter has been properly understood, we believe we have made it clear that the agents have the reputation and standing of the life insurance compa- nies in their hands. If agents would never lend their services to companies of questionable reputation, nor to those whose chief attraction is. the excessive com- missions they offer, if they would satisfy themselves 74 INSTRUCTION BOOK that the men whom they insure would never look back with regret to the time when they first listened to the persuasive voice of the solicitor, if truth, frankness and honor always preceded the application, and confidence, satisfaction and good faith always accompanied the policy, then a reform would be begun which would be thorough and permanent. A company in this country can no more progress without agents than a general can fight without sol- diers ; and if agents understood their importance and value, so as to insist upon good companies or none, one great improvement would be accomplished. Then every choice of a company would be an emphatic in- dorsement of its officers and plans, and every rejection would be an equally significant condemnation of them. Ever}' good agent should feel that he has a power which has never yet been used to its full extent, and which, properly directed, would be one of the greatest influences for good which can be developed in life in- surance. FOB LIFE AGENTS. 76 CHAPTER VIII. THE COMPANY. IT is highly important that an agent should clearly understand his relations with each of the officers of the company, as a great part of his success depends upon his obtaining their confidence, and without their aid and co-operation his labor will be apt to prove a failure. If his field is in the immediate vicinity of the home office, he has an opportunity to know them at least by reputation, and can judge somewhat of their ideas of business ; if he is stationed at a distance he is usually under the authority and direction of a general agent or manager of agencies. In the latter case, the decisions of the manager are final, and he should look to him for instructions. What has been said in a previous chap- ter about being posted in regard to his own company, includes all the knowledge he can avail himself of re- specting the business qualifications and reputation of each of its officers and their general management. The President and Vice-President The president is the highest authority in the compa- ny. Upon him devolves the decision of all the more important questions connected with its management. In many cases, however, the more active control falls upon the vice-president, and then all that is here said of one is equally applicable to the other. All questions of contracts, the appointment of general agents or ma- nagers, and sometimes of solicitors, the assigning to them their special territory, the making of purchases for the company, the investment of funds, and all the more important duties, devolve upon him. This is a position of no ordinary importance, and it requires the rarest executive ability and great general information. If the agent has any business with him, it should be conducted with the most cordial frankness and respect; the agent should always desire to sustain the reputa- tion and add to the prosperity of the company, and should render prompt obedience to all of its com- mands. The president, having larger experience and a general oversight of many agents, it is to be expected 76 INSTR UOTION BOOK that his opportunities for judging of the expediency of measures would be superior to that of solicitors whose observation is usually more limited. It may be a spur to the ambition of agents to know that the presidents of some very successful companies commenced the business of life insurance as solicitors, and after getting a thorough knowledge of its details, organized compa- nies of their own and are conducting them on sound business principles. The Secretary. The secretary is the organ of communication between the company and the outside public. It is a part of his duty to prepare contracts for agents, to take charge of the correspondence of the company, and such details as require a constant supervision. It is highly import- ant that all business matters which are transacted be- tween the agent and the secretary should be of a friendly nature. He is, as it were, the spokesman of the company ; it issues its orders and performs its offi- cial acts through him, and his position is one of re- sponsibility and influence. In corresponding with any of the officers an agent should be as definite and explicit as possible. Where a man has from twenty to fifty letters to answer every day, he is apt to become impatient if his time is taken up in attending to unnecessary details of the agency, or in reading the opinions of an agent expressed in an un- intelligible manner. If a solicitor is immediately re- sponsible to a general manager, then all his correspond- ence should be with him, unless it is of such a charac- ter that it needs the attention of the home office. But in all cases the agent should express his wants and opinions with brevity and simplicity. The Medical Examiner. In the home office of every company a medical exam- iner is in attendance every day to examine parties who wish to insure. As their examinations are conducted in private, and reported immediately to the officers, the agent has little to do with him. His duties being strictly of a scientific nature, he does not even know who the agents are. But when agents are stationed at a distance from the home office, they have medical ex- aminers appointed in the towns where they are located, and often the agent has something to do in recommend- ing them to this position. Or. perhaps, on the agent FOR LIFE AGENTS. 77 having obtained an application, he goes to the nearest regular doctor and gets him to examine the applicant. The position of a medical examiner in such a case is a peculiar one. He knows that he is indebted to the agent for the fees of examination, and oil his opinion of the health of an applicant will depend the commissions of an agent. When this occurs, it may be hard for him to maintain a perfect independence, and to decide whe- ther to reject a risk for which the agent has labored long and earnestly, or to state the facts which he 'is confident 'will lead to his rejection. But the company cannot prosper unless the medical examiner is perfectly independent of the agent, and decides all these ques- tions in a disinterested manner. The company pays for a strict and impartial examination, and is entitled to it. What is the agent's duty under such circumstances? He should never attempt directly or indirectly to influ- ence the medical examiner. He should neither suggest certain replies nor question any of his conclusions. The medical examiner should confine his sources of know- ledge strictly to the application and his personal inspec- tion of the candidate for insurance. When the applica- tion is completed, the agent has nothing more to do with it, as far as the medical examiner is concerned, no* should he receive any information from the agent on the subject of the health of the applicant. All interference of this kind is unprofessional. The Manager of Agencies. The manager of agencies ought to be a man of great business tact, experience, and an unblemished reputa- tion. His knowledge of the practical working of a life insurance company should be such that he can decide immediately upon any scheme, proposal or plan of busi- ness within his jurisdiction as to whether it is in har- mony with the best interests of the company or not. As this officer has usually a large extent of territory, and is expected to make himself familiar with the wants and the working force in every part of it, he comes more in contact with the agents than any other member of the company. If an agent needs any information, such as the advantages or disadvantages of the special features of other companies, or the best method of operating upon certain classes of individuals, he should apply to the manager. It usually happens also that the agent or solicitor is directly responsible to him as his employer instead of the other officers of the company. When this is the case, ah 1 that has been said in regard to the 78 INSTRUCTION BOOK relations of the agent with the president or secretary will apply here. Devotion to the Company. An agent should devote his whole services to his own company. He should feel that its honor and reputation are in a great degree entrusted to his keeping and con- nected with his interests ; that while he is laboring to increase its assets and the number of its policy-holders, its good name and reputation are becoming a tower of strength to him, and its prospects for affording him a more ample revenue are daily increasing. Without this feeling of allegiance he will be almost sure to fail. Whe- ther he is at work for a young or an old company, he should always be able to show that there are many qual- ities about it which make one of its policies a desirable investment, and to do this he should not only have per- fect confidence in it, but should master all that is said in reports and charts about it. His devotion should not only be earnest but lasting. Having once connected himself with a good company, he should not think of changing without sufficient rea- sons. If, after a few months' trial, he is successful in procuring new business, he will probably have several invitations to work for other companies. Another, he is told, pays higher commissions or has more assets, or distributes a larger ratio of surplus, or has some new plans which are peculiar to it, and which will procure a vast amount of business . It is natural for an agent to desire to improve his condition ; but before he yields to any such entreaty he ought to ask himself se- riously and sincerely whether it is best to make a change. If he has carefully complied with all the hints given in the last chapter about choosing a com- pany, and has acted with due deliberation, there will be little or no desire to change. Influence of Agents on a Company's Reputation. The company is indebted to the agents in a great measure for the reputation it has in a community. It is not sufficient to say that the company picks out its own agents, who act on their own responsibility. The people will hold the company responsible for their conduct. An agent goes into a town, and by misrepre- sentation and deception succeeds in doing a large busi- ness for a few months. After a while the promises which he made in behalf of the company are not ful- filled by it, and the policy-holders are discontented and FOR LIFE AGENTS. 79 let their policies lapse, or at least they never speak favorably of the company they are insured in. Those who stop paying their premiums always have a grudge against it for sending out such an agent. They look upon him as a proper representative of the company for whom he is employed. It may be that the officers are partly responsible for this state of things ; perhaps they have not sufficiently cautioned their agents to avoid all misrepresentations or exaggerations ; but this will never excuse an agent from feeling that the honor and prosperity of his com- pany is inseparably connected with his own. Contracts with the Company. The contract which an agent makes with a company is usually limited to a certain territory, and the com- missions on all business which he procures. "We shall not attempt to give any laws or to lay down any infalli- ble rules which ought to regulate the payment of com- missions to agents. The companies usually adjust them upon the different classes of policies in such a manner as suits their own ideas of propriety. The contract which an agent makes should be ex- plicit and clearly understood by both parties. As long as it is in force, the agent should regard it as of the utmost importance to his reputation and success that it be complied with in all its particulars. Commuted Commissions. The agent's renewal commissions are his own prop- erty, subject to the terms of the contract by which he accepted the agency. It often happens that an agent wants to sell out his right in the future profits of his business, and the question arises, what is their present value, or how shall their present value be ascertained ? If it were certain that there would be no lapses or sur- rendered policies, the present value of the future com- missions could be arrived at very easily. But at present nothing in life insurance is more uncertain. There are many different things to be examined in determining their approximate value. If the company is one in which the policy-holders have perfect confidence, then the policies will be more likely to be kept in force than if the reputation of the company, or some of its methods of doing business, were not so satisfactory. If most of the policies have been in force several years, and the premiums have been regularly paid, then their 80 INS TR UOTION BOOK future continuance is highly probable. If the general character of the agent is good, and his business has been honorably maintained among reliable men, then these circumstances should be considered in the agent's favor. Moreover, it should be taken into consideration that one is much more apt to keep up his renewals if the agent who insured him calls on him for their collec- tion than if they are to be sent to the central office by mail. No definite rules can be given for determining the value of this species of property, and companies can- not make very liberal terms with agents because of the uncertainty whether these premiums will continue to be paid. The best terms which an agent may expect to get is the present value of them for a few years, as the case may be. FOR LIFE AGENTS. 81 CHAPTER IX. THE AGENCY. The Field. IF the agent is commencing the business of soliciting he will find it advantageous to begin his labors where he has a number of acquaintances and personal friends. They will listen the more readily to him and be more favorably impressed toward his company, and he will be far more likely to take applications among them at the outset than among total strangers. His personal friends will assist him in making new acquaintances and in informing him of those who would be likely to insure. It is a great mistake for an agent to suppose that he needs a large field for his exclusive jurisdiction. An agent in laying out too much work for himself is apt to end in accomplishing little. In every thickly-settled community or large town, there are a great number of people who are not insured, and who only need to be convinced in its favor. It is not the extent of territory worked over, but the number of applications, which makes the agent's record. When an agent has once commenced in a place, and is doing well, he should re- main there as long as he is successful. His territory can be enlarged as he shows capacity to work ic. But if a solicitor commences by monopolizing a large field at the outset, the company is apt to expect more than he can accomplish. In attempting to do too much he does nothing thoroughly, and in the meantime he is incurring considerable expense in traveling. It is like cultivating a large farm with insufficient help, and 1 consequently the harvest is small. It is equally a mistake for a solicitor to suppose that he must have a field which is new, or where the subject of life insurance has been little talked about. In such a field he will find the people strangers to life insurance, and consequently harder to convince than if some agent had already insured some of the principal citizens. If an agent can say " Here is Mr. A. and Mr. B., prominent men in this place, and men of good business capacity, who would not spend money foolishly, they have their 82 INSTR UCTION BOOK lives insured to a heavy amount," it will go far toward convincing a skeptic of its importance. There is no place in the country where all the people are insured who can pass examination and who can pay annual pre- miums on a respectable sum, and while this state of things exists, there is room for one more agent. His Headquarters. An agent should have his office or headquarters in some prominent town or place where there are wealthy men whose influence he can rely upon in advocating the claims of his company. In a thickly-settled town or city he can see twice as many people in a day as in the country, and he can make himself better known to them in a shorter time. In such a place he will find it easier to start a business. Men in active life, who see considerable of the world, and who have an opportuni- ty of knowing something of the practical benefits of life insurance, are more apt to insure than those whose circumstances and pursuits are less prominent. Insuring Certain Classes. Some agents who operate in large cities make a specialty of insuring men in certain kinds of busi- ness and professions. There is an advantage in this which is worth consideration. When the agent is well acquainted with men in any profession, he understands their general habits, he knows when they are most ac- cessible, and what arguments will influence 'them most; by making this a study he can get into their confidence more easily ; he can say, " I have just insured Mr. So- and-so, whom you know, and who is in the same ousi- ness you are." When an agent gets into a groove of this kind, insuring lawyers, brokers, or any class of business men, he has an advantage over those agents who attempt to take all classes in their nets. Should build on a Solid Foundation. Whatever is worth doing at all, is worth doing well. In commencing his work, the agent should bear in mind that it is of the greatest importance to begin right, and then it will be easy to remain so. He should take no steps he will have to retrace, nor begin any work which he will have to undo. In building the East Ri- ver Bridge, the foundations of the piers were laid oc the solid rock, because the structure is expected to last FOR LIFE AGENTS. 