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MODES FOR PROCURING BUSINESS. Life insurance is properly a noble and humane institution, and capable of affording great benefit to society. Those who have the management and control of it in the United States so represent it to the public, and their solicitation of business is based upon such representation. They make use of the eulogies passed upon it by wise and good men, as an effectual means for its recommendation throughout the country.
But some of these managers have begun of late the adoption of practices which create grave doubts whether the motives prompting their devotion to life insurance are wholly disinterested and philanthropic. Appearances too often indicate that the purposes which really govern their action are the gratification of personal ambition and personal emolument. Great power is incident to the control of large sums of money, and the responsibility belonging to the management of large sums is made the pretext for the demand of extravagant salaries. The accumulation of a great amount of business and of assets is therefore necessary for the attainment of the object really sought. A great extension of business and enormous assets must be had, no matter at what sacrifice. Money is lavished upon every form of advertisement, and in the payment of high commissions and other allowances to agents.
The business has thus begun to lose, in some measure, its proper character, and to assume that of a mere speculation. It is obvious that when it fully assumes this phase, its possession of large resources will cease to be a badge of honor, or a title to confidence. The voluntary and willing deposit of trust funds is an expression of faith and confidence a thousand fold more valuable than any deposit procured by diut of questionable appliances. The latter may be a source of power and profit; but the former is a manifestation of trust which bestows credit and honor. In venturing the utterance of these views no reflection is intended upon fair and honorable competition ; but truth and equity, honor and integrity—the essentials of a legitimate insurance business—are most earnestly contended for as possessing vital importance.
NEW SCHEMES. But it is not merely by means of lavish expenditure in the varied routine of appliance that enters into the strife of competition that an increased volume of business is sought. New schemes, almost without number, are being devised and presented for public patronage. Many of these are utterly worthless. Life insurance is not legitimately capable of so many modifications. It is properly a regular and legitimate business, and the various refinements and subtleties engrafted upon it have no real merit. They may serve for a time to attract public favor, but are destined to a brief existence.
The purpose of life insurance is very simple. It is possessed of no wondrous or miraculous powers. Novel pretensions and ingenious devices, half explained and half understood, are too often mere attempts at imposition, and designed to take advantage of public ignorance. But the mischief is not confined to the disappointment of patrons. The officers of Companies themselves often labor under an honest delusion and error, unmindful that their departure from the simple, regular and legitimate mode of business must almost invariably end in complications and embarrassments. Funds appertaining to different forms of policies cannot in actual practice be kept distinct, and will consequently be subject to arbitrary disposition; while all nice and conscientious appreciation of the limit of official power will be lost, and a proper sense of responsibility blunted.
This is more to be deplored because, by the aid of proxies, officers thus implicated are enabled to perpetuate themselves in power; and the exercise of power undefined in its limits and practically irresponsible, must sooner or later inevitably lead to abuse. The proxy law of Massachusetts, as modified by the statute of 1872, interposes, however, an effectual bar to such malfeasance at home; so that only in the management of Companies from States having no similar restrictive law, is such abuse likely to exist.
TONTINE DIVIDENDS. We do not mean, however, to say that all new plans brought before the public are wholly without merit. Some
of these, one especially, which has attracted favorable consideration and achieved great popularity, is the Tontine system of declaring dividends. In explanation of this system, an examination into the nature of life insurance is necessary.
In order that life insurance may confer the largest benefit upon the assured and their dependents, it seeks, as is well understood, to secure such a distribution of death losses among all as will prevent them from falling heavily among any. The accomplishment of this end is strictly the proper and legitimate operation of life insurance. Regarded from the stand-point of the families of those especially who die early, it is an institution fraught with blessing. They owe to it their rescue from poverty, and perhaps from absolute destitution. Partly from sympathy for those who are in such circumstances, and still more because their future is uncertain, and because the same lot may possibly be in store for each, the institution of insurance is generally held in well-founded esteem.
