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^SdSeasion"} SENATE COMMITTEE PRINT



INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER



TEMPOBARY NATIONAL ECONOMIC
COMMITTEE

A STUDY BASED ON DATA OBTAINED IN A FIELD
SURVEY OF LIFE INSURANCE POLICYHOLDERS CON-
DUCTED IN GREATER BOSTON IN 1939 AS A WORK
PROJECTS ADMINISTRATION PROJECT SPONSORED BY
THE SECURITIES AND EXCHANGE COMMISSION AND
MADE FOR THE TEMPORARY NATIONAL ECONOMIC
COMMITTEE, SEVENTY-SIXTH CONGRESS, THIRD SES-
SION, PURSUANT TO PUBLIC RESOLUTION NO. 113
(SEVENTY-FIFTH CONGRESS) AUTHORIZING AND DI-
RECTING A SELECT COMMITTEE TO MAKE A FULL AND
COMPLETE STUDY AND INVESTIGATION WITH
RESPECT TO THE CONCENTRATION OF ECONOMIC
POWER IN, AND FINANCIAL CONTROL OVER,
PRODUCTION AND DISTRIBUTION OF
GOODS AND SERVICES



MONOGRAPH No. 2

FAMILIES AND THEIR LIFE INSURANCE

A STUDY OF 2132 MASSACHUSETTS FAMILIES
AND THEIR LIFE INSURANCE POLICIES



Printed for the use of the
Temporary National Economic Committee




UNITED STATES

GOVERNMENT PRINTING OFFICE

WASHJNGTON : 1940



TEMPORARY NATIONAL ECONOMIC COMMITTEE

(Created pursuant to Public Res. 113, 75th Cong.)

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman
HATTON W. SUMNERS, Representative from Texas, Vice Chairman
WILLIAM H. KING, Senator from Utah
WALLACE H. WHITE, Je., Senator from Maine
CLYDE WILLIAMS, Representative from Missouri
B. CARROLL REECE, Representative from Tennessee
THURMAN W. ARNOLD, Assistant Attorney General
•WENDELL BERGE, Special Assistant to the Attorney General, Representing
the Department of Justice
JEROME N. FRANK, Chairman
•SUMNER T. PIKE, Commissioner
Representing the Securities ana Exchange Commission
GARLAND S. FERGUSON, Commissioner

•EWIN L. DAVIS, Commissioner
Representing the Federal Trade Commission
ISADOR LUBIN, Commissioner of Labor Statistics
•A . FORD HINRICHS, Chief Economist, Bureau of Labor Statistics, Representing the Department

of Labor
JOSEPH J. O'CONNELL, Jr., Special Assistant tc the General Counsel
* CHARLES L. KADES, Special Assistant to the General Counsel, Representing the Department

of the Treasury



Representing the Department of Commerce

LEON HENDERSON, Economic Coordinator

DEWEY ANDERSON, Executive Secretary

THEODORE J. KREPS, Economic Adviser.



Monograph No. 2
FAMILIES AND THEIR LIFE INSURANCE

SUBMITTED BY

THE INSURANCE SECTION OF THE
SECURITIES AND EXCHANGE COMMISSION
'Alternates
II



ACKNOWLEDGMENT

This monograph was written by

DONALD H. DAVENPORT, Ph. D.

Special Economic Consultant, Insurance Section, Securities and
Exchange Commission

AND

GERHARD A. GESELL

Special Counsel, Insurance Section, Securities and Exchange Commission

From data obtained in W. P. A. Project No. 20123 under the supervision of
ANNE PAGE, Project Director

The Temporary National Economic Committee is greatly indebted
to these authors and other members of the Commission's staff for this
contribution to the life insurance study.

The status of the materials in this volume is precisely the same as that
of other carefully prepared testimony when given by individual witnesses;
it is information submitted for committee deliberation. No matter what
the official capacity of the witness or author may be, the publication of
his testimony, report, or monograph by the committee in no way signifies
nor implies assent to, or approval of, any of the facts, opinions, or recom-
mendations, nor acceptance thereof in whole or in part by the members of
the Temporary National Economic Committee, individually or collectively.
Sole and undivided responsibility for every statement in such testimony,
reports, or monographs rests entirely upon the respective authors.