83 for all time; so in establishing an agency, the agent should regard it as his life work, and act accordingly. It is like clearing a farm in a Western wilderness; when the trees and stumps are removed, and the ground brought into a high state of cultivation, the farmer can depend upon it for an adequate support as long as he lives. An agent is laboring for the future; if successful, his renewals will afford him a constant income, and if he is careful in selecting his risks and retains the confidence of the company, his reward is sure. If he has careful- ly followed the precepts given in the preceding chap- ters, he has done much toward future success ; and for his encouragement hereafter, let him ever remember that the best companies and the most successful agen- cies, are those which were begun right and conducted with unremitting energy and correct methods. Securing the Influence of Prominent Men. One of the most important things connected with an agency is to secure the influence and goodwill of prominent men in the vicinity where the agent is going to work. Some companies dopt this principle on a large scale. When they go into a new State, they se- lect some of the most prominent men for a " Board of Reference." It is understood that these men have ex- amined the affairs of the company, or are BO thoroughly acquainted with it that they are competent to give a correct opinion of its soundness and the standing of its officers. Without going into a discussion of the "local board plan " as such, it is safe to say that men who would never think of insuring under other circum- stances, will give an agent a patient hearing if his com- pany is indorsed by some prominent men in whose opin- ions he has confidence. In coming into a town where an agent is not known, one of the first things he should do is to get a list of the leading citizens who are good risks, and insure as many of them as possible. Some of them may be acquainted with his company, or may be personally known to some of the officers, and this will aid him materially. There are many men who will not look at an insurance leaflet, or think of taking a policy, until they are told that Squire A. or Kev. B. or Dr. C. has his life insured. Most men are so constituted that they like to have their thinking done for them. When some one else in whom they have perfect confidence has taken a policy, they are ready to do the same. 84 IN8TR UGTION SO OK The minister in every parish has a great influence over his flock, and if he can be persuaded to insure, a strong point will be gained, since he knows all the influ- ential men in his congregation or parish, and can give the agent valuable assistance in pointing out those who would be likely to take a policy. It is also a good idea to persuade the leading members of a church or con- gregation to present their minister with a life insurance policy, and with it a pledge to keep the premiums paid during his stay among them. Apart from the good such an act might do the agent, it is a simple duty which all parishes owe to their spiritual guides if they are faithful and deserving. Is there any present more acceptable than a life policy, or an endowment maturing at the age of sixty-five or seventy ? If an agent can persuade a minister to insure, or his church to insure him, both the agent and his company will be tolerably well advertised by the operation. Owners of factories and foremen in large manufactur- ing establishments should be objects of special atten- tion. A policy from one of this class will go a great way toward introducing the agent to the favorable no- tice of the workmen, and when they once hear that their "boss "is insured, they will have little or no doubt but the company is a safe and prosperous one. The same rule will apply to many other organizations. If the agent belongs to any society, lodge, or military company, he should lose no time in insuring as many of the influential members in it as possible. This idea of using certain kinds of machinery, such as the corporations or organizations which we have just described, is one of the most important points in solic- iting. It should be the constant question on the mind of every agent, ' ' How can I use this influence or that organization in building up my business ?" Nothing should be left untried which hns a fair show of success no honorable means should be neglected to increase the business of the company and to get himself in the way of taking important risks. There is as much room for strategy in soliciting life insurance as there is in mil- itary operations ; there are campaigns to plan, and there are victories to win in both. As he is the most successful general who unites boldness and vigor to the application of every scientific discovery which can be used in war, so is he the most successful agent who can make all the different human agencies subserve to in- crease his business and the reputation of his company. The medical examiner in any town or city can give an agent a great amount of valuable information about FOR LIFE AGENTS. 85 men who are the best risks and who would be likely to insure. His professional knowledge will enable him to tell the agent when is the best time to see certain parties, what kind of men they are to approach, or wnat arguments would be likely to prevail with them. Other Events. An agent should take advantage of every event which btis a tendency to bring the subject of life insurance before the public. If a man dies in the place where he is soliciting, and is heavily insured, the agent should make this a special argument in favor of life insurance, he should find out how large a policy he had, how many premiums he had paid, and their aggregate amount, and then he can go before the public and say, "Here is an instance where a man paid only a few hundred dollars, and his widow has now several thou- sand paid to her by the company. Here is a practical illustration of the business worth of life insurance. If she had received this amount from a rich uncle whom she had never seen, everybody would have said, ' How lucky she has been !' " If a man dies without any in- surance on his life, the agent can say, ' ' That man could have been insured a year ago for $5,000 by pay- ing only one or two hundred dollars ; but he thought life insurance was a humbug, and see how his affairs are left, and how his family will be situated in the fu- ture." If an agent discovers that a gentleman or any of his Family are going on a voyage to Europe, or any distant jountry, he should lose no time in offering to insure their lives, and should urge the importance of protect- ing each other by insurance. Most people look upon a voyage at sea, and travel in a distant country for the first time, at least as fraught with no little danger, and they should be more willing to insure than ever before. Other family events have some influence : the birth of a son or daughter may be the occasion of a father's taking an endowment policy payable when the child is of age. A man just married may sometimes be induced to take a policy in favor of his wife, especially if he is entirely dependent upon his own income or salary for their support. Advertising. An agent should take every suitable opportunity to make himself known, and the company he represents B6 INSTRUCTION BOOK should also be kept prominently before the public. In some companies the whole business of advertising is placed in charge of one of the officers or employees, who selects such channels and takes such measures as he thinks proper. But whatever the agent is allowed to do by means of handbills, show-cards hung up in hotels and public places, advertisements snd editorial notices in the local papers, should be diligently attend- ed to. In most places of public resort a handsome show-card is always welcome, and people looking at it merely to admire its beauty will get some idea of the company. Nothing of this kind should be despised. It is rather mortifying for an agent to be asked, " Where is your company located ? I never heard of it before." But if the company has been well advertised by the means which have been suggested, this misfortune will not be likely to occur. A great deal of money which is spent in advertising is utterly wasted. As a general rule, a short local notice which will attract the eye and fasten the attention of the reader upon one or two facts is the most effectual method. It is more apt to be read and remembered than a half column displayed advertisement. But while all these things are useful as aids in obtaining business, no reliance should be placed upon them, without personal effort and active canvassing. Printers' ink, unaided, will not bring in the applications. The public is not yet educated up to that standard. Excelsior. Finally, every agent should endeavor to make his agency as profitable and respectable as possible. He should look upon it as a man looks upon his farm or his factory. It is his means of livelihood, and the money and labor he spends upon it is so much capital invested. He should not only bring it up to a high state of cultivation, but should make it an ornament to the place in which he lives. In like manner an agent should take a pride in having the best agency and the best selection of risks in the place where he is located. In everything which is praiseworthy he should strive to excel all his competitors. This should be his firm resolve. No spasmodic effort, no temporary measure will produce this result. It cannot be done in a single day or a single year, and the agent should take hold of it with the determination to make it his life work. It is a great mistake for an agent to suppose that he can work in one company a year, and the next year transfer all his business to another, and FOE LIFE AGENTS. 87 get rich by such a system of changes. That is not the way in which the great fortunes in life insurance have been made, or by which the great agencies have been built up. The Ultimate Record. Before concluding this chapter it may be well to show to the young aspiring agent that there are prizes to be won in the life insurance tournament, as well as battles to be fought which the outside public knows little about. We should not be justified in setting forth the duties, the sacrifices, and the labors of an agent without likewise giving some faint glimpse of what has been and what can be done by those who have shown themselves worthy. Some of the most profitable general agencies of our leading companies yield a revenue of from $10,000 to $30,000 per annum, and nearly all of this is from renewal commissions. The income has been honestly earned, and the business has been built up by the hard toil of years of soliciting and the successful management of subordinate agents. There is no business more honorable when rightly managed, nor is there any more sure of reward for one's labor, than a successful life insurance agency. 88 fNS TR UCTION SO OK CHAPTER X. ACCOUNTS WITH THE COMPANY. Monthly Statements. A GOOD agent will be careful to keep accurate ac- counts of all the business transacted, premiums re- ceived, and expense incurred in his agency. In order to do this successfully he should be a man of correct business habits, and have some practical knowledge of bookkeeping. The company furnishes him with blanks to make up his monthly statements of new policies is- sued during the month, the renewals falling due, toge- ther with those held over from the previous month for want of payment. It is of great importance that this statement should be correctly prepared, and that all the accounts should be made to balance. The sum of the premiums on renewals and policies returned and those on hand, together with the expenses charged and cash remitted, should equal the total amount of premi- ums charged in the account. Whenever any policy or renewal has been retained in the, hands of the agent as long as the rules of the company allow, vithout the premium being paid, it should be promptly returned to the company for their disposal. Office Books, etc. An agent should have a register of all the policies taken at his agency, and this book should be so ruled and arranged that it will show the number, date, pre- miums, commissions, etc., of each policy taken, and give a general epitome of all the business done. It is a very important adjunct to the office, as it enables the agent to tell what premiums are falling due each month, so that he can send notices to the policy-holders a suffi- cient number of days in advance, and also when to re- turn policies not taken or renewals on policies which have lapsed. He should also keep an expense book in which all the company expenses at his agency are noted, such as medical examinations, traveling arid office ex- penses, etc., and vouchers for all expenses incurred should be taken if required by the company . FOR LIFE AGENTS. 89 He should also keep a supply book in which he re- cords all the supplies received and the disposition made of them. All the letters and correspondence relating to his business which he receives from the company or other parties should be carefully indorsed and filed. As these books are the property of the company, they should be open to the inspection of the officers when- ever they are demanded. In writing to the home office respecting any particu- lar policy, the number of the policy should always be given in preference to the name of the policy-holder, and all references to different policies should be made in this manner. A strict adherence to this rule will save an immense deal of labor on the part of the clerks in the home office. Careless Agents. Some agents have such loose business habits that they seldom or never prepare a monthly statement correctly, and when it is sent to the home office, the mistakes or dis- crepancies are discovered, and the secretary has to re- turn it for correction or write for explanations, and a whole month or more elapses before it is rectified. When the president or some of the officers of the company visits such an agent, everything is in confu- sion; he does not know how his accounts stand, he is doing such a business that he has not had time to at- tend to these trivial matters, and the consequence is, that several days must be employed in going over his accounts and putting them in order. This trouble and confusion is entirely unnecessary. The time of the of- ficers of the company is extremely valuable, and it is putting the company to an unnecessary expense which a little attention and correct bookkeeping would have saved. An agent's reputation as a man of business de- pends a great deal on such things as these. If he is so much engrossed in getting new business that he can- not keep his accounts straight, or has not sufficient knowledge of bookkeeping and has no time to acquire it, he should employ a competent clerk to do it for him. 90 INSTRUCTION SO OK CHAPTER XI. SOLICITING. IN this chapter we propose to give some general ideas of soliciting, and as many particular ones as may be deemed expedient. But in giving these directions and precepts, we wish it to be understood by the reader that we do not warrant them to apply to every case which a solicitor may have, nor do we think it is possible to present any infallible rules or specific arguments for so- liciting, any more than it is to give infallible directions how to make a fortune by speculating in Wall Street. Men are so different in their circumstances, their hab- its of thinking and acting, that seldom can any two be won over by the same arguments. Soliciting is a busi- ness which must be conducted entirely according to the circumstances of the case, and the agent must be the sole judge of the propriety of the means to be used ; and whatever directions and arguments are here given, are meant to be employed when the circum- stances are such as to justify their use, and not other- wise. If a doctor knows the properties of a hundred differ- ent kinds of medicine, and their effect on the human system, this knowledge is of no use to him in any par- ticular case, unless he knows with what disease the pa- tient is afflicted. If the patient has the smallpox it is useless to prescribe medicine suitable for the typhus fe- ver. If the doctor comes to his bedside, and without looking at him says to himself, " I have a hundred dif- ferent kinds of medicine, every one of which is a spe- cific against some disease, and of course I can cure this, therefore it is of no use for me to feel of his pulse, or to look at his tongue, or to learn any of his symp- toms if one medicine does not produce the desired effect, another will, and I have only to experiment on him till he gets well " would such a doctor be a very successful practitioner ? No. That is not the way a physician goes to work. He makes a careful examina- tion of all the external indications of disease, asks him a few simple leading questions about his symptoms, FOR LIFE AGENTS. 91 and in a short time he has satisfied himself what is the ailment and what remedies are needed. In the same way an agent should find out as nearly ns he can what arguments he will have to produce and what objections he will havo to meet before he asks a man to insure. He should learn as nearly as possible what his means are, and how much he can probably af- ford to pay on a policy. It should be done before the man is asked to insure for any particular amount or on any definite plan. If the agent suggests too large a premi- um he will frighten him away if too small, the agent does a large amount of work gratuitously. He should learn, if possible, his age, so that he can tell precisely how much premium will be required. If the party is already insured, the agent would do well to find out in what company, and if the policy-holder is satisfied with the bargain, he should show the resemblance between that company and his own, and any circumstances of superiority can be pointed out ; care should be taken to keep him satisfied with what insurance he has, to in- duce him to take more. If he is a careful, cautious man, one who builds en- tirely for the future, then the agent may explain how a policy in a responsible life insurance company is ex- actly suited to his wants ; that the payment of policy claims and the stability of life insurance companies are as certain as any corporations. In some way or other almost every man can be reached by arguments in favor of life insurance. Some are so easily pleased with the idea that they are making certain provision for their families, that they will readi- ly insure for a large amount; others must see money in it, and will not take a policy unless they are sure of get- ting the best of the bargain ; others, still, will insure because some one .else has, and these peculiar reasons, motives or inferences which lead men to insure, cannot be seen at a glance, but have to be discovered by dili- gent inquiry and cautious observation. Introductions. Among a certain class, especially prominent business men, in our large cities, an introduction either in person or by letter is often necessary to produce a proper impres- sion and to induce them to give the subject that degree of thought which is required to secure an application. An introduction is a virtual pledge made by the party pre- senting the stranger, that the latter is a person worthy of confidence, and it also carries with it an obligation on 92 INSTRUCTION BOOK the part of him to whom the man is introduced to lis- ten respectfully to what he has to say. When an agent comes as a perfect stranger to a man and asks him to insure, the latter must be convinced that he is worthy of confidence, and that the company he represents is entirely trustworthy. There is no method of doing this so quickly as by having an introduction from an in- fluential friend. Substitutes for this may be adopted, such as circular letters signed by influential citizens who have obtained insurance, or others well known for their reputation. The end which the agent seeks to ac- complish is to make himself favorably known to the public or to particular individuals, and to bring his com- pany into notice, and any honorable method which sug- gests itself to him should be tried. A Suitable Opportunity. This is an important point in soliciting. It will do no good to go a trout fishing when the streams are cov- ered with ice, nor to hunt wild ducks around the north- ern lakes in midwinter. There is a certain time and place most suitable for accomplishing everything, espe- cially in life insurance. A commercial traveler knows that there is a certain time in the year when spring styles of goods will sell, and a time when only the fall and winter styles will be looked at. It is somewhat so in insurance. If a farmer has just sold his crops, if a merchant is doing a thriving business, or if a broker has just made a fortune by speculating in stocks, then here is an opportunity for the life agent which is too good to be lost. Let the agent look after these men without delay. Let him select such hours of the day when he can call upon them without putting them to inconvenience, and then present the claims of life in- surance as earnestly as the nature of the case will allow. Under all circumstances the conduct of the agent should depend upon his innate sense of propriety, and the greatest care should be taken not to say or do anything which will repel a man from taking a favorable view of the subject. Stating the Business. In soliciting insurance the agent should always bear in mind that he has an article for sale, which in all probabili- ty the man really needs but does not desire, and his first business and perhaps the whole of it is to convince him that he does need it. To commence talking about FOR LIFE AGENTS. 