United States. Temporary National Economic Committ.

Investigation of concentration of economic power; monograph no. 1[-43] (Volume no. 2) online

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that the median age at issue of ordinary policies was 27 and of indus-
trial policies was 18, the most noticeable difference between the two
classes was among children and infants. Very few ordinary policies —
only 1 percent — had been issued on children under 10 years of age
whereas one-third of all industrial policies had been issued to such
children. This was by far the largest proportion issued on any age
group shown. The difference between the ages at which industrial
and ordinary insurance are issued is shown by the chart 9 appearing
on p. 25.

Sex and age of individuals holding industrial and ordinary policies.
Further evidence of the basic differences between industrial and
ordinary life insurance appears when the two classes of policies are
classified separately according to the sex of the policyholder. As
shown below for 8,2-14 industrial policies, 54 percent had been issued
on the lives of females and 46 percent on the lives of males. On the

14 See tables 11, 11-A, 12-A, and 13-A for distributions of group, fraternal, and savings-bank insurance
according to age of policyholders.

'• These ages are the ages as reported on the policies, and in a number of industrial policies were greater
than the actual ages because the aires had been "rated up" to compensate the insurance company for extra
hazards arising from the health "or occupation of the policyholder. The figures are, therefore, conservative.
It should also be noted that industrial policies are always issued as of the age the policyholder will be on his
next birthday whereas ordinary policies are issued as of the age of the policyholder on his nearest birthday.



CONCENTRATION OF ECONOMIC POWER



25



Chart 9

industrial and ordinary policies classified

ACCORDING TO AGE OF POLICYHOLDER AT ISSUE OF POLICY



PERCENT OP
TOTAL NUMBER
OP POLICIES
40



INDUSTRIAL POLICIES



PERCENT OP

TOTAL NUMBER

OP POLICIES

40




1C



20 30 40 50

AGE GROUPS - YEARS



' Based on 1020 Ordinary Policies, excluding Savings Bank Lije Insurance and "hontnly Ordinary" policies
Jor less than Sicco.
Source; Table 33 DS-luSd Frtparea cj Sec. I Sj.ch. Cen,



26 CONCENTRATION OF ECONOMIC POWER

other hand, of 1,265 ordinary policies, 66 percent had been issued on
the lives of males and only 34 percent on the lives of females.

Industrial Ordinary "

Total number of policies 8,214 1,265

Number on males 3,813 835

Number on females 4,401 430

Percentage on males 46 66

Percentage on females 54 34

When age as well as sex is considered, the divergence is even more
noteworthy. 17 As age increases the males hold a consistently larger
proportion of ordinary life insurance than the females. 18 Industrial
insurance shows the opposite tendency. The proportion of industrial
insurance held by males becomes consistently smaller as age increases.
In the early age groups males hold a larger number of industrial poli-
cies than do females. It is only beyond the age of 25 that a larger
number is carried by females.

Chart 10
PROPORTION OF POLICIES HELD IN INDUSTRIAL & ORDINARY INSURANCE

According to Sex of Policyholder



PERCENTAGE OF TOTAL NUMBER OF POLICIES



100




82K INDUSTRIAL 129 SAVINGS BANK

POLICIES POLICIES

Source: Table 11
'Excluding 12Q Savings Bank Life Insurance Policies



I 136 ORDINARY
POLICIES*



DS-IU7*; Prepared by
Sec. i Sxch. Cvh*.



Sex and age of policyholders in the 701 families with industrial
insurance only. In order to observe the sex and age pattern of dis-
tribution of industrial insurance a special tabulation was made of the
individual members of the 701 families in which only industrial insur-
ance was found. In this analysis all family members were classified
as to age, sex, and insurance status. The results which appear in
table 26 provide the basis for chart 1 1 on the opposite page.

i« The 129 savings bank life insurance policies included were distributed as follows: 83 on males and
16 on females, i. e., 64 percent on males and 36 percent on females.
» See Table 11 in appendix 10. p. 119.
18 The same is true in savings-bank life insurance.



CONCENTRATION OF ECONOMIC POWER



27



There were 1,496 males, of whom 1,204, or 80 percent, were insured
for an average amount of $403. There were 1,531 females, of whom
1,259, or 82 percent, were insured for an average amount of $363.