(Signed) Joseph C. O'Mahoney,
Chairman, Temporary National Economic Committee.

m



FOREWORD

This report of the staff of the Securities and Exchange Commission
is based upon data obtained in a field survey of life insurance policy-
holders conducted by the Commission in the summer of 1939 with the
cooperation of the Work Projects Administration. The report was
prepared by the Commission's Insurance Section under the general
supervision of Commissioner Sumner T. Pike and Gerhard A. Gesell,
special counsel. The conduct of the survey and the analysis of the
results were undertaken by Donald H. Davenport, special economic
consultant to the Commission's Insurance Section, and Anne Page,
project director. Other members of the Commission's staff who as-
sisted in the preparation of this report include: Leonard G. Leven-
son, Michael H. Cardozo, Myer H. Naigles, and Jack Dees.

Among those outside the Commission who contributed to the success
of the project, special mention must be made of Hon. Charles F. J.
Harrington, commissioner of insurance for the Commonwealth of
Massachusetts, and Dean James M. Landis, of the Harvard Uni-
versity Law School. Commissioner Harrington permitted many
technical questions that arose in connection with the survey to be
referred to his office. Dean Landis provided classrooms for the
training of enumerators and office space for field headquarters.



Significant Facts Revealed by the Survey

Two thousand one hundred and thirty -two families and nine thousand fifty-three
persons were enumerated. One thousand six hundred and sixty-six families
carried insurance on the lives of 6,050 individuals, had an aggregate annual income
of $2,555,000, and spent $125,000, or 4.92 percent of it, for $4,069,000 of life
insurance (p. 7; appendix table 1).

Seventy-eight out of one hundred families and 66 out of 100 people were carry-
ing life insurance (p. 9; appendix table 1).

In families with insurance, 83 out of 100 men, women, and children were
insured (p. 11).

Ninety-two out of one hundred families now hold or formerly held life insur-
ance (p. 75).

Of those families now uninsured, 64 out of 100 previously had carried life
insurance (p. 53).

Thirty-three out of every one hundred families enumerated were on relief and
25 out of 100 insured families were on relief; 60 out of 100 relief families were
carrying insurance (pp. 8-9).

The amount of insurance carried on the average insured person was $683 (p. 14).

Eighty-eight out of one hundred insured families held some industrial insurance
and 42 out of 100 held only industrial insurance (p. 16).

Industrial insurance amounted to 49.6 percent of all insurance in force and
accounted for 64 percent of all premiums paid (p. 42) .

The lower the economic status of the family the greater was its dependence
upon industrial insurance (p. 20) .

The lower the economic status Of the family the greater the proportion of
family income paid for life insurance premiums (p. 46).

Nine and eight-tenths percent of the industrial policies had been in force less
than 1 year; 49.2 percent for less than 5 years. Industrial policies in force for
10 years or more accounted for 27.2 percent of the total (pp. 31-37).

In the families with industrial insurance exclusively, relatively fewer bread-
winners were insured than other members of the families (table 29, p. 146).

Forty-two and two-tenths percent of the premiums for industrial insurance
were paid for endowment policies (table 13, p. 126).

Fifty-five and eight-tenths percent of the industrial endowment policies were
issued on the lives of children under 10 years of age (table 13, p. 126).

Twenty-four and eight-tenths percent of all industrial endowment policies were
issued on the lives of infants less than 2 years old (table 13, p. 126).

VI



CONTENTS

Chapter

T. Introduction Page

Sponsorship of the report — relation to the Securities and Ex-
change Commission and the Temporary National Economic
Committee — importance of industrial insurance — selection of
Massachusetts for survey — field survey organized as Work

Projects Administration project — conduct of the survey 1

II. Description of the areas covered in the survey and the 2,132 families
reported

Housing conditions — population — nationalities — relief status —

size of families — economic status 5

III. Life insurance in force in the 2,132 families reported

Number of policies and amounts of insurance in force — classes
and combii itions of classes of insurance— life insurance com-
panies — insured families and policyholders — economic status,
age, and sex of policyholders — plans of policies in different
classes of insurance — plans in relation to ages of policy-
holders — policies and years in force 13