93 any particular company, or new plan of insurance, is to begin at the wrong end. It takes for granted that the man wants insurance, but does not know where to find it or what kind, which is not very complimentary to his self-esteem. Life insurance as insurance, and not as an investment or a speculation, should be clearly pre- sented ; its great claims upon the public, and especial- ly upon individuals who have families dependent upon them, and whose death would leave them without ade- quate support, should be forcibly urged, with a due re- gard to the circumstances of the individual and with perfect fidelity to the company. All information asked should be correctly given, for any questions will show that the listener is taking an interest in the subject, and all necessary explanations should be made, care being taken to go as little as possible into the technical part of the subject, unless the education and mental qualifi- cations of the man are such that these things are inter- esting to him. Clearness and simplicity of diction and a quiet earnestness of manner are qualities most effect- ive in producing conviction. Arguments should be adapted to his Condition. All arguments, appeals and illustrations should be adapted to the condition of the man the agent wishes to insure. It is folly to urge the same arguments upon a plain farmer which would be effectual with a wealthy merchant or prosperous banker, and vice versa. The former may want insurance at its cheapest rate, and is satisfied with that form which gives the greatest possi- ble insurance with the least expenditure of money, while the latter, taking a business view of the case, may think of taking a policy simply as an investment. There is hardly any subject or characteristic of life insurance which cannot be reasonably and clearly illus- trated by fire insurance, and this is one of the easiest methods of meeting some of the common objections urged against it. If a party complains that the ex- penses of life companies are too great for the premiums paid, the agent can reply that the average expense of fire companies is thirty per cent., the dividends to stockholders is ten per cent., and only sixty percent, of the premium is usually taken to pay the current losses during the year. If a man cannot understand why a company should require a premium larger than the an- nual cost of insurance and necessary expenses, the agent can state the matter as follows : Suppose a house is erected on a vacant lot far from any other 94 INBTB UCTION B OK dwellings, and is insured against fire for ten years. At the end of one year a factory is set up on one side of it, a year or two after a mill is placed on another side, and in a short time the vicinity is built up with wooden buildings to such an extent that it is almost certain that the house will be consumed in a few years. Now if the owner of the house wants a uniform rate of premium during these years of increasing risk, then the premium of the first few years must be larger than is sufficient to carry the annual risk, in order to provide for the in- creased danger which is to come, and the company must set aside a sum each year which will be sufficient to save the company from loss, and pay the current ex- penses. In an insured life, the danger of death or loss to the company increases every year. According to the tables it is considered certain that every person will die at the age of 100 or less ; at the age of 39 the danger is about one per cent, at 54 it is two per cent., at 60 it is three per cent., and at 64 four per cent., and so on till we reach the age 99, when it is one hundred per cent. A uniform rate of premium through life makes it absolutely necessary, like the fire policy illustration given above, that the premium during the first few years, and the assumed interest thereon, should be large enough to make up for the additional risk of the future. The agent should always be on the watch to discover what kind of arguments will have the most effect. To a farmer he might show how a policy on a life would pay off a mortgage on a farm, or provide a sufficient sum to give his children an ample education in case of his early death ; he might quote instances where this had been done, and show how small a sum of money was spent in keeping the policy in force. In soliciting a merchant, he might show that the rich merchants as a class do insure to very large amounts ; he might quote such names as A. T. Stewart, H. B. Claflin, Cy- rus W. Field, and many others who have insurance to the amount of $100,000 and over on their lives. To a lawyer he might show that his learning, experience and reputation were his "stock in trade," and by his sud- den death so much money-producing ability would be destroyed Prepared to meet Objections. To meet objections successfully the agent should be well posted as to individual facts, and should also have a good knowledge of the science. A variety of facts FOR LIFE AGENTS. 95 illustrating the practical working of life insurance and the benefits it confers upon individuals, is often essen- tial to meet objections and cavils. It is highly import- ant that the agent should have a large number of in- stances stored in his mind, where the provident invest- ment of a few dollars in a life policy was the means of saving a family from want ; and also be familiar with the leading statistics of life insurance. He should know very nearly how many companies there are in the United States, how many risks are in force, and their aggregate amount, how much is annually paid for premiums, losses and surplus returned. And when any one is disposed to sneer at life insurance, he can pro- duce an array of facts and figures which will prove that it is one of the most important financial interests in the country. If an agent is told that life insurance is a humbug, let him ask the objector if it is probable that 800.000 persons would annually pay nearly $90,000,000 for a humbug ? If he is told that it is a one-sided game, the agent can reply that in the year 1873 the life com- panies of this country paid to policy-holders and their heirs upward of $50,000,000 in losses, endowments and dividends. There are however some of the more com- mon objections, which cannot be disposed of in this summary manner. Religions Scruples. Some people are so superstitious or so ignorant that they have some religious scruples against insuring their lives. They think that there is something sacred in hu- man life which should not be made the subject of a po- licy of insurance. It is regarded as almost as bad as man-stealing or dissecting a human corpse. All this proceeds from a wrong impression of what life insur- ance is. It is unfortunate that we have no word to ex- press the true idea, which is : Insurance of income-pro- ducing power. A man is valuable in a financial view according to what he can earn, and it is this quality only which we insure. With this view we strip it of all its superstitious fancies, and make it a plain business transaction. It is not many years since some people had similar superstitious ideas about putting lightning- rods over their houses, barns and churches. If Provi- dence designed that their buildings should be struck by lightning, it was considered wrong to attempt to turn it aside, and so now they think that if they are predes- tinated to leave their families in want and poverty they have no right to insure their lives to prevent it. 96 INSTRUCTION BOOK Is It Safe ? It seems hardly necessary to go into an extended an- swer to the question, What is a safe business ? There are thousands of clerks and salesmen in our large cities who are struggling to commence a mercantile life on their own responsibility, when the fact is that on an average ninety-five out of every hundred fail. There are thousands of men speculating in stocks in our large cities, and every few years a "Black Friday" comes, or a corner in some favorite stock, or they " go short on Harlem. " And their fortunes melt away in an hour. The great fish have eaten up the little ones. Savings banks ought to be safe, but during the past few years a large number have failed, and in 1871 those which failed in New York city caused a loss of over $500,000 to the depositors, and the panic was so great that over $20,000,000 were drawn out of other savings banks and invested elsewhere. But during the last ten years there has been upward of $100,000,000 paid for losses by our life insurance companies, and how much has been the actual cash loss to the policy-holders of those which have failed? Less than $200,000, or one fifth of one per cent, on the losses paid. Can the ob- jector mention any other kind of business as safe as this? Rich Enough Already. Is he absolutely sure that his family or those depend- ent upon him will always be so ? Has he made a pro- vision for them so ample and secure that a policy in a life company will add nothing to it ? Up the marble steps of one of our life insurance offices an aged widow is sometimes seen ascending,, as she enters to draw the periodical payment of an annuity which her husband was persuaded to purchase for her when he was a pro- minent and successful speculator in Wall Street. He was " rich enough already." He did not want anything to do with life insurance, and when he purchased this annuity, he half believed he was doing a foolish act which would be of no use to her, but now it is her only support. Most of our wealthy men do not believe that they are ' ' rich enough " to do without life insurance. They are the most liberal patrons of our companies ; they regard it as a safe investment, and a necessary protection. FOR LIFE AGENTS. 97 In Debt. It is a sad thing to live in debt, but that is not the worst that can happen to a man. While life remains there is some prospect of getting free from one's em- barrassments, but death allows no remedy for the mis- fortunes of life. To die badly in debt, when all the property one may have accumulated will have to be sacrificed to pay the just claims of creditors, must be a sad prospect to contemplate. To such a man, life is a failure. But life insurance provides a remedy for this ; it allows a man to hedge or to protect himself from this disaster if he is wise in time, and to throw his burdens upon a company which is able and willing to bear them. When a man is badly in debt, and has no means of ex- tricating himself immediately, life insurance is a duty, and he should provide means to get clear of his obliga- tions as soon as possible. If he d5oes not, he is de- frauding his creditors. It is his duty to be honest with them, and posthumous honesty (if sxich an expression is admissible) is as important as any other. All this is provided for by a life insurance policy. Life enables him to throw it off by his own exertions, and if death comes before he is entirely successful, the company ac- complishes the remainder. The Money is needed for Business Purposes. Some people think they can use their money at bet- ter advantage in business. Perhaps they can ; but as this is a matter of uncertainty, we will see what per cent, can be made in life insurance. A man aged 25 spends twenty dollars a year on a life policy of $1,000. If he dies during the first year the profit is 5,000 per cent. If he pays ten premiums and gets no dividends or increased insurance, and then dies, his profits are 360 per cent. , reckoning compound interest on his pre- miums at six per cent. Suppose he pays for twenty years, and the amount insured is increased by rever- sionary insurance to $1,400, his premiums at six per cent, and compound interest will amount to nearly $780, and he will make nearly 18 per cent, on his pay- ments in case of death at this time. It is a matter of simple prudence, then, to spend some money in life insurance, oven if it is taken from the regular business. Taking into consideration the protection which is of- fered by his policy, and the percentage of profit it would bring to his heirs in case of death, there is no 98 INSTR UCTION BOOK way of investing money which would yield greater re- turns. The Money spent in paying other Death Claims is a Loss. So is the money spent in paying policemen to pro- tect our property, in paying for a city, State, and na- tional government. For the money spent in this man- ner we get no returns, as when invested in stocks and bonds, but the money is not lost ; protection is pur- chased ; the sense of security to life and person and property is what we get in return. So in life insurance: a policy is a protection to some one against poverty and want, and so far it is a positive benefit to him who pays the annual premiums. But suppose the ' ' death claim" should happen to arise from the objectors' own policy ; how then ? No oue Dependent upon Him. This is not a natural condition for a man to be in. If this excuse is made in sincerity, it is a confession that the man is leading a selfish life, a sort of waif upon society. Such reasons are seldom made in earnest ; they are designed simply as excuses for not giving the subject attention. If he has parents who are living, and whose circumstances compel them to labor for a livelihood, then it would be an act of filial gratitude to have his life insured for their benefit. If their old age cannot be made free from care and labor by his life, it ought to be made free from want in case of his death. But this is not an honorable position to be in, nor one to be envied. Every honest and honorable young man looks forward to the time when he shall be able to have others dependent upon him for support, and life insur- ance will enable him to leave them free from want. Some Other Tune will do as well. No, it will not ! Every succeeding year increases the rate of premium, and renders it more probable that the man may be rejected. The rates for a life policy in most of the mutual companies is about double at forty-six what they are at twenty-five, and at fifty-five they are three times as much . If a man ever intends to insure his own life, he should do it as soon as pos- sible* " Some other time " the man may be killed by an accident, disease, or other mishap. No reliance can FOR LIFE AGENTS. 99 be placed upon the future ; the force of the arguments now presented may pass away or be entirely forgotten. We have read of a place which is paved with good in- tentions, and we doubt not but good intentions in life insurance cover a large surface. The Policy may Lapse. A man should never take more insurance than he can pay for. If he cannot be tolerably sure of paying the premiums on $10,000, let him try one of $5,000 or less, and when his circumstances admit of it, the sum can be increased. This result can be avoided by tak- ing that kind which will admit of a paid-up policy after a few years. If a policy-holder will adopt these three rules, there is little danger of his policy lapsing : He should never take a larger policy than there is a reasonable prospect of his being able to carry ; he should choose that kind whose payments are most suited to his condition, and then let him resolve to keep the policy alive at att hazards. Reasons for insuring. An agent should always act on the offensive if possi- ble. It is not so much his duty to defend life insur- ance as to recommend it. Indeed, we do not know but any attack iipon life insurance, as a method of providing against future calamity, should be met with silent contempt. It is so well known and so universal, that he who looks upon it as a humbug, and proclaims his opinion as such, confesses himself to be ignor- ant of one of the great financial organizations of the day. But when men bring up objections against life insurance, the best way is to assume the offensive imme- diately and give the objector all he can do to answer the arguments in its favor. Since the agent is con- vinced that he has the strongest side of the case, he should come outside of the walls and fight, and not be satisfied with merely defending himself behind breast- works. For this reason we present a few of the most common arguments which may be used in favor of life insur- ance, leaving it for the agent to illustrate them by indi- vidual facts as he may see proper : Life is uncertain. Every one knows that this is true as respects other persons than himself. It is easy for an agent to show him what per cent, is the tabular risk of his dying at a given age, and how this risk is in- 100 INSTRUCTION HOOK creasing every year. If some one apparently in good health and well known has suddenly died, such an il- lustration may make this argument very effective. Unwise to defer. These old saws, ' ' Be wise in time, " "Delay not," "Procrastination is the thief of time," etc., are almost as ancient as the human language, and their universality and antiquity perhaps destroys their value ; but tell a man that on an average every year of delay adds to the cost of a policy, that the annual pre- mium must be increased with the additional probability of death, and the agent has touched his pocket. Ac- cording to all the calculations in use, the older a per- son becomes after the period of youth the greater the danger of death, and also the annual expense to pay the death claims of others. The sooner one insures, then, as a general rule, the less it will cost him. Life insurance adds to the length of one's life. The Irishman who remained perfectly unconcerned when the ship was sinking, because he had just been insured, was right in theory, but wrong in the manner of appli- cation. Whatever makes a person free from care in re- gard to want and the support of his family, has a tend- ency to prolong life. Persons who are supported by annuities live much longer than the average of man- kind ; the same is true of pensioners on the govern- ment, and also of those in private life who have no care for the future and whose habits of living are cor- rect. Life insurance has the same effect ; it gives the assured a calm satisfaction that in case of his sudden death he has made provision for those who are depend- ent upon him, and just so far as life insurance produces this result, so far it tends to prolong his life. Every man can leave his family free from want. Be- fore fire insurance became universal, when a man's house burned down his neighbors used to contribute to enable him to rebuild and make up his loss ; but now he goes to his company, and it writes a check for the amount of insurance. How does this differ from the old method ? Simply thus : All who have policies in the same fire company made their contributions when they paid their premiums, and they entrust the mo- ney to the company till the fire takes place, and then the company pays the amount insured. In a life insurance company all the policy-holders mutually protect each other by paying a stipulated sum in advance for every thousand dollars of insurance they receive, and in case of the death of one of their number, their contribu- tions"having been made, the company pays the amount FOR LIFE AGENTS. 