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tingency. Several companies have provided a commendable method of meeting this situation by requiring a probationary period of from six months to one year after disability before benefits will be paid, and if recovery takes place after this time has expired the "recovery" feature common to nearly every clause takes care of the situation. Moral hazard is indeed so small an element in disability insurance that it can well be disregarded and it does not furnish a valid reason for cancelling the clause after an assignment of, or loan upon, a policy.

Most objectionable of all limitations, however, are those making the clause applicable only in case of accidental injuries. The table of causes will show that 44 out of 1,000 cases, or 4.4 per cent of all disability, is due to accidental injury. The company, therefore, which grants benefits for disability due to accidents issues a clause which covers 4.4 per cent of the risk the policyholder incurs. Three companies issue clauses covering disability from accident or bodily injury only. Another has limited its clause to an even greater extent by making it apply only in case of physical disability due to loss of limb, total blindness or total paralysis. But the worst of these limitations is the following: "Injury through external, violent and accidental means resulting in the severance of both hands, both feet, one hand and one foot, total loss of sight or one eye and one limb.” In other words, not even injury will be compensated if it does not result in one of some half-dozen enumerated kinds of disability. These narrow restrictions are in no way compensated for by paying the full face value of the policy upon the occurrence of such disability, as is provided for by the three companies in question. One company grants the same benefit but introduces a further restriction by the requirement that such disability must occur within 90 days of the accident. Two clauses cover disability as thus defined but include, as well, "disability by bodily injury," being thus of slightly broader application. These clauses cannot be condemned in too scathing terms. No insurance commissioner should let the policyholders in his state suffer the imposition which the issue of such contracts implies; and a campaign of publicity should place them in such light before prospective policyholders that they will either be changed or be entirely done away with.

CHAPTER VI

AGE AND TIME LIMITS TO THE APPLICATION OF THE CLAUSE

The most carefully written clauses state the time when they come into operation, the circumstances under which they remain in force and the time when they cease to be effective, if at all. In the majority of cases these features are covered by the phraseology used in one of the two following instances: (1) "If the insured, while less than sixty years of age, after the first premium has been paid to the company on account of this policy, shall furnish due proof to the company while the policy is in full force and effect," that he is disabled; or (2) "If after one full annual premium shall have been paid under the above-mentioned policy before default in the payment of any subsequent premium, the insured shall, before attaining the age of sixty years, furnish proof of disability."

Beginning of the Risk

The three parts to each of these clauses, as stated above, are: First, a provision that it begins to operate only after the first premium has been paid; second, that it continues in force only so long as there is no default in the payment of a subsequent or renewal premium; and third, that it ceases to be effective in all cases after the insured has attained the age of sixty years. These three provisions form a part of sixty-one of the clauses studied. A number of clauses are different in detail only. Nine companies, for instance, require a preliminary period of one year, or the payment of two annual premiums on the policy, before the clause becomes effective, and in two cases three full annual premiums must be paid. These precautions may have been taken against a supposed moral hazard. At any rate they are not of an importance which requires that emphasis be given to them. Sixteen companies go no further than to state that the clause is maintained in full effect "while the policy is in force" and ten others make no specification at all with reference to the beginning of the risk.

Default in Premiums

The second feature referred to in connection with the parts of clauses here reproduced gains its importance from the fact that a default in premium payments, while it does not necessarily terminate the regular death or endowment benefits of the policy and in equitable contracts never does, may yet render the disability contract void. For, literally taken, it provides that the disability protection ceases the moment a default occurs in the payment of premiums. It is probable that most companies, with their known liberality in interpreting insurance contracts, would, upon the payment of defaulted premiums, consider the disability insurance to be again valid, and yet the insured wants to be certain of this. There are at least three instances in which this question of interpretation may arise and where its satisfactory solution will mean much to the insured: first, during the period of grace allowed for the payment of premiums; second, in cases where the policy allows automatic extended insurance upon default, with permission to repay the back premiums later or hold them as a lien against the policy, and to continue the insurance in force without the necessity for a new medical examination; and third, where the policy is surrendered for paidup or extended term insurance. The latter case is of no concern of course, except where the benefit takes the form of maturity of the policy and its payment by some means to the insured, since the new policy issued after surrender or lapse is always paid-up. The question then is whether the company will allow the reinstatement of the disability protection under the same terms as the regular life insurance protection in case premiums have been defaulted and they are later paid up; or whether, in case the company permits thirty days grace in payment of premiums, or allows the reserve to be drawn upon to pay them at any time, it will consider the disability insurance in force during this time and pay benefits where disability occurs during this period in the same manner that it will hold itself liable to pay death benefits where death occurs within the same period. Ninety-six companies provide the protection in question at any time "before default in the payment of any subsequent or renewal premium." Strictly speaking, then, the great majority of the clauses do not give disability protection under the same policy conditions as the regular life benefits, for during or after the period of grace allowed in premium payments the disability insurance

