that there are not sufficiently accurate statistical data in existence on which to base rates. The foregoing studies by American actuaries, having in mind the application of the data to the business of old line life insurance companies, have overcome this objection and have furnished us with tables of rates which are generally agreed among actuaries to be safe. PART II THE DISABILITY CLAUSE AMONG AMERICAN LIFE INSURANCE COMPANIES CHAPTER IV · RESTRICTIONS ON THE USE OF THE DISABILITY CLAUSE AS REGARDS POLICIES OR RISKS The foregoing statistical study of disability insurance has been introductory to the main theme of this book, viz., a detailed study of the clauses issued by American life insurance companies. One hundred and forty-four companies organized on the old line plan, were found by the writer to have inserted the disability clause in some or all of their policies since 1896. Of these 144, seven have reinsured or been absorbed by other companies; one company has ceased issuing the disability clause; and one has ceased writing life business, now confining its attention to casualty insurance. This leaves 135 companies now issuing the clause. Copies of the clauses of 114 of these companies have been obtained from the companies and 13 other clauses were found in the Spectator Company's "Handy Guide" for 1911. Only eight companies, therefore, out of the total of 135 are not included in the following discussion. The study of these clauses will include an analysis of the following features: 1. Policies or risks on which the clause is not granted. 3. Age and time limits to the application of the clause. Term Insurance Since the disability clause is in a more or less experimental stage, most companies have seen fit to restrict its use to those policies or those risks on which they expect to have a normal mortality experience. The case in which the clause is most frequently refused is in term insurance and various reasons are advanced in explanation. The reason given by the actuary of one of the larger companies for making this exception is that the reserves held under a term policy are very small. It is true the risk in this case is much greater than in the later years of an endowment policy, for instance, because of the existence of a large reserve on the endowment policy, but this is no reason why the premiums charged should not consider the actual risk involved. This company charges a flat rate of only 25 cents for the clause. The objection of many companies to including the clause in term policies is in direct line with their desire to discourage term insurance. It is a well known fact that most old line companies have for years. worked on the assumption that the field for term insurance should be strictly limited, and that there are few situations which justify its issue. If it be granted that term policies are to be restricted to a few isolated cases where temporary business protection is demanded, then some force must be given to such reasoning. But there is a broader field of use for term insurance as pure protection against untimely death during the productive period of a man's life. It is not necessary to the safety of an insurance company that investment features be added to every type of policy. The gradual realization of this fact is making term insurance more popular with the insuring public and if this development continues, as it in all probability will, and if the disability clause becomes a standard provision in policy contracts, then there must be a corresponding demand for its inclusion in term policies. The question therefore of combining the disability rider with the term policy becomes a very important one. Another and a more serious objection, however, is advanced against placing the clause in a term policy. Some term policies today allow renewal at the expiration of the term, or conversion to some other kind of policy, these privileges being granted without a new medical examination. The presence of the disability clause in a contract of this nature may well place the company at a disadvantage. Thus, in the case of a renewable policy if disability should occur shortly before the expiration of the term the company must pay the premiums for the remainder of the term, and the insured would be almost certain to renew the policy and thus oblige the company to pay the higher premium due after renewal. This appears on its face to be a very serious objection. It must be recognized that the cost of the clause on this policy should include the cost of paying the higher premium which applies after renewal. If this is done the company can oppose no valid reason for making an exception in the case of renewable term insurance. That the objection is not a serious one, however, and that the cost would not be prohibitive is shown by a study of the rate of mortality among disabled persons as already explained. On page 21 it was shown that the average length of life after disability is only a few years at the utmost; that the company can usually proceed on the theory that a disability claim will very shortly be a death claim; and that, therefore, the extra cost of the feature as attached to renewable term policies will not be great. With convertible term policies, the case is different. Such policies might, after disability has occurred, be converted into short term endowments, thus obliging the company to pay the larger premium which the latter cost. By this means a policyholder might convert a term policy costing ten dollars per year into a ten-year endowment costing one hundred dollars per year and by the terms of his agreement compel the company to pay one-hundred-dollar premiums after disability in place of ten-dollar premiums. This would be equivalent to obtaining a ten-year endowment policy without paying for it. This is manifestly unfair, and a company writing participating insurance cannot treat its other policyholders fairly and allow such practices. The solution, however, lies, not in refusing to grant the disability clause on term policies, but in refusing to grant the waiver of premium benefit after conversion of the policy. Only one company has been found to have availed itself of this protective feature. The clause issued by the Columbian National on term policies reads: "Such payments (i.e. premiums by company) to cease, however, should the insured avail himself of the exchange or renewal privileges of said policy." Other companies may contemplate a refusal to pay benefits after conversion, but the reservation of such right does not appear in the clause. Endowment Policies One company refuses to grant the clause with endowments. This action is difficult to understand, for a glance at the extra premiums to be charged for the clause as computed by the actuaries already referred to will show that there is generally no material difference between its cost on endowments and on ordinary life or limited payment life policies. If any policy tends to cost more than others it is probably the ordinary life. Some companies recognize this fact by refusing to include the clause on ordinary life policies in case of certain hazardous risks. But there seems to be no particular reason for the application of such a limitation to endowment policies. Joint Life Policies It is frequently the case that the disability clause is not included in joint-life policies, the companies claiming that there is difficulty in calculating the benefits under two-life policies. The question immediately arises, for instance, whether the benefit will be paid when both are disabled or when only one. It is easy to see that the probability that both of two persons will become disabled is very small and that the benefit in this case would have little value. The Home Life of New York meets this difficulty by agreeing to waive one-half the joint-life premium in case one person is disabled or the whole premium where disability occurs to both. This is a simple and satisfactory solution. The Prudential Insurance Company grants the clause on joint-life policies on two lives, but refuses it on policies covering three or more lives. No fault can be found with this restriction, for such a benefit would be so small as to be insignificant. To be sure the cost of the clause when included in joint-life policies can be made dependent on paying the benefits for disability the same as death benefits. Death benefits, for example, are paid under the ordinary joint-life policy upon the death of either of the insured. It is possible likewise to pay the disability benefit under this policy in case of the disability of either of the insured. It is a question, however, whether this is not insisting on too great actuarial refinements at a time when our experience with disability insurance is limited; and whether the scheme of the Home Life is not equally satisfactory. Some of the companies writing industrial business refuse to grant the clause in connection with intermediate policies, i.e., policies with a face value of $250 or $500. This is in line with their reasons for refusing it altogether on any strictly industrial business, for a poorer class of risks is found among industrial policyholders. Women Chief among the risks which are ordinarily excluded from the benefits of the disability clause are women. Disability s usually so |