101 insured over to the heirs of the deceased. Instead of having to contribute to the support of his family after he is dead, they make their contributions while he is living. There is no charity or benevolence in this ; it is simply a business matter for avoiding chanty and be- nevolence. This is a privilege which every man can en- joy who begins when he is in good health. If life in- surance ever becomes universal in this country, nearly all want and destitution will be confined to those who come from other lands where it is not so much prac- ticed. A policy is an immediate provision for one's family in case of death. A policy is a contract by which the com- pany agrees to pay the sum insured on certain condi- tions usually upon the death of the insured, or, in case of an endowment, the attaining of a certain age. "When this takes place, the amount of insurance is realized. It is creating a contingent fortune out of a small annual premium. It is making a will and leaving the family a certain amount of money which the policy-holder has not got and never had. This argument is so ably presented by Hon. Elizur Wright that we quote it in full. " In the old order of things a man's estate or source of income, if of any considerable magnitude, was usually of such a nature that not much of it could be buried with him. It remained be- hind to nourish his heirs. But since the more general diffusion of knowledge and machinery has multiplied the men whose minds are solely their estates, and very productive ones too, the bread of the fatherless is too often buried with the father. And it is not the laborer's crust that is taken so suddenly from the child's mouth, but the provender of princes. The handle of a switch pointing a few degrees in a wrong direction may not only extinguish a constellation of the lights of society, but precipitate a score of families from affluence to destitution. Though mate- rial wealth has increased at equal pace with general knowledge, yet it is now the rule rather than the exception that young men set out in life with but very little. Their patrimony they have invested in mental culture. If they are to have families, they must either wait single till by their industry they have accumu- lated funds, or run the risk of leaving destitute the helpless beings whose support they have assumed. Here life insurance comes to their aid by guaranteeing at once, in case of death, a sufficient fund to sustain the widow and orphans. This it does in consid- eration of a moderate annual payment to be continued for a term of years, or for life. To the young man whose income is some- what more than adequate to the unavoidable current expenses of a family, the life insurance company says, ' If Nature bids you marry, and only Poverty forbids, obey Nature and we will take care of Poverty. Do it now in your prime, and let the next gen- eration inherit from you all the strength and genius which the best conditions will allow.' The savings bank says, 'No, my friend, the voice of Natnre is premature and imprudent ; you 102 JNSTE UCTION BOOK had better wait a few years half a dozen at least.' So say all the other means and institutions for the accumulation of capital, and consequently leave the general happiness, not to speak of the good order and good morals of society, in the lurch. Life insur- ance possesses exclusively the power of creating at ouce an ade- quate provision against the destitution of dependents in case of death." Life insurance enables one to provide for himself in old aye. Next to leaving others dependent and in want, is to find one's self in that condition when the fires of youth and the strength of manhood have passed away. " Is there any sadder sight to contemplate than that of a poor old man whose days of usefulness are over, one whose opportu- nities for making a fortune are past, and who, by want of foresight or by misfortiines, finds himself near the end of his journey and his life a perfect failure ? His example is only a beacon to warn others of their danger. He is neither welcomed nor honored, nor hardly ever respected in good society; and when he lias reached the end of his life he will depart without leaving any- thing for those who have in vain looked to him for a comfortable support. In his younger days he might have taken out an en- dowment policy, and the influence of such an act of forethought would have made him more careful as a business man, and the policy, when payable, would have placed him above the fear of want. Is there anything worse than this ? " Yes, there is one other picture more sad, more pitiable. It is that of a poor woman who in the helplessness of old age is left alone in the world. There are many such who have been reared in wealth and affluence, and during the greater part of their days have basked in the sunshine of prosperity. But death has en- tered her household and taken away her husband, the protector of her life, and her happy dream of wealth has been changed to the stern realities of poverty. Her husband, once reputed rich, died poor. His plans for amassing a fortune were not realized when the stern, unwelcome messenger came, and she found her- self face to face with all the hardships and bitterness of poverty. Xo life insurance policy was at hand to gladden her sad heart, like an angel of joy in her affliction ; her husband had not the time to attend to it, or the money to spare from his business, or the expenses of his establishment were too great, and life insur- ance was dismissed as unworthy of a thought." How to Die Rich. Money value of a policy. There is a certain class of men who may be induced to insure on the endowment plan, because there is a money valne in a policy of this kind which is certain of being realized provided they survive the term of insurance. In this policy a large part of the premium is taken for the reserve, and by yearly accumulation it becomes equal to the sum assured. While furnishing insurance it may also be used as a security, or for the payment of debts. As this however is not often resorted to it should not be FOR LIFE AGENTS. 103 presented except to those whose business may require them to make some such use of it. A safe investment. There are over $50, 000, 000 in vested in the capital of the fire insurance companies operating in the city of New York, and their gross assets amount to over $100,000,000. Every few years a great fire takes place which annihilates a few millions of stock, and the stockholders make up the deficiency. More than $20, - 000,000 capital and $40,000,000 including assets was de- stroyed by the Chicago fire, but that did not deter parties from coming forward and putting up an equal amount to make it good. They knew perfectly well that it was not an absolutely safe investment, but they took the risk and the profit into consideration. But all the unavoidable cash losses to policy-holders in life companies by failures in the United States has been less than one per cent, of the total fire insurance loss at Chicago. Taking these facts for a guide, which are mere examples and do not exhaust the subject, the ra- tio of safety between money paid to a life company and money invested in fire insurance stock is about two hundred to one. Examples of our best financiers. Those who take the largest lines of insurance are our best financiers. They are men who understand the value of money and how to use it to the best advantage; they comprise our wealthiest merchants, bankers, and brokers, and not a few life insurance officers and agents. If there were a probability that life insurance would prove a bad in- vestment, the latter class would be the first to find it out, but the fact is, there are scores of them in . New York city alone who have their lives insured in sums from $25,000 to $100,000. It is not every doctor who will take his own medicine like this. One Plan of Insurance. Having learned what kind of insurance would prob- ably be most acceptable to the party solicited, the agent should present only one kind for his consideration, un- less he manifests a preference for some other. If an agent talks life, ten payment, and then endowment in- surance, he will be apt to get the applicant so confused that he will not choose either. If the agent attempts to figure out with his pencil how half a dozen kinds will operate, how much he will have to pay for a certain term of years, the man will want to think the matter over a few weeks, and perhaps it will end in some more skillful agent getting him into another company. Wheu 104 INSTRUCTION BOOK the agent has once made up his mind what plan is the most appropriate, and most likely to be kept in force till all the premiums are paid, he should hold his atten- tion to that only ; but if the applicant desires some other kind, the agent should be careful to explain the difference between them, so that he may choose under - staudingly. As a general rule, men are so ignorant of life insurance that they take such kind of policies as are recommended to them by the agents. We hope the time will come when the different qualities will be well understood by the public, but until then, the honesty and faithfulness of the agent will be tested, for he is too apt to recommend those plans which bring the largest commissions, irrespective of the wants of the policy-holder. Making out the Application. At the proper time, when the applicant is sufficiently convinced, he should commence filling out the applica- tion, the agent affording him every assistance, but ne- ver, where it can possibly be avoided, writing a word of it himself. The agent should explain the different questions of the application and the reason why so many are asked. If a man was going to buy a farm and pay $10,000 for it, and had no means of seeing it himself, but had to depend upon the opinions of ano- ther and the testimony of the owner, would he not be apt to ask a great many questions and insist upon their being answered definitely ? In this case the company agrees to pay $10,000, more or less, for carrying this risk through life or any other period, and it is the com- pany's duty in justice to the remaining policy-holders to have the fullest information. This application is the only guide which the medical examiner at the home of- fice has of judging of the health of the party insured, and it is of the utmost importance that every part of it should be done as directed. All the blanks should be filled out with a clear and legible handwriting, and es- pecial pains should be taken to write the proper names in full and correctly. Medical Examinations. The medical examination should follow as soon as possible after the application is signed. The applicant ^is usually a little impatient to know whether he is ac- cepted or not. It creates a favorable impression to have the affair completed with no unnecessary delay. FOR LIFE AGENTS. 105 The agent should remember that the commission is ne- ver secured till the policy is accepted and the premium paid, and that there are many chances of failure when the agent thinks it is perfectly safe. lu the medical ex- amination the agent has no right to intimate or suggest what the replies to any of the examiner's questions should be. He should not be present when the exam- ination is made. Delivering the Policy. The policy should be delivered as soon as it is re- ceived by the agent. Delays are dangerous, for a poli- cy-holder may change his mind and refuse to take it, in which case the medical examiner's fee, the expense of making the policy, and the agent's trouble, are entirely lost. The agent should receive the premium when he delivers the policy. If the premium is not ready he should retain the policy till it is, or make such arrange- ments for it as the company permits, so that it may be perfectly safe. Although policies say that the contract is not binding unless the premium is paid in advance, yet the courts have made so many decisions adverse to companies on this and other points of a similar nature, that it is very unsafe to run the risk, for in case the po- licy-holder should die shortly after the policy is deliv- ered, and before the premium is paid, the company might be held liable for the loss on the ground that the agent had waived the payment of the premium for the present. (See Chapter XV.) Semi-annual and Quarterly Premiums. Semi-annual and quarterly premiums should be avoid- ed if possible. The agent should not speak of the semi-annual or quarterly rates unless the applicant asks for them. They make from two to four times as much office work as annual rates, and the policies are much more liable to lapse. The policy-holder gets tired of paying premiums every few months, and finally con- cludes that as the quarterly or half-yearly premium is a small matter, it may as well be given up altogether. The agent too cannot come around every three or six months to collect a quarterly or half-yearly premium; the com- mission is too small and the policy-holder is neglected. This is the history of too many policies which encum- ber the registers of the companies, which otherwise would have been kept in force. 106 INSTRUCTION BOOK " Not Taken " Policies. We come now to treat of a subject which is a great misfortune to many companies and a perfect disgrace to their agencies. The vast number of "not taken" policies which appear in our State reports shows that there is a fearful lack of correct business talent among agents. It looks bad for a company and still worse for an agency to have a large list. It shows that the agents have been trying to do a sensational business that they are seeking to make a good show at the expense of the company. In the great hurry to get applications, there is a ne- glect of securing the policy-holder after the policy is made. It is as much the duty of the agent to deliver the policy and secure the premium as it is to get the ap- plication, yet this part is often grossly neglected ; the man is allowed to get tired of his bargain and finally concludes that he will not insure at all. In many com- panies from twenty to forty per cent, of the business is canceled as " not taken." This is unjust to the re- maining polircy-holders. Every policy with the medic- al examination and office labor and expense costs ten dollars or more, and if five thousand policies are writ- ten in a year, and one or two thousand are ' ' not taken, " here are ten or twenty thousand dollars of ex- penses put upon the remaining three or four thousand policy-holders, which must come out of their return surplus. Companies are greatly to blame for this state of things ; they ought to require a reason of such an agent why his policies are "not taken," and find out whose fault it is. It would also be an improvement to make every policy-holder pay for his own medical ex- amination, which is done in some companies; then one great source of expense would be removed and the ap- plicant would feel himself somewhat under obligation to take the policy. Wherever this plan has been tried, it has had a signal success in diminishing the " not taken " policies. Small Policies. An agent should never despise small policies. If he commences with a stranger by talking to him of a $10,- 000 policy, premium $500 per annum, it is doubtful if he can persuade him to insure ; but if he can succeed in getting him to insure for some amount, if it is not more than $500 or $1,000, and then fill out the appli- cation, leaving the sum blank, when it is ready to FOR LIFE AGEXTS. 107 be signed, the agent can tell him that this is rather a small amount for so much trouble, and that it ought to be about $2,000 or $5,000. Some of our largest com- panies have their policies average less than $2,500 each, and by far the greatest number of policies are written for sums of $1,000 or $2,000. Habits and Occupation. Although the medical examiner is the final arbiter of the acceptance or rejection of a risk, yet there are some circumstances attending the occupation and habits of applicants which an agent should understand in order that he may recommend a risk intelligently, or know that it is one that the company will probably refuse. It is mortifying to an agent to spend a long time in secur- ing a risk, and then to have it rejected at the home of- fice, and still more to the applicant who has become convinced of the value of life insurance. The company is also put to some additional expense for the medical examiner's fee, which must be paid by the other policy- holders. It is practically impossible for the agent to be so well informed that he will wholly avoid making mis- takes of this kind, yet there are a few plain and simple directions which will enable him to give a good practi- cal estimate of the probability that an applicant will be accepted or rejected. The age of the applicant has an important influence on the value of the risk. Children under five years of age are not proper subjects for insurance, as the mor- tality during this time is over fourteen per cent. One seventh of all children die before the age of five years, and the danger of dying before puberty is much greater than during the years immediately subsequent. The best risks are between the twenty-fifth and fortieth years, for during this time the influences of hereditary maladies are less to be dreaded and the system is best fitted to resist disease. Agents should never attempt to insure persons ad- dicted to intemperate habits, and even a reformed drunkard should be looked upon with suspicion, for his previous course may have sown the seeds of some fatal disease. According to the observations of Mr. Neison, of England, the rate of mortality among intemperate persons is fearfully high, unequaled by the results made on any other class of the population of the country. Between the ages 21 and 30, the mortality of this class is five times as great as that of the general community, and four times as great during the succeeding 20 years. 108 INSTB UCTION SO OK It is not deemed advisable to explain the influence or tendency of certain diseases upon the applicant, as this is in the province of the medical examiner, but the fol- lowing remarks of Dr. Allen upon the influence of dif- ferent occupation son the health, are interesting and im- portant to agents:* Professional Men. Teachers exhibit the greatest longevity. Next come clergymen, who are subject to few diseases save those incident to sedentary habits. Contrary to the vulgar opinion they are not more liable than others to pulmonary affections. Dys- pepsia with its incidents is their principal affection. Lawyers rank nest. Then professional lecturers, and next physicians. Of the latter it may be said as a class they have not the ordinary ex- pectation of life by from one third to one fifth subtraction ; nev- ertheless, the variety of exposure and habits is such that each case requires isolated investigation. Artists. Painters and sculptors rank among the best risks, par- ticularly when the former sketch from nature and the latter mere- ly model. Portrait painters and sculptors who cut marble them- selves are not good risks. Photographers and daguerreotypists rank second class. Artisans and Mechanics. Painters using lead and oils are unde- sirable risks, yet need not be wholly rejected. Workers in phos- phorus and quicksilver stand upon the same level. Stone-cutters and millers, and similar occupations where insoluble or irritant particles find constant access to the pulmonary surface, are less desirable, but improved methods of ventilation now in vogue render them less objectionable than formerly. Glass-blowers are poor risks. Compositors in printing-houses signally demand cau- tion in acceptance. Blacksmiths, furnace men, carpenters, coop- ers and cabinet makers range among the most healthy operatives. Shoemakers and harness-makers, mainly from their sedentary ha- bits, are second-class risks. The same remark may be made of tailors. Butchers and market-men, aside from the chances of ac- cident, (to the former particularly,) are good risks. Machinists, plumbers, tinsmiths, tallow-chandlers and barbers, and similar occupations, are good risks. Engravers, jewelers and the like, are liable to the diseases of sedentary life, but are otherwise un- objectionable. Brewers, confectioners, dyers, hatters, bakers, and others whose business involves constant exposure to warm vapors, often impregnated with medicinal or poisonous substances, are not as desirable. Chemists, assayers, gilders, tobacconists, etc., are liable to the same objections. Day laborers, unless ex- posed to accidents, are equally good risks as mechanics. Agri- cultural laborers in salubrious localities are the highest order of desirable applicants. The best lives, other things being equal, are those of persons engaged in out door and yet protected employments, where the occupation is somewhat sedentary, and yet combined with a cer- tain amount of muscular exercise, with pure ah 1 and variation enough to secure a stimulating impression upon the system. In- ertia, indolence, and absolute uniformity of meteorological influ- ences, are as prejudicial as over-exertion and atmospheric vicissi- tudes. * Medical Examinations for Life Insurance, by James Allen, M.D., LL.D. FOR LIFE AGENTS. 