IV. Annual cost of life insurance to the 1,666 insured families

Premiums paid for various classes of insurance; for various plans
of insurance — relation of premiums to family income — relation

of premium cost to size of family and economic status 41

V. Miscellaneous problems

Complex nature of a typical family's insurance program —
number of policies per family — multiple company coverage —
lapsation — advantage taken of discounts for payment of
premiums at company office — frequency of premium payment —

use of savings institutions , 51

VI. Case studies: Insurance programs of selected families

Criteria for judging a family's insurance program — classes of'
insurance — plans of insurance — family members insured —

illustrations of various family insurance programs 57

VII. Summary and conclusions 75

Appendices 79

LIST OF APPENDIXES

Appendix

1 . Reproduction of schedule employed in survey 79

2. Illustration of letter sent families to be enumerated 82

3. Copy of credentials carried by enumerators 83

4. Instructions to enumerators 84

5. Adjustments made on schedules 94

6. Illustration of premium receipt book i 97

7. Industrial life insurance in Massachusetts 99

8. Modes of termination — Industrial insurance 101

9. List of companies with life insurance policies in force in 1,666 insured

families 104

10. Statistical tables _ - 106

VII



VIII CONTENTS

LIST OF TABLES APPEARING IN APPENDIX 10

Table Pag»

1. Insurance and income characteristics of population enumerated 106

2. Insurance ownership by families and persons classified as to relief

status 108

3. Family income levels in blocks surveyed 100

4. Size of families and insurance status 110

5. Economic status of enumerated families 110

6. Classes of insurance in force . 111

7. Plans of insurance in force 113

8. Ordinary and industrial insurance in force with indicated carriers.. 115

9. Monthly insurance 117

10. Classes of insurance owned classified according to economic status

of families 118

11. Insurance in force classified by sex and present age of insured — l 119
11- A. Policyholders with group and fraternal insurance classified accord-
ing to present age 121

12. Industrial and ordinary insurance classified by plan of insurance and

present age of insured 122

12-A. Savings bank life insurance classified by plan of insurance and

present age of insured — ► 124

13. Industrial and ordinary insurance classified by plan of insurance

and age at issue of insured 125

13-A. Savings bank life insurance classified by plan of insurance and age

at issue of insured 127

14. Insured families classified according to size and number of bread-

winners in each 128

15. Income and breadwinners in insured families 129

16. Age and dependency status of persons in families with insurance.-. 130
16-A. Age and dependency status of persons in families without insurance. 131

17. Insured members of 1,666 families classified according to amounts

of insurance on their respective lives 132

17-A. Insured members of 1,666 families classified according to amounts

of insurance on their respective lives — Percentages 134

18. Insured members of 701 families holding industrial insurance exclu-

sively classified according to amounts of insurance in force on

their respective lives 135

18-A. Insured members of 701 families holding industrial insurance
exclusively classified according to amounts of insurance in force
on their respective fives — Percentages =.- 136

19. Insured families classified according to size of family and percentage

of family income paid in premiums.- 137

20. Insured families classified according to number of dependents and

percentage of family income paid in premiums 138

21. Insured families classified according to percentage of family ncome

paid in premiums and economic status 139

22. Families with industrial insurance classified according to economic

status and percentage of industrial premiums paid on endowment
policies c . 139

23. Percentage of family premiums paid on chief breadwinner 140

24. Percentage of family income contributed by each breadwinner re-

lated to percentage of family premiums paid on each breadwinn 3r's
insurance - 1^2