lapses. Twenty-one companies state, more liberally, that the clause operates "while the policy is in full force and effect" or "during the continuance of the policy."

Cancellation by the Insured and by the Company

Closely associated with the matter of default in payment of premiums is a provision found in a number of contracts whereby the disability clause is automatically cancelled upon failure to pay the extra premium required for this benefit. Cancellation may be effected automatically in this way or by contractual agreement to allow the insured to discontinue the disability insurance at will. Cancellation in the latter sense does not arise of course, except where an extra premium has been charged for the disability protection; and the regular cancellation provision offers no difficulties in the majority of cases, merely permitting the insured, when he desires to discontinue his disability insurance, to have his premium reduced by the amount paid for the extra benefit. There are two companies, however, that give this privilege to the company as well as to the insured. One allows the clause to be cancelled by the insured or by the company "provided the insured is engaged in a more hazardous occupation than at the time of its (the policy's) issuance." The other states that "within the period of grace following any anniversary of this contract, the total disability benefit may be cancelled by either the insured or the company." Clearly, clauses of this nature are a travesty upon life insurance, a fundamental principle of which is to grant unilateral contracts that the company must maintain for so long as the insured will pay premiums. And undoubtedly one of the reasons for placing the disability clause in life policies is to grant permanent disability protection to the insured over a long period and not give the company the privilege, as is done in case of accident and health policies granting this protection, of refusing to continue the insurance at the close of any policy year. In the two cases referred to it can be assumed that in later years when the probability is very great that the insured may become totally disabled, due to disease or old age, and when the company sees that the insured is approaching such a condition of total disability, the company will at once exercise its option to cancel the clause and the insured will be deprived of this protection just when he is most in need of it.

Automatic cancellation provides for the cessation of disability protection upon failure to pay the extra premium charged for this benefit. It operates as an added restriction upon the term of the clause and produces like results to the provision regarding default in the payment of regular premiums. Its analysis throws further light on the question whether the disability protection is to be continued during the period of grace in premium payments. In the case of three companies, it is doubtful if this provision grants the regular grace in premium payments before the disability benefit would automatically cancel itself. The rider issued by one company in connection with its term policies reads: "Failure to pay any premiums when due will avoid this contract." Two clauses state that "non-payment of the additional premium in accordance with the above" will render the clause null and void; and another contract provides that "this rider is issued for the term of twelve months from date and may be renewed subject to all its conditions and privileges for successive terms of twelve months by the payment of the premium in advance." In one case, this requirement is indefinite but it would probably allow grace in premium payments. It states that "it will be automatically cancelled when premiums cease to be paid." In the case of six companies there is little question but the automatic cancellation feature will not apply until after the regular thirty days of grace has elapsed. For instance, "failure to pay the above premium or any premium or installment due on said policy within the time allowed thereunder, will render this rider null and void." One company provides in its clause that the payment of extra premiums for disability benefit is "subject in every respect to the same regulations and conditions" as the payment of regular premiums for the policy. A atitude of thirty days of grace before the clause can be cancelled is found in the case of three companies, in conjunction with the provision making the payment of the extra premiums a consideration for the contract. One clause reads, "In consideration of the payment of all premiums in accordance with the terms," of the policy. Another is issued "in consideration of the payment of the premium provided for in said policy as the same becomes payable"; the last one "in consideration of an additional premium of $

is to be paid

to payment as the regular premium."

which

subject to the same conditions as One clause leaves no doubt as

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