109 CHAPTER XII. THE POLICY-HOLDER. The Agent's Friend and Assistant. HAVING once insured a man and delivered the policy, the agent should make all possible use of him to get more business. The insured usually feels that he has made a good bargain, and is anxious that others should have the same benefits. The business of life insurance is such that there is no danger of a well-managed com- pany having too many policy-holders, and those who are insured cannot monopolize its advantages to the de- triment of new members. The agent should show the policy-holder that his insurance will be cheaper and that the ratio of expenses will be lessened by having the number of members increased. The new policy-holder can introduce the agent to his friends, and by his exam- ple and presence can often influence some of them to insure. If the agent is a stranger the policy-holder can give him valuable information as to what their circum- stances are, about how large policies they would proba- bly take, and what their ideas are about life insurance, so that the ground is all mapped out beforehand. The agent should always bear in mind that he should take advantage of every favorable opportunity to press the claims of his company. If the new policy-holder is a well-known, influential man, he can be referred to by the agent. The fact that Mr. A. or B. has insured will often determine 6. and D. Policies should not be allowed to lapse. The greatest number of policies lapse at the end of or during the first year, and the general experience of com- panies is. that the longer a policy is kept in force, the more likely it will be, till maturity. Hence it is of great importance that the policy-holder should pay the first three or four premiums regularly, and after that their continuance is tolerably sure. The agent should be prompt in collecting renewal premiums, the notices of payment should be sent some weeks in advance, and 110 INSTR UOTION BOOK it may be advisable for him to call upon the policy- holder for his premium. This is a good opportunity of asking him to take additional insurance, or inquiring if some of his friends can be persuaded to insure. In collecting premiums the agent should be guided strictly by the rules of the company, declining to take one too long overdue unless a certificate of good health is given. If the insured is dissatisfied with anything con- nected with the company, care should be taken to set him right. For this purpose the agent should have some printed statement of the yearly report of the com- pany, or some leaflet of a statistical nature, adapted to meet his case. Both officers and agents should take the greatest pains to keep the policies of the company in force. One policy which lasts twelve years is much better for the company, and far less expensive, than four policies which last only three years each.* The officers of companies are often greatly to blame for the number of lapses on their books ; their constant cry is, " Get new business-, for that is the prevailing criterion of the prosperity of the company." It is not the new policies taken, whose first premiums are almost wholly eaten up in commissions and expenses, which add to the strength and increase the assets of the com- pany, so much as the renewals collected for a series of years at a small percentage. In another part of this book (Chapter XIII. ) we have shown that there is little or no benefit derived by the company from the lapsing of a policy during the first two or three years, but on the contrary, a lapsed policy is a positive damage it gives it a bad reputation ; agents look at the State re- ports and' see the number, twenty, thirty, or perhaps fifty to eighty per cent, of the new business falling away; they know that so large a ratio of policies would not lapse without some good reason ; they conclude that there is dissatisfaction with the dividends, or the officers or agents have made promises which have not been realized. To remedy this, a systematic effort should be made by every company to find out why each policy lapses. If the company is to blame, then this evil can be cor- rected in the home office; if the policy-holder is unfor- tunate in his financial affairs, then he should have an extension of time, if the case will warrant it. Compan- ies will find it for their interest to spend more time in * Suppose a policy has a premium of $100, and the commis- sions and initial expenses are 40 and the renewals 5 per cent. Oue policy kept in force twelve years -would cost the company $95, but four policies of three years each would cost $200. FOE LIFE AGENTS. Ill looking after their old business, and keeping it in force. There are some companies which have taken an im- mense number of new policies during the past few years, but their total amount at risk and their assets have increased very little. If one half the commissions spent in procuring new policies had been judiciously used in keeping the old ones alive, these companies would have had a larger number in force, and be in a more prosperous condition. Too Much Insurance a Cause of Lapse. Agents often induce a man to take more insurance than he is able to sustain. He pays the first and per- haps the second and third premium, and then by some reverse of fortune he finds that his load is heavier than he can bear. He finds that he has over-estimated his ability to pay the premiums, and now he is in great danger of losing all. Had he taken two policies, each for one half the amount, he might have obtained a paid-up policy or surrender value for one and still keep the other in force. In this, as in other cases, it is for the interest of the agent to insure the policy-holder so that he will stay insured. Settlement of Claims. This is a part of the agent's duty, and if properly performed it may be the means of bringing him con- siderable business. When a policy-holder belonging to his company dies, if residing within the jurisdiction of his agency, he should lose no time in having the proofs of death correctly prepared and forwarded to the home office. This should be done at the earliest con- venient date, for the widow or friends of the deceased seldom know the proper steps to be taken, and the claim will not be paid till a certain number of days after the proofs of death, prepared in a proper manner, are sent to the company. The agent should take an early opportunity to com- municate with the heirs of the deceased and assure them that they have his sympathy in their affliction and that he will take the entire trouble and responsi- bility of collecting and paying over the amount due on the policy. An offer of this kind can be made, if rightly managed, without appearing officious or wound- ing the feelings of any one, and the agent will generally find the friends of the deceased very grateful for his proffered kindness. 112 INSTRUCTION BOOK It is needless to state that such a course will make the agent favorably known in the community, and that the advantages of life insurance should be pressed up- on all who are disposed to listen. An opportunity of this kind, rightly improved, may be the means of reap* ing an annual harvest of premiums each equal to the amount of the claim. FOR LIFE AGENTS. 113 CHAPTEK XIII. SURRENDER VALUES AND PAID-UP POLICIES. ONE of the most fruitful sources of dissatisfaction among policy-holders at the present day is the disap- pointment experienced in not obtaining from the com- panies what they consider a just and equitable surren- der value for their policies. When the insured has paid a number of premiums on his policy, and is un- willing or unable for any reasons to keep it in force, he generally expects the company will return to him a large part of the amount which he has paid, or convert it into paid-up insurance. Very few policy-holders stop to consider whether their payments have been all uash, or part note or loan ; and they think they are just as much entitled to a liberal surrender value in the latter case as in the former. In nearly every instance the advertising pamphlets of the company promise to give an "equitable surrender value ! ' for a policy, after two or more payments ; they represent that all policies are non-forfeitable, and agents in setting forth the merits of their companies are apt to make more liberal promises than their companies can afford to fulfill. Fire insurance companies have short-term rates which are used in computing the surrender value of an nnexpired fire policy, and a property owner in giving up an nnexpired policy of insurance on a building, has only to present it to the office and receive the un- earned premiums less a surrender charge. So in life insurance, if one is carrying an all cash life or endow- ment policy, his ideas of equity, independently of what the company and its agents say, teach him that there is a large part of the premiums which he has paid into the company from which he has not received any bene- fit, and he thinks the company is taking an unfair ad- vantage of his misfortunes if it does not liberally re- spond to his request for a surrender value. In some instances these views are correct, and it is probable that some companies do fail to return to the lapsing policy-holder all the unearned premiums they can af- ford to, and yet there is a limit in this matter known only to each company, beyond which it cannot go with- out damaging the interests of the remaining members, 114 INSTH UGTION BOOR who constitute the great majority, who pay their premi- ums promptly, and whose interests are equally entitled to protection. In order to enlighten the public and to explain to agents and the insured how far a company is justified, with a due regard to the remaining members, in pay- ing cash surrender values on policies which are dis- continued, we shall undertake a short discussion of this subject. We may remark that our reasoning does not directly apply to those few companies which have a clause in their policies guaranteeing to their policy-holders a fixed surrender value after a certain number of premi- ums have been paid. The insured, accepting the policy, accepts these conditions, knowing just what he can- depend upon, so there is no room for misunderstand- ing. Actual and Tabular Cost of Insurance. And just here we wish to make some explanations which the reader will probably need in perusing this chapter. The term, "cost of insurance," which is used, means simply the tabular or theoretical cost, accord- ing to the mortality tables and rate of interest, and not the actual cost which the company has to meet while carrying a risk. To illustrate the difference between these, a man gets his house insured for one year by paying a premium of $100. This is as low as the com- pany can afford and pay all the working expenses. But how is this $100 spent by the company ? Sixty dollars is used in paying losses on other buildings ; this is the tabular or theoretical " cost of insurance ;" $30 goes to pay agents' commissions and office expenses, and $10 is the dividend or profit on stock. In order to get his house insured the man must pay $40 more than the tabular cost of insurance. In life insurance there is the same distinction be- tween the net or tabular cost and the actual cost of in- surance. The net cost is given in the tables ; it can be computed to the nearest mill, but the actual cost can- not be determined beforehand ; it includes the average expense which the company has to bear in keeping the company alive as a working organization. A life as well as a fire insurance company must incur expenses, such as salaries, office rent, commissions, printing, etc. , and these must come from the policy-holders. This should not be regarded as a hardship unless the expen- ses are extravagant ; it is one of the conditions of enjoy- ing the protection which the p olicy-holder pays for. FOR LIFE AGENTS. 115 Net Values and Surrender Values. Nor is the " net value " of a policy the same as the " surrender value," as will be seen by the illustrations of this chapter. The net value is that part of the pre- miums which the company must have on hand in order to comply with the State laws respecting solvency, but the surrender value is what the company can afford to pay in order to be released from the bargain it has made with the policy-holder, and is usually somewhat less than the tabular or net value. Smith, a stock broker, contracts with Brown, a banker, to receive of the latter one hundred shares of a certain railroad stock every January 1st for ten years at 65 cents on a dollar. But each successive year the stock falls two per cent., and at the end of four years Smith wants to be released ; he has made a bad bargain and can get the stock cheaper elsewhere. Brown says, ' ' No, the stock is now at 57, and it will probably go down to 45. If it had taken an upward course to 73, I should have lost as much as you have. I cannot let you off and return to you the money you have paid, unless I deduct from it the present value of all the future pro- fits 1 am likely to make, that is, make a surrender charge large enough to save me from loss. " Now substitute the word "policy-holder" for Smith, and ' ' life company " for Brown, and ' ' life insurance " for railroad stock, and see how this illustration will rea d. Policy-holder agrees to pay a certain price to the company for a definite amount of insurance for life or a series of years. The man is a "good risk," and the company has the prospect of making the best of the bargain. The company sees that it is going to profit by this policy and that there are others which will in all probability make them considerable loss, and there- fore the company cannot in justice to the other mem- bers let him off without making him pay the present value of the loss the rest would probably incur by his going out of the company. If the risk had been a bad one and a loss had occurred, the heirs of the insured would have gained nearly the whole amount of the pol- icy, and it is unfair that the advantage should be all on one side. It is evident then that net value and surren- render value are two very different things. "What is a Policy of Life Insurance ? A life insurance policy is a contract between the as- sured and the company, whereby, in consideration of 116 INSTE UCTION BOOK. certain representations made in the application, and which is a part of the contract, and in consideration also of the premiums paid and promised to be paid thereafter as they may become due, the company agrees, on certain conditions, to pay the full amount of the policy when it becomes a claim. The fundamental con- dition is the payment of premiums when they become due. Of the two parties which make a contract, the party which breaks it is the one which should suffei any damage or loss, especially when the other party is ready to fulfill its part of the agreement. If the com- pany can show that it has been damaged by the neglect or refusal of the insured to pay the regular premium as he stipulated, there is no reason in law why the injury inflicted on the company should not be made good. In practice, however, the policy-holder is never called upon to pay damages for not keeping his policy in force, for, except in case of term policies, the company has a reserve or unearned portion of the premiums on hand with which it can indemnify itself. How far the company should take advantage of the means in its possession to recompense itself for any loss it may sus- tain by the lapsing of a policy, is a topic which will be considered hereafter. Payment of Surrender Values now generally adopted. The idea of paying surrender values is comparatively a modern one. It is not many years since the great Dr. Farr of England proposed a scheme in which every po- licy-holder in a certain company should be at liberty to reclaim at any moment a certain portion of the premi- ums he had paid on a policy. Previous to this time, as in a few companies at the present day, the failure to pay the premium on the day specified, caused an en- tire forfeiture of the policy. In the year 1861, Hon. Elizur "Wright succeeded in getting his celebrated non- forfeiture law through the Massachusetts legislature, and although this does not provide for a cash surrender value, it compels the companies of that State to con- tinue the policy in force as a paid-up temporary insur- ance as long as four fifths of the reserve will sustain it, the policy being subject to the diminution of the un- paid premiums in case of death before the temporary insurance expires. Since the time when this law was passed, there has been a general understanding among the companies that the policy-holder is entitled to a surrender value, provided there is any cash reserve left after making a sufficient surrender charge. FOR LIFE AGENTS. Ill No company would dare to advertise itself now a9 never paying a surrender value when a policy lapses , for the intelligent public know perfectly well that one should be given if the company can afford it. In the case of "tontine dividend policies," this feature is ex- pressly waived. In deciding what surrender value should be paid on a policy, every company is a law unto itself, just as much as in the regulation of the annual premiums. Hardly any two companies have the same rules for de- termining the surrender value, and there are but few in which there is any fixed standard of computing it. Taking up the New York Insurance Eeport for 1868, we find the following replies to question ninth, which reads thus : ' ' What proportion of the net present value of a policy (calculated on the company's assumptions of mortality and interest) is given as a surrender value ?" The replies of most of the New York compa- nies are such as these : "No fixed rule as yet ;" " Sev- enty-five percent. ;" "Usually from seventy-five per cent, to the whole ;" " About the face ;" " Thirty- three to seventy-five per cent. ;" " The whole less a margin for expenses ;" " One-half;" "Variable ;" " Dis- cretionary ;" "Varied by circumstances;" "Variable but equitable," and so forth. The argument which is relied upon to justify the making of a surrender charge of one third or one fourth of the reserve is that the payment of a surrender value and the lapsing of premiums withdraws the funds of the company which would be available in the pay- ment of losses, and