CONTENTS IX

Table Page

25. Percentage of family premium paid on breadwinner's insurance

related to economic status of family 142

26. Age, sex, and insurance of family members — 701 families 143

27. Percentage of family income paid for industrial premiums — 701

families .. ^ 144

28. Industrial premiums on breadwinners and on dependent children —

701 families 144

29. Insurance on breadwinners and others — 701 families 146

30. Percentage of industrial premiums paid for endowment insurance —

701 families.. ... 147

31. Insured families classified according to number of policies and

economic status 148

32. Industrial policies Li- rorce in families of different size 149

33. Families and insurance carriers.. 150

34. Families and industrial insurance carriers 151

35. Lapse and cash surrender experience of families enumerated 152

86. Preference as to frequency of premium payments 152

37. Percentage of premiums paid on persons living away from family __ 153

38. Insurance in force on which entire premiums were not currently

paid out of family income . . 153

39. Use of visiting nurse service 154

40. Use of savings institutions (other than fife insurance) compared

with use of life insurance 154

LIST OF CHARTS AND ILLUSTRATIONS

Plates I-IV. Typical housing conditions in blocks surveyed. 4-5, 74-75

Chart 1. Map of greater Boston, Mass., showing location of areas covered

in survey of life insurance policyholders 6

Chart 2. Relief status of insured and uninsured families 8

Chart 3. Insurance status of relief and nonrelief families 9

Chart 4. Classes of insurance in force 16

Chart 5. Duplication in use of industrial, ordinary, and other classes of

life insurance by 1,666 insured families 17

Chart 6. Proportion of insured relief and nonrelief families in different

income groups 19

Chart 7. Relative importance of different classes of insurance in families

with different incomes per member 21

Chart 8. Industrial and ordinary policies classified according to present

age of policyholder 23

Chart 9. Industrial and ordinary policies classified according to age of

policyholder at issue of policy 25

Chart 10. Proportion of policies held in industrial and ordinary insurance

according to sex of policyholder _. 26

Chart 11. Sex, present age, and insurance status of 3,027 persons living in

701 insured families with industrial insurance only 27

Chart 12. Life insurance in force by plans and classes 29

Chart 13. Ordinary and industrial insurance in force under different plans

and industrial insurance — relative importance of different policy

plans issued at different ages 32

Chart 14. Industrial endowments . — 33

Chart 15. Industrial policies — years in force 34



CONTENTS



Page

Chart 16. All insurance held by individuals.. 38

Chart 17. Industrial insurance held by individuals 40

Chart 18. 1,666 families classified according to the percentage of their

income paid as life insurance premiums 43

Chart 19. Relative cost of insurance as related to the number of depend-
ents in relief and nonrelief families 45

Chart 20. 701 families with industrial insurance only, classified according
to economic status and average percentage of income paid

for insurance premiums 47

Chart 21. Extent of duplication in coverage by the 3 largest industrial

life insurance companies among 1,356 families 52

Chart 22. Industrial life insurance in Massachusetts — annual number of

policies issued, terminated, and in force, 1928-37 100

Chart 23. Industrial insurance — relative importance of different modes of

terminations 1928-37 102



CHAPTER I

Introduction

Sponsorship of the Report — Relation to the Securities
and Exchange Commission and the Temporary National
Economic Committee — Importance of Industrial Insur-
ance — Selection of Massachusetts for Survey — Field
Survey Organized as Work Projects Administration
Project — Conduct of the Survey.

This is one of a series of reports prepared by the Insurance Section
of the Securities and Exchange Commission in connection with its
investigation of life insurance for presentation to the Temporary
National Economic Committee. 1 It is based upon a field survey
conducted to determine certain facts about the families holding
industrial life insurance. 2

Industrial insurance is a form of life insurance sold in small units
primarily to low-income families by agents who collect premiums
monthly or weekly at the homes of the insured.

There are approximately 90,000,000 industrial policies in force in
this country held by about 50,000,000 people, a group considerably
larger than that holding all other forms of life insurance. As of
December 31, 1937, there was $20,591,000,000 of industrial insurance
in force in the 138 companies engaged in its sale. These companies
received from their 50,000,000 industrial policyholders premium pay-
ments amounting to approximately three-fourths of a billion dollars
during that year alone. 3

The testimony before the committee disclosed that industrial in-
surance is frequently sold by high-pressure sales methods. Further-
more, though distributed primarily to low-income families it was
found to be the most expensive form of life insurance sold. As a result
of many factors, including selling pressure and high cost, it was
revealed that a large percentage of industrial insurance lapsed. It
further appeared that the high-pressure selling method frequently
resulted in u,n unwise distribution of industrial policies on the various
members of a family group.

1 See Public Res. No. 113, 75th Cong., ch. 456, 3d sess. (S. J. Res. 300), being a joint resolution to create a
temporary national economic committee; and a message from the President of the United States transmitting
recommendations relative to the strengthening and enforcement of antitrust laws. 75th Cong., 3d sess.,
S. Doc. No. 173.