But when its operation is regarded, selfishly, from the standpoint of those who. escape the calamity of early death, and having escaped it, have no claim to the alleviation which life insurance ministers for it, the institution presents a different aspect. That which is really its express object and chief recommendation, then becomes apparently the strongest objection. Hence a portion of the premiums paid for life insurance have been set apart for distribution, by many Companies, in concession to the feelings of those long insured. The portion of premiums so appropriated is that originally exacted by way of precaution merely, and in actual experience is left free to be returned to the policy-holders, or to be disposed of for their benefit. Though not returned directly to them, it is applied for the benefit of those who have been longest insured. This is done sometimes in the form of an addition to the amount originally insured, sometimes in the form of a bonus, and sometimes by means of the contribution, or of the Tontine dividends.
In all these modes of applying surplus, there is a certain benefit or advantage which pertains or is attached to survivor
ship, and this was the peculiarity of the various financial schemes .devised by Lorenzo Tonti. It is true that his projects were adopted by the State for the sake of the revenue which it expected to derive therefrom. But this revenue was to be derived
merely from the profit accruing from the transaction. by the promise of a benefit or advantage enuring to the survivor or survivors, that people were induced to join the enterprise and become subscribers to it. The benefit or advantage enuring in favor of survivorship, is also the distinctive principle of the various schemes which have been devised since the death of Tonti, and which have been named after him, Tontines. So, too, the Tontine dividends are the mode of appropriating the surplus in Life Insurance Companies, in which the largest degree of benefit or advantage is secured in favor of survivorship.
In our view, the officers of Life Insurance Companies are not called upon to determine for their policy-holders what mode of disposing of surplus is the most equitable and advantageous for all concerned. We believe they have good ground for congratulation that the responsibility of deciding this matter does not rest upon them. They are only called upon to make a disposition of the surplus in the manner which has been agreed upon between the Company and the policy-holders. The mode of its disposition is properly and purely a matter of agreement. There is no reason why various methods of disposing of the surplus should not be admissible, provided the method agreed upon is carried out. Companies may with perfect propriety be organized for the purpose of receiving and holding funds in trust that they may be returned with the accumulations that arise, either upon the Tontine principle or upon the life insurance principle, or in part upon one principle and in part upon the other. So long as the funds are returned in the manner agreed upon, no one is harmed. The two principles, however, are exactly opposite to each other, and when the same institution undertakes at the same time to be both a Tontine and a Life Insurance Company, it is at once apparent that great care must be used in order to secure an entirely separate and distinct classification of funds pertaining to the different branches of the business.
Life Insurance Companies are entirely justified in meeting all existing demand of the public for Tontines. But the public should bear in mind that there is absolutely no benefit or advantage whatever derived from a Tontine, except npon condition of survivorship. Everything paid to a Tontine, whether
in money or in the surrender of an interest in surplus, is wholly lost in case of death. Besides this, in most of the Companies, which have adopted the Tontine system, the policy-holders who have elected to become members of the Tontine, forfeit the surrender value of their policies in case of surrender during the period fixed for the accumulation.
SAVINGS BANK LIFE INSURANCE. The people of the Commonwealth already understand that Life Insurance Companies are obliged to keep on hand a certain reserve. This obligation is imperative, because the probability of death increases with each successive year which the insured may live. In ascertaining the aggregate amount of reserve which a Company must hold, reference is had to the life of each individual, considered separately—that is to say, the reserve to be retained on account of the policies severally are first ascertained, and the aggregate of these reserves is the whole reserve to be kept by the Company for the security of the assured.
What is meant by Savings Bank life insurance is life insurance conducted in such a way that the reserve on account of each policy is regarded as belonging to the policy-holder, and is held by the Company merely on deposit, precisely as if it were a deposit in a Savings Bank, and liable to be withdrawn at pleasure on surrender of the policy.
One of my predecessors in office, Hon. Elizur Wright, is strongly of opinion that this is the principle upon which life insurance ought to be conducted. The honor justly belongs to him of having presented his views upon this subject, in various publications with great earnestness and ability. Several of the leading Life Insurance Companies have adopted these views, and begun to conduct their business in accordance therewith. While the task of properly presenting the merits of the plan may safely be left in Mr. Wright's hands, we think it proper to remark that the general adoption of the plan would involve a change in the rights of policy-holders. The rights of a policy-holder as against a Life Insurance Company are created either by the provisions of the contract which is in force between himself and the Company, or by those of the act under which the Company was incorporated. Upon the