diminishes its future profits. The payment of claims when they occur is the legitimate business of a company; all other things, such as divi- dends and surrender values, are merely subsidiary matters. Until the discovery and general adoption of a better rule for a surrender charge, this one of a per- centage on the reserves will be the one generally adopted. While accepting this rule in the following illustrations, we do not indorse its want of equity or its injustice in making the policy-holder pay the more for a surrender charge the longer he remains in the company. On the principle that the company should charge enough to pay the expense of obtaining another equally good risk, it would seem that the longer the policy-holder paid his premiums and the more the danger of death increased, the easier the company should be in letting him off; but that view, we are sor- ry to say, is not generally entertained. No just and feasible method of computing surrender values has 118 IN8TR UGTION BOOK come into general use, and there is hardly anything in the management of companies about which there is a greater want of harmony than this. It is easy to see, from the list of answers given above, that the officers of every company either adopt their own rules for determining the surrender value of poli- cies or decide upon the merits of each case, and yet in justice to them it is proper to add here that the sur- render value is often modified very much by the condi- tion of the insured : if he is in poor health, (the kind which are not apt to allow their policies to lapse, ) then the company can afford to give a larger surrender value, in order to avoid paying the full amount of the policy in the probable event of death, than if his physical condition were perfectly sound. When a man of ro- bust health is insured for life or a term of years in a company, he is expected to contribute his share to pay the expenses and the losses which are continually oc- curring, and in this manner he pays for the protection which he enjoys. If he fails to pay his premiums, the company does not obtain what it would have gained had he remained faithful to his contract, and besides, it incurs an increased ratio of mortality . "Why Companies cannot pay the Whole of the Re- serve as a Surrender Value. Suppose a company consisted of two thousand mem- bers, and on a certain day, after the policies had been in force a few years, one thousand of them, the health- iest and soundest, should demand and receive the full amount of reserves and dividends declared thereon as surrender values, it is plain that such a course would greatly increase the future average mortality of the company. When these persons insured they openly or tacitly agreed to abide by the company till their poli- cies became claims ; their retirement has injuriously af- fected the interests of the persistent members, and in order to do justice to all parties, it will be necessary for the company to retain so much of the reserve as will indemnify it for the increased rate of mortality occa- sioned by their leaving the company. If the ratio of mortality to the assets is increased by paying the full amount of the reserve as a surrender value, it is certain that the result will be felt in the decreased dividends or return surplus to the remaining policy-holders. Noth- ing is plainer in life assurance than if the insured want extensive privileges, and permission to go and come when they please, they must pay for these advantages. FOR LIFE AGENTS. 119 The so-called " liberal features," and a generous dispo- sition on the part of a company to favor those who with- draw, means nothing else than taking Peter's money to pay for accommodating Paul. It is stated on good au- thority that some English companies, which have been extra liberal in paying surrender values, have been com- pelled to refrain from distributing any surplus for sev- eral years, although their investments have yielded a larger rate of interest than was assumed in the com- putation of the premiums. Suppose we have two policy-holders insured for $1,000 each on the whole life plan, and each at thirty- four years of age, and that the vitali ty and health of one of them is one fourth greater than the average, that is, while the average expectation of life at this age is thirty- two years, the healthiest one has a fair prospect of liv- ing forty years ; then he would be expected to pay eight more premiums on his policy, and the payment of his claim would be deferred for eight years. At the end of two years both policies lapse. The present value of these eight future premiums expected from the latter policy-holder at four per cent, discount, and at the date of the lapsing of his policy, would be $38.37 . But if the payment of the claim of $1 ,000 is postponed eight years, the present value of the annnal interest of $70 for eight years, computed at seven per cent. , would be $49. 76, making a loss to the company on this policy of $86.33. In the other case, where the insured was of only average health and vitality, we have supposed that the company would not have lost or made anything. If the excess of vitality in the healthier person was only four years, the loss to the company by lapse would be $47.89. Now the company having insured these men of more than average vitality, is entitled to all that can be gained, else how could it pay the early losses ? Is it not clear then that a lapsing policy-holder, if in good health, would throw an additional burden upon the rest if he should be permitted to withdraw the whole of his reserve as a surrender value ? ^ Practical Illustrations. In ordyto illustrate this subject more intelligently, and to show how far a company is justified in paying a surrender value, let us examine the nature of a pre- mium and its relation to the insured. A man aged forty insures on the ordinary life plan for $1,000. the office premium is $31.30, the net annual premium according to the combined experience table of mortality, and four per cent. 120 INSTRUCTION BOOK Interest, is $23.68. For the first three years the reserve interest &nd cost of insurance will be as follows ; FIBST TEAR Net premium $23.68 Interest four per cent. ... .94 $24.62 Cost of Insurance, 10.21 Reserve, $14.41 SECOND YEAB Net premium 23.68 $38.09 Interest four per cent., . . . 1.52 $39.61 Cost of Insurance, .... 10.30 Reserve, $29.31 THIBD YEAB Net premium 23.68 $52.99 Interest, 2.12 $55.11 Cost of Insurance, .... 10.41 Reserve, $44.70 Here are $44. 70 of unearned premiums in the hands of the company. There is also the loading 31.30 23.68 = 7.62, and this for three years is $22.86. This item is left out of consideration, as it is used for defray- ing expenses and returned as surplus. We have already shown that if the insured has more than average vitality the whole of the reserve cannot be paid as a surrender value without affecting the interests of the remaining policy-holders, and that the damage done to the company by the lapsing of a policy amounts to about eleven or twelve dollars for every year which he would have lived longer than the average of policy- holders. Suppose that 75 per cent, of the reserve is the rule adopted by the company, it will amount in this case to $33.53, leaving $11. 17 to recompense the company for what it has lost. There is another source of loss which we have not alluded to what the company would have gained from the insured toward paying the expenses of the com- pany other than the commissions. Reckoning one per cent, on the gross premiums as the amount he would have contributed toward meeting the general expen- ses of the company we have another item of $4.81. Putting both of these items together, we see very clearly that a company cannot pay the entire reserve as a surrender value without infringing upon the interests of the remaining members. FOR LIFE AGENTS. 121 Why Companies cannot pay a Surrender Value at the End of the First Year. Many persons are disposed to criticise the conduct of life insurance companies because they do not pay surrender values at the end of the first year of a policy. It is easy to illustrate why this is practically impossi- ble, except in case of short-term endowments and ten- premium life policies. Ordinary life policy issued at 40, for $1,000, premium $31.30. Dr. Gross premium Commissions 25 per cent. . . . $7.82 Medical examination and office expenses 10.00 Or. $31.30 Interest 6 per cent. Cost of insurance Surrender charge of 25 per cent, of reserve Balance in the hands of the company $13.48 .81 $14.29 10.21 $4.08 3.60 .48 The surrender charge of 25 per cent, on the reserve is as low as the most liberal companies adopt, many com- panies charging 50 per cent., and the item for medical examination and office expenses is as low as the expe- rience of the most prosperous and economical compan- ies will justify. It is clear from this illustration that there is no money made by the company on a whole life policy which lapses at the end of the first year. SECOND YEAB Gross premium . . Commissions five per cent. . Balance previous year . . . Cash at beginning of the year. Interest at six per cent . . . Dr. $31.30 1.56 Cost of insurance Cash on hand Surrender charge 25 per cent, of reserve Surrender value Which is about 62 per cent, of the reserve. .THIRD YEAR Gross premium. . Commissions five per cent. Balance previous year . . Dr. $31.30 1.56 Or. $29.74 4.08 $33.82 2.03 $35.85 10.30 $25.55 7.32 $18.23 Cr. $29.74 25.55 Amount $55.29 122 INSTRUCTION BOOK Amount (continued from last page) Interest six per cent $55.29 3.31 $58.60 Cost of Insurance 10.41 Cash on hand $48.19 Surrender charge 11.17 Surrender value 37.02 Suppose 40 per cent, credit to be given by the com- pany on the premium the statement will be as follows : Dr. Or. FIBST YEAB Gross premium, . . . $31.30 Credit 40 per cent $12.52 Commission, 7.82 Medical ex. and office expenses, $10.00 Interest on note, six per cent. . .75 $30.34 $32.05 Difference $1.71 Interest, .10 Cr. end of the year, .... $1.81 Cost of Insurance, 10.21 Balance against the company, . 8.40 Surrender charge, ..... 3.60 Deficiency, $12.00 SECOND YEAK Gross premium, . . $31.30 Credit 40 per cent., - .... $12.52 Commissions five per cent., . . 1.56 Balance against the company, . 8.40 Interest on two notes 1.50 $22.48 $32.80 $10.32 Interest .62 Cash beginning of year, . . . $10.92 Cost of insurance, $10.30 Cash on hand, end of year . . .62 Surrender charge, 7.33 Deficiency 6.71 .THIRD YEAK Gross premium, . . . $31.30 Credit four per cent., .... $12.52 Commissions 1.56 Balance last year, .62 $14.08 $31.92 Cash beginning of year. , . . $17.84 Interest on reserves 1.07 Interest on three notes, . . . 2.25 $21.16 Cost of Insurance, $10.41 Cash on hand, 10.75 Surrender charge, 11.17 Deficiency, .42 FOR LIFE AGENTS. 123 It is clear from these last illustrations that parties in- sured, who have received credit for a large part of their premiums, cannot reasonably expect any surrender value in cash for their whole life policies. The relation which a premium note or loan holds to the policy is not generally understood by the insured when he wants a surrender value. After paying seve- ral premiums, one half or 40 per cent, on credit, the policy-holder concludes he will get the surrender value of his policy and give it up. He writes to the com- pany or its agent and is informed that there is no sur- render value in excess of the notes or loans on the pol- icy. He instantly concludes that he has been swin- dled ; that life insurance companies were made for the purpose of receiving and not paying out money, and perhaps he takes his revenge by denouncing the com- pany through the press. He does not know that by paying only one half or sixty per cent, cash he has ob- tained his insurance at just about the actual cost per- haps a trifle below it ; that the notes given for premi- ums represent the reserve, good as an investment and as an interest-bearing asset, although they are of no use to pay the losses of another policy-holder, and so in fact the company has been loaning him the money represented by these notes, and that all this time he has been in debt to the company to the amount of these notes. This is not intended as a defense of the note or loan system ; it is simply an explanation of what it is. A good thing misunderstood is often no better than a bad thing understood. If the policy-holder will only bear in mind that the note or loan is so much of the final payment of the policy, whether surrender value, paid-up insurance, or death claim, and advanced by the com- pany to the insured, the rest will be perfectly clear. This view of the subject also shows us why it is necessary to have the policy-holder keep up the pay- ment of the interest oil the notes of a paid-up policy until they are cancelled by dividends if any are al- lowed. Ten Annual Life and Endowment Policies. Surrender values are not so frequently demanded on these classes of policies, for the reason that paid-up policies are usually given after two annual payments have been made. In a paid-up policy the insured knows he gets a definite amount of insurance for his money, but in accepting a promise of asurrender value he is not so certain. 124 IN8TR UCTION BOOK As a much larger premium is required on this class of policies it is more likely that they will have a surren- der value at the end of the first year, especially in short term endowments. Ten Annual Life Policy Age 40 $1,000. Dr. Or. FIBST YEAH Gross premium, . . . $59.09 Commission 25 per cent, . . $14.77 Med. ex. and office expenses, . 10.00 24.77 $34.32 Interest six per cent, .... 2.06 $36.38 Cost of insurance, ..... 9.95 Cash on hand, ...... 26.43 Surrender charge, ..... 9.82 Surrender value, ..... 16.61 Three fourths of the reserve is $29.45. SECOND YEAR Gross premium, . . . $59.09 Commissions five per cent., . . $2.95 Cash on hand last year, . . 26.43 $2.95 $85.52 Balance, , ........ 82.57 Interest six per cent., .... 4.95 $87.62 Cost of insurance, ..... 9.76 Cash on hand, ....... $77.76 Surrender charge, ..... 20.07 Surrender value, ...... $57.69 Three fourths of the reserve is $60.22. THIRD YEAB Gross premium . . . $59.09 Commissions, 5 per cent. . . . $2.95 Cash on hand last year .... 77.76 $2.95 $136.85 Balance ....... . . 133.90 Interest six per cent ..... 8.03 $141.93 Cost of insurance ...... 9.65 Cash on hand ....... 132.38 Surrender charge ...... 30.80 Surrender value ...... $101.58 Three fourths of the reserve is $92.10. The same with 40 per Cent. Credit given. Dr. Or. FIEST YEAB Gross premium .... $59.09 Credit 40 per cent ...... $23.64 Commissions 25 per cent . . 14.77 Medical examination, etc. . . . 10.00 Interest on note in advance, six per cent 1.42 $48.41 $60.61 Balance FOR LIFE AGENTS. 125 Balance (continued from last page,) $12.10 Interest ......... 73 Credit end of the year .... 12.83 Cost of insurance ...... 9.95 Cash on hand ....... 2.88 Surrender charge ...... 9.82 Deficiency ........ 6.94 Three fourths of the reserve would be $29.45. SECOND YEAB Gross premium . . . $59.09 Credit four per cent ..... $23.64 Commissions five per cent. . . 2.95 Interest on two notes in advance 2.84 Cash on hand last year .... 2.88 $26.59 $64.81 Balance .......... 38.22 Interest six per cent ...... 2.29 Credit end of the year .... $40.51 Cost of insurance ...... 9.76 Cash on hand ....... $30.75 Surrender charge ...... 20.07 Surrender value ...... 10.68 THIRD YEAB Gross premium .... $59.09 Credit 40 per cent ...... . $23.64 Commissions ........ 2.95 Interest on three notes in advance 4.26 Cash on hand last year .... 30.75 $26.59 $94.10 Balance .......... 67.51 Interest six per cent ...... 4.05 Credit end of the year .... 71.56 Cost of insurance ...... 9.55 Cash on hand ....... 62.01 Surrender charge ...... 30.80 Surrender value ...... 31.21 In the case of a ten year life policy, after two annual premiums have been paid, the company generally agrees to give a paid-up life policy of $200 on a policy of $1,000. This at the age 42 would demand a single net premium (Combined Experience four per cent.) of $79.84, or a mutual premium of $87.82, while all the money the company has to meet this, according to the above calculations and without deducting the surren- der charge, is $76.48. After three annual payments we have the single net premium of $300 = $122.61, and a mutual rate is $134.87, while the cash on hand to meet this obligation is $130.45. In these cases the company is as much entitled to a surrender charge as when paving cash surrender values. From these illustrations it is easy to see that the company does not make anything in this class during the first three years, by giving paid-up policies of as 126 INSTRUCTION BOOK many hundred dollars as there nave been premiums paid on a policy of $1,000. In fact it is a loss to the company, while, like many other features, it is sub- mitted to in order to promote a feeling of confidence and satisfaction among the retiring members. Ten Year Endowment Age 40 $1,000. Dr. Or. FIBST YEAH Gross premium, . . , $106.90 Commission 25 per cent., . . $26.73 Medical examination, etc., . . 10.00 $36.73 Interest six per cent., 70.17 4.21 Credit end of the year, . . . $74.38 Cost of insurance, 9.64 Cash on hand end of the year, . 64.84 Surrender charge, 19.92 Surrender value 44.92 Which is about 56 per cent, of the reserve. SECOND YEAH Gross premium, . . $106.90 Commissions five per cent., . . $5.35 Cash on hand last year, .... 64.84 $5.35 $171.74 Balance, 166.39 Interest six per cent., .... 9.98 Credit end of the year, .... $176.37 Cost of insurance, 8.88 Cash on hand $167.49 Surrender charge, 40.79 Surrender value, 126.70 Three fourths of the reserve is $122.37. THIRD YEAR Gross premium. . . . $106.90 Commission . $5.35 Cash on hand last year .... 167.49 $5.35 $274.39 Balance 269.04 Interest six per cent 16.14 Credit eud of the year .... $285.18 Cost of insurance 8.16 Cash on hand end of the year. . $277.02 Surrender charge 62.68 Surrender value 214.34 Three fourths of the reserve is $188.04. Ten Year Endowment, 40 per cent, credit. Dr. Or. FIBST YEAR Gross premium .... $106.90 Credit 40 per cent $42.76 Commissions 26.73 Medical examination and expenses 10.00 Interest on note in advance . . 2.56 $79.49 $109.46 FOR LIFE AGENTS. 127 (Continued from last page.) Dr. Or. Balance $29.97 Interest 6 per cent. ..... 1-80 Credit end of the year .... $31.77 Cost of insurance 9.64 Cash on hand 22.23 Surrender charge 19.92 Surrender value 2.31 BKOOND YEAB Gross premium . . . $106.90 Credit $42.76 Commission 6.35 Interest on two notes in advance 6.12 Cash on hand last year .... 22.23 $48.11 $134.26 Balance 86 14 Interest 5J.7 Credit end of the year .... $91.31 Cost of insurance 8.88 Cash on hand $82.43 Surrender charge 40.79 Surrender value 41.64 THIRD TEAE Gross premium .... $106.90 Credit 42.76 Commission 6.36 Interest on three notes in advance 7.68 Cash on hand last year .... 