1 Protracted hearings were held on this subject before the Temporary National Economic Committee
during the period from August 23, 1939, to September 7, 1939. At this time detailed testimony was taken
from company executives, managers, agent?, and other persons familiar with the operations of the Industrial
life insurance business. Among other matters considered in the course of the hearings were the general pur-
poses and characteristics of this type of insurance; its cost, the methods and circumstances under which it
was sold; lapse; activities of insurance counselors; policy provisions; laws applicable to industrial insurance,
and related matters. See Part 12, "Hearings before the Temporary National Economic Committee, Con-
gress of the United States, 76th Cong., 3d sess., pursuant to Public Res. No. 113 (75th Cong.), authoriz-
ing and directing a select committee to make a full and complete study and investigation with respect to
the concentration of economic power in, and financial control over, production and distribution of goods
and services," (hereafter referred to as Part 12 or Pt. 12).

» See Pt. 12 R. 5597, 5598, and 6955; also Ex. Nos. 945, 948, 949, and 950.

1



2 CONCENTRATION OF ECONOMIC POWER

Instances of maldistribution were presented by several witnesses.
Evidence taken indicated that frequently an excessive amount of
industrial insurance was sold to a given family, that large percentages
of the family income were used for industrial premiums, and that
endowment and other expensive policy types received undue emphasis.
Testimony indicated that due to the complexity of the agency system,
the wide variations in policy forms, and the sale of industrial policies by
several different companies to the members of the same family, the
insurance holdings of many families were not adjusted to meet their
economic circumstances. Evidence presented on these subjects is not
entirely conclusive, it being difficult to determine to what extent the
cases brought to the committee's attention represented unusual situa-
tions rather than typical situations. The witnesses who testified had
in the main obtained their information through their association with
relief agencies or insurance-counselor services. The testimony was,
however, more than sufficient to raise certain questions of great
economic and social significance. Some of these may be briefly men-
tioned. It was important, for example, to know whether families
which hold industrial insurance also hold other kinds of life insurance.
If so, what kinds? To what extent is insurance carried on the bread-
winner in the family, and to what extent on the dependents? How
much insurance is sold on the lives of children? How much on the
lives of adults? What is the cost of carrying this insurance? What
percentage of the family income is paid for it? Does the economic
status of the family have any bearing on the kinds of insurance it holds?

In seeking more comprehensive information on these problems it
was found that there were no records which would enable the inquirer
to determine the percentage of family income spent on industrial
insurance, the types of policies held within a given family group, or the
manner in which such policies were distributed among members of the
family. This was due in part to the fact that insurance company
records were maintained by policy number rather than by family name
and to a considerable extent kept on file at various district offices
where the policies were sold. Furthermore, no company had informa-
tion as to policies held by its policyholders in other companies. It was
also recognized that the sale of industrial insurance did not preclude
the sale of ordinary, group, and fraternal insurance to the same family
and even to the same policyholders. As a result, therefore, it became
apparent that no information could be obtained concerning the ulti-
mate distribution of this form of insurance without going to the policy-
holders themselves. Obviously, such an undertaking presented many
complications. Any effort to communicate with 50,000,000 policy-
holders was impossible. It was, therefore, decided to make a survey
of a selected group of policyholders and to examine minutely policies
and premium receipt books in order to find out from original sources
the exact nature of the insurance holdings in particular families.

It was felt that a survey limited to a small group of policyholders
and made on a basis which assured the greatest possible accuracy under
the circumstances was desirable. Massachusetts was chosen as the
State in which to make this survey chiefly for the reason that it is a
State in which the regulation of life insurance is relatively stringent in
comparison with most other States. Its laws, particularly those
affecting industrial insurance, have been considered among the best.
Moreover, there were only four companies selling industrial insurance



CONCENTRATION OF ECONOMIC POWER 3

in Massachusetts. These included the three largest companies selling
industrial insurance: The Metropolitan Life Insurance Co., the
Prudential Insurance Co. of America, the John Hancock Mutual Life
Insurance Co., and one small company, the Boston Mutual Life
Insurance Co. It was presumed that by limiting the survey in this
manner it would be more conservative in character and would be
simpler in presentation than one conducted, for example, in Maryland
where 27 companies, including many companies shown to have adopted
the most extreme forms of sales pressure, are authorized to sell indus-
trial insurance. As the survey was necessarily restricted in the
amount of time and money that could be devoted to it, the decision
was made to limit the families to be enumerated to those living in
industrial areas within Greater Boston; areas that could be reached
easily from the project's offices in Cambridge.

The field survey which produced the facts upon which this report
is based was organized as Project No. 20123 of the Work Projects


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