82.43 $48.11 $197.01 Balance 148.90 Interest six per cent. 8.93 Credit end of the year .... $167.84 Cost of insurance 8.16 Cash on hand 149.67 Surrender charge 62.68 Surrender value 86.99 In all the above computations we have made the case as favorable as possible to the policy-holder, and if we have erred at all, it has been against the companies. In more than three fourths of the companies we will ven- ture to say that the usual annual and initial expenses of a policy are much greater than are here represented. It will also be noticed that we have made no charge except the commissions for keeping a policy in force after it is once issued. The actual cost of insurance varies so much in different companies, that we have taken only the tabular cost. In giving a paid-up policy for $200 on a ten year en- dowment of $1,000, after two annual premiums have been paid, we have the net single premium for $200 = $139.68, and on the mutual rate, $153.65. The amount of cash on hand, according to the above assumptions, 128 INSTRUCTION BOOK leaving out the surrender charge, is $166.35. The third year the net single premium for $300 is $230.40, and the mutual rate is $253.44; the amount of cash on hand to meet this is $275.32. It is only by ignoring the sur- render charge that the company can afford to give paid-up policies in this manner. Little Gained by Lapsed Policies. In investigating this subject we must conclude that the companies actually lose money on the aggregate of all cash policies which lapse during the first year. In the lapse of half note or part loan policies the loss can- not be doubted. It is questionable whether they ac- tually gain anything on the aggregate of those which lapse during the second and third years, for in all lim- ited term policies where the reserve is the greatest, paid-up insurance is generally preferred to lapse or surrender values. It is perfectly safe to say that, as a general rule, a compaiiy gains more when the policy is kept in force, than by paying three fourths or two thirds of the reserve as a surrender value. In conclusion, we would desire every agent to say : " Avoid asking for a cash surrender value on your policy if you can possibly help it, unless the amount to be paid is distinctly stated in the policy." It is probable that not one man in a hundred who takes a surrender value for his policy ever thinks he is justly treated, when the value is left to be determined at the discretion of the officers of the company, and he accepts what he can get with the resolution never to be caught again. And we caution our readers against a temptation to which many policy-holders are exposed that of applying for a surrender value on a policy already in force, in order to allow an agent to transfer them to another company, unless the one they are already insured in is totally un- worthy of confidence. To agents and solicitors we again say, counsel your clients to have as little to do with surrender values as possible. This is not a legitimate part of insurance, and should not be made an inducement for one to take a policy unless the company guarantees a specific sur- render value, and in all cases give little or no encour- agement for one if the party proposes to take a part loan or note on his premium. In this examination of the subject we have endeav- ored to give such information as will dissuade many a policy-holder from applying for a cash surrender value on his policy, or if it is absolutely necessary, we have FOR LIFE AGENTS. 129 endeavored to prevent them from being disappointed and from making unjust charges of extortion against the companies when they do not receive all they ex- pected. When life insurance becomes better under- stood, and the people at large know what they can rea- sonably expect of a company, and how to distinguish the highly colored statements of interested agents from the sober reality of this complicated kind of business, then it will be better appreciated, and the disappoint- ment about surrender values will be comparatively un- known. 130 LN8TR UOTION BOOK. CHAPTER XIV. DISTRIBUTION OP SUBPLUS. It is highly important that the agent should clearly understand this subject in order that he may correctly explain it when necessary, and especially that he may avoid making statements and promises which cannot possibly be realized. The public know little or nothing about the methods adopted in distributing dividends, and on this as well as many other points in life insurance they depend almost entirely on the agents for informa- tion. Premiums. The company adopts a table of net premium rates for policies of $1,000, according to certain arbitrary standards of mortality and interest which long experi- ence and attentive observation have shown to be safe and trustworthy. In the table of mortality it is assumed that out of 100,000 persons living at the age of ten years, a certain number will die at each succeeding age up to ninety-five or ninety-nine, or the oldest age in the table. A rate of interest is assumed low enough to cover all probable fluctuations in the value of money, and which it is supposed that the invested reserves of the company will yield without question. The "net pre- mium " is what it would cost to insure each one of the whole number of lives in a class of a given age, provid- ed there were no excess or deficiency of mortality or interest, and no expenses to be incurred. But neither the future mortality, interest nor expenses of the com- pany can be predicated with any certainty. The com- pany can make a careful selection of risks so as to keep the mortality within tabular limits ; it can invest the assets at as high a rate of interest as is consistent with safety ; it can keep the expenses down within proper bounds while using all due energy in prosecuting the business ; and then, if there is any surplus left at the end of the year, it can distribute it among the policy- holders. Mortality. If no. deaths should take place among the members of a company ia any given year there would be no FOR LIFE AGENTS. 131 losses to pay, but it would not do to distribute the ap- parent gains as surplus. This might do in a fire insur- ance company where the policies are renewed from year to year, but in a life company, if the actual losses were $100,000 less than the expected or tabular mor- tality, this amount of loss is simply postponed, and all the company gains is the interest on these deferred losses which must occur at some future time. The next year the losses may be $100,000 greater than the tables call for, and it is unwise and unscientific to distribute what must eventually be paid. If the number of losses is just equal to the tabular limit, but if the average amount of each death loss is greater than the average amount of the policies, which is usually the case, a de- ficiency is occasioned which must be made up in the future. Interest. The company assumes that the reserves will earn a certain rate of interest, usually four or four and one half per cent. When the assets are invested in inter- est-bearing securities, they usually realize from five to eight, or even ten per cent., but several weeks or per- haps months must elapse after a premium is collected before it is permanently invested, and in every com- pany a large sum must be kept on deposit in the banks in order to meet expenses and pay losses, so that the actual average rate of interest which will be received on the reserve and surplus cannot be predicated with any absolute exactness, certainly not till the company has had some age and experience. The rate of four or four and a half per cent, is gene- rally assumed by mutual companies as the basis of all their calculations, and is also made the legal standard in most States where an official valuation of policies is required. Whatever interest on the reserves is realized over the standard rate is used to offset any deficiency in losses or expenses, or if none of these exist, then it is considered as surplus. Margin or Loading. The company having decided what shall be the net premium, adds a loading or margin for expenses, ex- cessive losses, etc. Since these cannot be predicated with any certainty, but only on the law of average and past experience, it is highly important that the compa- ny should proceed with great care in making contracts which are to last for a mimbftr of years. In a mutual 132 IN8TE UCTION BOOK company, each one of the policy-holders is bound to pay the losses as they occur to the extent of the premi- ums on his policy, but no farther. It is highly import- ant then that the premiums should be large enough at the outset, as it is impossible to increase them after- ward on policies already in force. Safety to the policy- holder is one of the most important considerations in life insurance, and the company must charge enough at the acceptance of a risk to make it a safe transaction amid all the vicissitudes of future years. This is not peculiar to life insurance. Fire insur- ance companies add a margin to their premium rates to provide for the losses occasioned by extraordinary con- flagrations, and marine and accident insurance compa- nies also adopt a similar rule. In all insurance compa- nies solvency is of the highest importance, and this can only be obtained by having premiums large enough to cover losses and expenses. Whatever excess there is in the margin above ex- penses and other claims upon the company (including dividends to stockholders, if any) is surplus. Since the margin is paid at the beginning of the insurance year with the premium, and the dividends are de- clared at the beginning of subsequent years, the actual rate of interest upon the unexpended part of the pre- mium must be added to it in finding the surplus from this source. We have then three principal sources of surplus gains from deferred mortality, interest, and loading. There may also be other sources, such as profits realized on the sale of securities, sales of real estate, rents of build- ings, profits from lapsed policies, etc. Whatever gains there are from these miscellaneous sources, should be added to the former items. Period of Distribution. Until within a few years many companies divided their surplus once in three or five years. This practice allows the surplus to accumulate, and in case of any extraordinary losses, here is a resource to which the company can apply; for until the surplus is actually dis- tributed, it is subject to the claims of the company. Most of the English companies distribute their sur- plus once in three, five or seven years, the most com- mon period being five years. The Equitable Life As- surance Society, established in 1786, did not distribute any surplus during the first twenty years, and since that period it has divided it at decennial intervals. FOE LIFE AGENTS. 133 The principal argument in favor of division at long intervals is that in some years the mortality is much greater among policy-holders than in others, and it is to avoid the irregularities which must necessarily appear in annual distributions that these longer periods are chosen. This practice is eminently safe and conservative; too much so for the competition and rivalry of our compan- ies at the present day, and the annual distribution of the surplus, commencing on the payment of the second or third premium, is generally adopted. Methods of Distribution. The principal methods of distribution used in this country are : Percentage on premiums paid. Percentage on reserves. The contribution plan. Percentage plan. Until within a few years the per- centage plan was the one in universal use. It is per- formed by returning, usually four years after the pre- mium is paid, a certain proportion or ratio of that pre- mium. It is the plan usually adopted by the English companies at the present day, and some companies in this country still adhere to it, either wholly or in part When the policies were nearly all on the whole life plan, with few or no endowments, the want of equity in it was not then so clearly manifest. But when different kinds of premiums have arbitrary rates of loading, or when premiums aie computed on different mortality tables and rates of interest, the inequality of dis- tribution becomes clearly manifest. A uniform percent- age of surplus is not earned, and therefore cannot be returned without robbing some policy-holders to the benefit of others. In practice, however, the percent age plan was productive of considerable satisfaction among those companies where the half note system prevailed. A uniform percentage of surplus and half credit premiums brought the insurance down to very nearly the net cost, and was practically carrying out the stock plan. It had this advantage, that it was usually regular from year to year, and people depended upon it with little fear of disappointment. When the science of life insurance came to be more studied, it was seen that there were some radical defects in it. It failed to do equal justice to endowments, limited term life, and whole life policies ; to some it gave too much surplus and to others too little. Besides, the increasing ex- 134 INSTRUCTION BOOK penses of companies made it impossible to pay BO large a dividend during the first years of a policy without invading the reserve fund. For these and other reasons the old companies have generally abandoned it, and the new companies have never adopted it Percentage on reserves. This plan has been adopted by a few companies, but has not come into general use. It is claimed that if the premiums are all computed on the same table of mortality and interest, and have the same loading, then this plan gives an equitable distribu- tion. It is much more easily understood than the con- tribution, and more equitable than the percentage plan The Contribution Plan. Our remarks upon "Premiums, Mortality, Interest, Margin or Loading," etc., may be considered as prelim- inary to an examination of the " Contribution Plan" of dividing surplus. This method was first applied to the distribution of surplus by Mr. Sheppard Homans, for- merly actuary of the Mutual Life Insurance Company of New York. It was used for the first time in 1863 in the distribution of the quinquennial dividends of that company, and it has since been adopted by most of the American companies. It is so called because each item of excess in inter- est, loading, etc., is made to contribute its own propor- tion on each policy to the sum total of the surplus. It enables the company to keep an account of all the sources of income and items of expenditure on each policy, and every policy-holder has his share of the surplus credited to him at the end of each insurance year. Since many companies make the "gain from vital- ity," or the excess of tabular over the actual mortality, a source of surplus, we will explain how this is done, although we have stated our reasons for regarding it as unscientific and unsafe. Cost of insurance. According to the Combined Ex- perience Table of Mortality and four per cent, inter- est, a man aged 45, insuring on the whole life plan for $1,000, at the end of the fifth year has a reserve on his policy of $93.34. This is his " self-insurance," as Hon. Elizur Wright calls it, or the amount which he has on deposit with his company, and it is the amount for which he insures himself the balance ; or $1,000 93.34 = 906.66 is the amount which the company as- sumes as a risk; that is, the whole amount of the policy is divided, the policy-holder insuring himself to the FOR LIFE AGENTS. 135 amount of his reserve and the company insuring the balance. These two quantities are continually chang- ing, and are seldom the same two days in succession, but for the sake of convenience and uniformity we take the value of the policy at the end of the year. At the end of four years, what is the probability that the com- pany will have the $906.66 to pay during the coming year, or what is the cost of insurance ? The probabil- ity by the Combined Experience Table that he will die during the fifth year is found by dividing the tabular mimber of deaths at the age 49 by the tabular number of living, or -^p/fa ; that is, out of 70,580 persons living at the age 49, 1,063 will die before the year ends, or the probability that any one of these persons will die is Vififift = -015061, and the risk that the company runs of losing a dollar under these circumstances is one cent, five mills and a fraction. The amount of risk which the company assumes of losing 906. 66 during the year, is 906.66 X .015061 = $13.65, which is the tabular cost of insurance, which is found by deducting the reserve at the end of the year from the amount in- sured and multiplying the difference by the probability of dying that year. The following table, based upon the Combined Ex- perience Table of Mortality and four per cent, interest, gives an illustration of the cost of insurance on a policy of $1,000, issued on the whole life plan at the age 45. If the actual mortality is only three fourths of the tabular rate, the last column shows what is sometimes distributed as ' ' gains from vitality :" Year of Policy. Reserve. Amount at Risk. Probability of dying. Cost of lusur'ce. Gains frm vitality. 25 per ct. 1 $18.01 $981.99 MOM T445? $11.99 $3.00 2 36.36 963.64 Tss-fB 12.37 3.09 3 55.04 944.96 yflir 12.77 3.19 4 74.03 925.97 iWr 13.20 3.30 5 93.34 906.66 ^m 13.65 3.41 6 112.94 887.06 rfsWYV 14.14 3.53 7 132.80 867.20 rfm 14.65 3.66 8 152.91 847.09 #& 15.20 3.80 In the following illustration we have a policy issued on the whole life plan at the age of 45 for $1,000. The explanation of the Contribution Plan is based upon the following assumptions : 1. The net premiums, reserves and cost of insurance are computed on the Combined Experience Table ol Mortality and four per cent, interest. 136 TNSTR UCTION BOOK 2. The average expenses of the company are 15 per cent, of the gross premiums. 3. The average interest realized on the assets is six and one half per cent. FIRST TEAS. First Source From loading. Gross premium, ...... $87.97 Net premium, 28.85 Loading $9.12 Expenses, 37.97 X -16 = 6.70 Difference, $3.42 Interest 6% per cent., . 4 . . .32 Surplus from loading, .... $3.64 Second Source. Interest on reserves. Keserve at the end of first year, $18.01 Difference between actual and assumed rate of interest 6% 4 = 2% multiplied by re- serve, 18.01 X -02% .45 Total surplus from these two sources at the end of the first year, 3.64 + 45 = .... $4.09 SECOND TEAS. First Source. Surplus from loading same as before, $3.64 Second Source. Interest on reserves, 36.36 X -02 %, .91 Total surplus, $4.55 THIBD TEAB. First Source. Surplus from loading, . $3.64 Second Source, Interest on reserves, 65.04 X -02% = 1.38 Total surplus, $5.02 FOUBTH TEAS. First Source Surplus from loading . $3.64 Second Source Interest on reserve, $74.03 X .02%= 1.85 Total surplus, $5.49 JTFTH TEAS. First Source Surplus from loading. $3.64 Second Source Interest on reserves $93.34 X .02%= 2.33 Total surplus , $5.97 SIXTH TEAB. First Source Surplus from loading. $3.64 Second Source Interest on reserve, $112.94 X .02%= 2.t* Total surplus $6.46 SEVENTH TEAB. First Source Surplus from loading. $3.64 Second Source Interest on reserves $132.80 X .02%= 3.32 Total r*i>hw $6.96 FOR LIFE AGENTS. 137 EIGHTH YEAlt. First Source Surplus from loading. Second Source Interest on reserves $162.91 X Total surplus $364 = 3.82 $7.46 This illusl ration is simply designed to show the me- thod of finding the surplus, and the assumptions are entirely arbitrary. In practice many other items may come in to vary these results, such as profits on invest- ments, gains from lapsed policies, a low rate of com- mission in collecting renewals, and should the mortali- ty in any given year be excessive, the excess should be deducted from the loading. Application of Surplus. SEDUCTION OP NET ANNUAL PREMIUM, Tear Gross Premium. Redac- Balance. First year's premium $37.97 $37.97 Second " 37.97 $4.09 33.88 Third 37.97 4.55 33.42 Fourth " 37.97 5.02 32.95 Fifth " 37.97 5.49 32.48 Sixth 37.97 5.97 32.00 Seventh " 37.97 6.46 31.51 Eighth ' 37.97 6.96 31.01 Ninth 87.97 7.46 30.51 Reversionary Insurance, or Additions to the Policy. The amount of reversionary insurance which the sur- plus will purchase is found by dividing it by the net single premium of $1 for the present age of the policy- holder. For the sake of simplicity we take the net sin- gle premium. First year, amount insured $1000.00 Second ' " $1000.00 + (4.09 - - .43886)= 1009.32 Third " Fourth " " 1009.32 + (4.55 - 1019.45 -f (5.02 - - .44935)= - .46002)= 1019.45 1030.36 Fifth " 1030.36 + (5.49 - - .47088)= 1042.02 Sixth ' " 1042.02 -f (5.97 - - .48091)= 1054.41 Seventh ' " 1054.41 -f (6.46 - - .49311)= 1067.61 Eighth ' 11 1067.51 + (6.96 - - .50446)= 1081.31 Ninth , 1081.31 + (7.46 - - .51595)= 1095.77 There will also be a small amount of additional insurance de- rived from the surplus of the paid-up insurance ; but it was not deemed best to puzzle the reader with it. Purchase of Term Insurance. The surplus can also be applied to the purchase of term insurance for one or more years. In the example which follows, we use the reserve to purchase single premiums of term insurance for seven years. At age 46, $1 of term insurance for 138 INSTRUCTION BOOK seven years will cost .086671, and the first dividend ol $4.09 will purchase $47.19 insurance. At the age 47, $1 term insurance for seven years will cost .091507, and the dividend, $4. 55, will insure $49.72 for that time. The following plan will illustrate this method : Age. Sing. prem. to insure $1 for 7 yrs. Surplus. Term insur- ance, 7 yrs. Amount of policy. 45 $1000.00 46 .086671 $4.09 $47.19 1047.19 47 .091507 4.55 49.72 1096.91 48 .096736 5.02 51.89 1148.79 49 .102398 5.49 53.60 1202.39 50 .108531 5.97 55.01 1257.40 51 .115131 6.46 56.11 1313.51 52 .122250 6.96 56.93 1370.44 53 .129903 7.46 57.39 1380.64 Up to the age 52, the increased insurance of each year is added to the policy. At the age 53 the insu- rance, $47.19, added at the age 46, having been in force seven years, is deducted and $57.39 added. This plan enables the policy-holder to get a much larger amount of insurance on his life during the ear- lier years of his policy than by reversionary insurance. By this method his additional insurance at age 53 is $380.64, while if the dividends had been used to pur- chase reversionary insurance it would have amounted to only $95.77. The following table will show what will be the result if the surplus is applied to the purchase of term insu- rance for one year : Age. Sing. prem. to insure $1 for 1 year. Surplus. Term insur- ance, 1 year. Amount of policy. 45 46 .012345 $4.09 $331.31 $1331.31 47 .012996 4.55 350.11 1350:il 48 .013711 5.02 366.13 1366.13 49 .014482 5.49 379.09 1379.09 50 .015326 5.97 389.54 1389.54 51 .016248 6.46 397.59 1397.59 52 .017257 6.96 403.31 1403.31 53 .018359 7.46 406.34 1406.34 Advantages and Defects. In every different method of applying the surplus there are some advantages and some disadvantages FOR LIFE AGENTS. 139 which the agent will readily see by observing these ta- bles. In the first method, the premiums are gradually reduced each succeeding year, and the insured has the less to pay the longer he lives, while the sum insured remains the same. In the second method, the amount insured increases gradually during life, and if the con- tingency should occur that the insured should be una- ble to pay his regular premiums, this amount of sur- plus thus accumulated can be used in some companies to keep his policy in force, or when the accumulated cash value of the surplus and the reserve is equal to the single premium at the increased age of the poli- cy-holder, he is entitled to a paid-up policy for the original amount. In the third and fourth methods, the temporary increase of the policy, the policy-holder expends the whole amount of his surplus each year in purchasing new insurance, and consequently there is no reduction of premiums. He gets a larger amount of insurance at first, but it is not uniform during life. If he suspects that he is destined to live but a few years, this is the most profitable plan for him to choose. Tontine Insurance. A tontine is the oldest form of a life contingency. The original plan of a tontine was for a number of per- sons to subscribe a sum of money to a common fund, and the interest was divided annually among the survi- vors, the last survivor receiving the whole of the fund. The fundamental idea which lies at the base of all ton- tines is that the survivors get all the profits which have accrued up to the period of division. In the applica- tion of this principle to the distribution of surplus, the same law is observed: the survivors and those who keep their policies in force obtain the whole of the reserves and surplus of those who allow their policies to lapse, and the surplus of those who die before the period of its distribution. The principal features in the plan, as adopted by some American companies, are as follows : " Tontine policies issued in each year are to be kept in distinct and separate classes, in which the surplus remains with the company for ten, fifteen or twenty years, to be accunmlated for the sole benefit of the surviving members, among whom it is to be divided ex- clusively at the end of the stipulated time. "The insured chooses at the time of application whether he will enter the ten year, the fifteen year, or 140 INSTR UCTION BOOK the twenty year class, but can make no change from one class to another after the issue of his policy. "In case of death within the tontine period, the amount of insurance only will be paid, without allow- ance for accrued surplus." Persons discontinuing their payments during the tontine period will receive no surrender value or paid- up policy, but forfeit the same, together with the accu- mulated surplus. " The usual thirty days' grace is allowed for the pay- ment of premiums, with, however, a fine at the rate of 10 per cent, per annum when this grace is accepted. " No policies can be restored after forfeiture on any account whatever. " At the end of the tontine period the fund accumu- lated to the credit of the class is divided among the re- maining members. Each member has the option of withdrawing his share in cash, applying it to purchase a paid-up policy, or, if he is desirous of continuing his insurance, the surplus over what is necessary as a re- serve, and to pay the premium then due, may be em- ployed to secure an annuity toward paying subsequent premiums," The tontine policy becomes a triple "bet "on the part of the insured. As in the ordinary form of life policy, he bets that he will die during the year, and puts up his premium on the result. In the second place, he bets that he will live till the period of distri- bution of surplus, and stakes his share of it on this re- sult. In the third place he bets that he will be pros- perous enough to pay his premiums promptly, and pledges both his surplus and his reserve on the issue. Just so far as the first bet is the proper and legitmate one in life insurance, so far the second is contrary to it, and the third is introducing an entirely foreign element into the plan. Whether all three of these incongruous elements are for the ultimate advantage of the policy- holder, he must decide for himself. In tontine insurance the advantage to be realized by the policy-holder is the largely increased dividends to be derived from the lapses of those who, unable to ful- fill their obligations to the company, forfeit their sur- plus and reserves to the common fund, which at the end of the stated period is distributed among the more fortunate policy-holders. It is not strange that this plan of insurance should have attractions for many, especially those who see only the prospective gains which each policy-holder feels sure he is destined to win. Before a man takes a FOR LIFE AGENTS. 141 policy of this class, he should seriously consider whe- ther financial prosperity has not as many contingen- cies as human life, and which carries the greater risk, he or the company. He who proves himself strong enough in the purse to win at last, will obtain a hand- some return for his investment, especially if commercial panics or a general stagnation in business should com- pel many others to abandon their policies. While the advantages of this plan to those who suc- ceed in keeping their policies in force are undeniable, since they are absolutely certain to realize a larger pro- fit than by other plans, there are some defects in it which the policy-holder ought to know. The fundamental idea of an ordinary life insurance contract is that the company assumes the risk of pay- ing the amount insured for an annual compensation, while all the risk which fells upon the policy-holder is only the difference between the reserve and the surren- der value of the policy in case it should lapse. But in this plan, the policy-holder gets no annual compensa- tion for the risk he assumes that all his surplus and re- serves may be forfeited by non-payment of premium ; it is only in case that he ' ' endures to the end " that he is rewarded. There is an inequality in the actual amount of risk covered by these two parties. In the nineteenth year of the policy, according to the table, page 142, the reserve is $209.84, and the surplus is $655.79, making $865.33, which the policy-holder is liable to lose unless he pays $19.89, while all the risk the company assumes this year is $1,000 $865.63 = $134.37. Can the average policy-holder at any time afford to carry so much more insurance for himself than the company does for him ? On the part of the companies, however, this plan has the tendency to check the great, and in many instances unnecessary lapsing of policies, and so far as it holds people to the obligations they have assumed and the contracts they have made with the company, so far it will be a benefit to life insurance, and as the policies are prevented from lapsing, the average mortality of the company is lessened, for the principle of self-selection which the policy-holders adopt, uniformly operates against the company. In the following table we have given an illustration of the practical working of this plan, based upon certain assumptions which may or may not be realized after ten or twenty years of practical operation. As this plan has only been recently introduced into this country, it 142 JNS TR UCTION BOOK 00 -I .g s * 8 - H i. s i e in 11! 2S Mnmber of pollciei In force. ^ cs co 4 C4 tQ 9 Q IO O CO O > O 1C ^ io O 00-53 illiifFl 1 r-t ,-| ,-( C* (*q c^ c^ cscooaiooocoJHcoaoioo cot-c^tOT-i^c^ FOR LIFE AGENTS. 143 is proper to add that all calculations and assumptions about the prospective profits are baaed upon the ordina- ry experience of policies, and not from the practical op- eration of the tontine plan itself. EXPLANATION Or THE TABLE. A, the age of the policy-holder during the successive years of the policy. B, the number of policies in force each year. C, the number of lapses which take place during each year. D, the annual death claims. E, the gross amount of premiums received each year from policies in force. F, the annual expenses, 50 per cent, first year, 20 per cent, second year, and 10 per cent, thereafter. G , the annual premiums less expenses. H , the fund accumulated at the beginning of each year. I, interest on the fund at 7 per cent, per annum. J , the amount of the fund with interest. K, the fund at the end of the year less the death losses. L, reserve on the policies in force, Combined Expe- rience four per cent. M , surplus at the end of each policy year. N , surplus which is credited to each policy-holder. At the age 25, 1,000 persons insure ; at the end of the year, 75 allow their policies to lapse, and there are eight death losses of $1,000 each. The amount of pre- miums received during the first year is $19,890, and allowing 50 per cent, for expenses, the net premiums are $9.945. This amount accumulated at 7 per cent, interest, which is $696.15, is $10,641.15. Deducting $8,000 death losses, we have the remainder, $2,671.15, which is less than the reserve and there is a defi- ciency. The next year, at the age 26, 917 premiums are paid, amounting to $18.239.13, 69 policies lapse, and there are $8,000 death losses. Allowing 20 per cent, for ex- penses, which amounts to $3,647.83, we have left $14,591.30, which added to the $2,641.15 in column K, makes $17,232.45. The interest in this at 7 per cent, is $1,206.27, and the total fund is $18,438.72. De- ducting $8,000 losses, the remainder is $10,438.72, which is still less than the reserve. The third year, allowing ten per cent, for expenses in this and each subsequent year, we have in column 144 INSTRUCTION BOOK Q $15,036.84 net premiums, which added to the fund of last year in column K ($10,488.72) makes the fund at the beginning of the third year to be $25,475.56, adding $1,783.29 interest, it amounts to $27,258.85, and deducting $7,000 losses, there is remaining $20,- 258.85, which leaves a surplus, after deducting the re- serve of $19,790.40, of $468.45. If the reserve should be distributed among the 774 policy-holders who keep their policies in force, the share to each one would be .61. At the end of the tenth year, the surplus amounts to $55,657.30, which divided among 463 policy-holders, the number which keep their policies in force, we have $120.43 as the share of each. This amount, converted into paid-up insurance, would amount to $353.59. At the end of the twentieth year we have $193,405.70 surplus, which divided among 251 policy-holders who remain, gives to each $770.54. This converted into paid-up insurance would add $1,798.10 to the policy, making the sum insured $2,798.10. This surplus may be converted into an annuity (Combined Experience four per cent.) in addition to a paid-up policy, in the following manner : Eeserve end of twentieth year, .... $209.84 Surplus dividends, 770.54 Total 980.38 Single premium, age 45, 428.57 Surplus on paid-up policy $551.81 Present value of annuity of $1 14.8571 Annuity which the surplus will purchase, . 37.14 which is nearly twice the annual premiums hitherto paid. If a man wishes to speculate on this kind of insur- ance he has only to take out a policy on this plan and " hedge" his payments by purchasing a term annuity for the prescribed number of years. The present value of a term annuity $19.89 for twenty years (Combined Experience 4 per cent) is $262.24, but his reserve is $209.84, andhis surplus $770.54, making $980.38, which equals $262.24, invested for twenty years at compound interest at a rate a little less than seven per cent., so that he has kept his life insured and made nearly seven per cent, on his investment. If he purchases an annu- ity for $226.84, (American Experience seven per cent.,) then he would make nearly eight per cent and keep his life insured, without incurring any risk that his policy would lapse. FOR LIFE AGENTS. Ho Savings Bank Life Insurance. This plan of insurance is presented and advocated by Hon. Elizur Wright, the prominent feattire of which is the guaranteeing of a fixed surrender value at the end of each year of a policy. To find the surrender value of a policy on this plan, the present value of the future cost of insurance on the policy is computed, and eight per cent . of this is adopted as the surrender charge, which, subtracted from the reserve, leaves the surren- der value. In all its prominent features it is precisely the reverse of tontine insurance. It does not hold out the induce- ment of large dividends, for the premiums are loaded a very little above net rates, and the surrender value of the policy, which can always be known by referring to it, makes it a safe collateral for any purpose. After paying the necessary expenses and losses, whatever sur- plus remains is distributed annually on the contribution plan. In this plan the attraction is the surrender value, and as all members of the company who adopt this form of insurance have equal rights, the usual objections to paying large surrender values do not apply here. No risk is incurred by the policy-holder lest his dividends and reserve may be forfeited by the non-payment of premiums. As a savings bank, the company becomes a safe depository of an annual premium , the reserve of which is accunralated at a stated rate of interest during the period of insurance, and can be withdrawn at any time by paying a small surrender charge ; as an insur- ance company, it insures his Jife to the amount of the policy, payable at a certain age if living, or at death if this event should occur before the period of insurance expires. The method of computing the surplus and surrender values is illustrated in the table, page 147, and ex- plained by Mr. Wright. By this plan the insurance done by the company and the self-insurance by the policy-holder are kept sepa- rate. "The self-insurance department is a contract between the company and the individual, in regard to which, except as to the interest on the deposits beyond four per cent., the other members of the company have no concern whatever, any more than one depositor in a savings bank has with another. The deposits with four per cent interest are the property of the deposi- tor. They have no effect on the insurance whatever; except to diminish the amount. There is no forfeiture 146 INSTRUCTION BOOK here for the violation of any condition. Here the par- ty contracts to pay annually the two series of sums con- tained in the first and second columns. The " constant margin '' of the first column for insurance expenses and extraordinary or unexpected death claims. The " normal cost of insurance " in the second column is to pay the ordinary cost of carrying for one year the risk placed against it in the third column. The " insurance value " in the fourth column is the present value of the current and all future "normal costs of insurance" in the sec- ond column. The surrender charge in the fifth column is what the party forfeits by violating in any way or terminating at his option this insurance contract. It is the indemnity which the company is to receive for its loss of insurance value or strength by the non-fulfill- ment of its contra'ct. Of course the savings bank "re- serve " is the only security the company has for the payment of this indemnity, and it is always sufficient for that purpose, except at the end of the first and sometimes the second year of policies of very long term. The ' ' surrender value " is the difference between the reserve and the charge for canceling the insurance part of the contract. FOR LIFE AGENTS. 147 en o _ u co oo vj 01 en _ _-. tf eo to i- 1 o co eo co eo co CD oo vi os en Age of person. : eo eo eo co co co cc eo eo eo n co co co co co p INSURANCE. OS Oi Oi Oi Oi OS Oi Oi OS Oi CO CO CO CD CO Oi OS OS OS OS \-> to eo rf*. rf*. en en os os V] V| V| OC GO Normal costs of insurance. o to co to o O OS W rf*.l- os to oo eo oo oo oc to rf*. o to 01 co to en CO H* tf *- O (- tO CO CD VI Oi tf*- to co toi-i rf*- * en cs os h- 1 OO OI IO OO Oi VI C5 O tO VI V| 00 CO CO ^ CO Cl O Ol to oo to co to Company's risks. O H-" en en co o oo oi o en CO OO OCOCO o tf*. eo vj co cs vi en oo -a NJ co os o t-^M to to eo t^. CD CO CO (f>> f| rfx i^. Cn Cr? Oi o en i- vi eo Insurance values. S to en en to os eo CD vi rf^ O CO O rf^ tf- to O vi vi O vi >. to O rf>- eo oo oi vj co co *. * Surrender charges. O i- to en oo o o oo eo to i_i en co co vj OS tO H-i CO Oi to oi f-> en o os to oo en en en en #>. CO tO h-> O CO ,i- i^ -U ^-. CO OO VJ V| OS _ _ ^. .^ _ Oi os en en en Deposits. SELF-INSURANCE. tO Oi CO OC I- 4 O tf-CO CO O t^- *> o oc to tf^ I > V| ^ tO CO H- OO OO tO > i I 00 vi oi en to cc en oo V| O VJ OO CO en * co co to t- 1 ** vj H> en to eo co vi ~j to i-> I- 1 V| Oi V| ' Reserve. OO ^ Cn OS Oi to rf*- o en H- ' H- 1 CD O O O CO OS 1 ' OI tf- en oi to o co en to co 8 p o o co oo vi os en o to eo en oo vi o vi oo to en *- eo eo to o LO vi 4^ en o tf*. o t^ oo co to to- Surrender values. oo eo to i- 1 -q to rf* to toco SfcSSS co CO l- If" coco o en- en if", cc to P-> o co oo