Plans of insurance policies. Life insurance policies differ with
respect to the conditions under which the amount of insurance becomes
payable and with respect to the length of time premiums must be paid.
The four general types of plans l9 recognized in this analysis are as

Chart 11

SEX, PRESENT AGE AND INSURANCE STATUS OF

3027 PERSONS LIVING IN 701 INSURED FAMILIES

WITH INDUSTRIAL INSURANCE ONLY



PRESENT
AGE
80



1496 MALES



70



to



7.0 -



Uninsured-) c-Insured



- 70

Insured-^ ^-Uninsured



400




1531 FEMALES



PRESENT

AGE

80



60



50



40



30



20



10



300 200 100
NUMBER OP MALES



100 200 300

NUMBER OP FEMALES



400



Source: Table 26



DS-1503 Prepared by Sec. i Bxch. Coma.



follows: (1) Whole life plan, (2) limited payment life plan, (3) endow-
ment plan, and the (4) term plan. Beginning with the last of these
the basic differences in the four types of contracts will be examined.
Term plan. Under this plan the amount of insurance is payable
only in. case death occurs within the period of term (usually 5 to 10
years) named in the policy. Premiums are payable during the same
term. Industrial insurance is not issued on the term plan by any of

•• See plans of insurance in appendix 5, p. 96.



28 CONCENTRATION OF ECONOMIC POWER

the four companies doing business in Massachusetts. However, by
reason of the nonforfeiture rights in both ordinary and industrial
policies, insurance that has been in force long enough to acquire such
rights may be converted to the term plan. Under these conditions it is
known as extended term insurance.

Endowment plan. Under the endowment plan, as under the term
plan, the amount of insurance is payable only if death occurs within ■
the period named in the policy (usually 15, 20, or 25 years). Premiums
are payable during the same period. However, unlike the term plan,
the endowment plan contains an agreement on the part of the insuring
company to pay to the insured at the end of the period a sum of money
equal to the amount of insurance named in the policy. Thus this plan
combines the objective accomplished by term insurance with another
and quite different objective, namely, to acquire a stated sum of money
by the end of the term of years stipulated in the policy. Endowment
policies are issued not only for a stated number of years, but are also
written to mature at the time the policyholder reaches a certain age.
Thus endowments are frequently written to mature at age 65. When
an endowment policy is carried to the end of the period stipulated the
policy terminates by maturity and the amount stated is paid by the
company to the insured.

Limited payment life plan. Policies that provide for insurance
payable whenever death occurs, but on which premiums are payable
for only a limited period, are known as limited payment life policies.
For example, a 20-payment life policy is one under which the insurance
is payable only at death and premiums stop at the end of 20 years.
Such policies appeal to an individual who wishes protection for his
entire life but who does not wish to be burdened by premium payments
after the peak of his earning capacity has been passed. Inasmuch as
the insurance company must collect from him in a relatively short
period of time premiums enough to cover his whole life, the rates
charged for limited payment life policies are relatively higher than
those charged for whole life or term policies.

Whole life plan. Under the whole life plan a company contracts
to pay the amount of insurance whenever the death of the insured
occurs. The insured, on his part, contracts to maintain periodic
premium payments until he dies. 20 The premiums on this plan are
higher than those charged for term insurance but lower than those
charged for either endowments or limited payment life policies.

Plans of insurance — Amounts in each. As shown on the accompa-
nying chart 12 and table, the survey found less term insurance in force
than that on any other plan. Term policies accounted for $529,750
which was 13.02 percent of the total amount of insurance in force.
Group insurance is written exclusively on the term plan and accounted
for 85.22 percent of all the term insurance in force. Of the balance,
8.89 percent was industrial and 5.29 percent ordinary.

The amount of insurance written on the endowment plan accounted
for $799,171, or 19.64 percent of the total. This was divided between
two classes of insurance — industrial and ordinary — as no group or
fraternal endowment policies were found in the survey. It should
be observed that the industrial endowment insurance in force amounted
to over three times as much as the endowment insurance of the ordi-
nary class.

* For a more complete description of policies classified as on the whole life plan see p. 95.



CONCENTRATION OF ECONOMIC POWER



29



Life insurance on the limited payment life plan amounted to $842,098,
which was 20.69 percent of the total. This plan of policy was also
restricted to the ordinary and industrial class of insurance as no
limited-payment life group or fraternal policies were found in the

Chart 12
LIFE INSURANCE IN FORCE BY PLANS AND CLASSES

ANOUNTS OF LIFE INSURANCE IN FORCE IN THOUSANDS OF DOLLARS

5C0 1000 1500 2000



WHOLE LIFE



LIMITED

PAYMENT



ENDOWMENT



TERM




t i.-.».i • v. t .'.*. 1 . l . l A l A l A ' . , . , «. » ' . ' « * . ' « " l



T^TTiTrrmTjrrrrij



a.5!::::::i



II



r-ORDINARY

(-INDUSTRIAL
GROUP



:::«::/:::::::!



i






: RATERKAL



PERCENTAGES' - BASED ON ANOUNTS OF LIFE INSURANCE IN FORCE
Q 25 50 15 100



WHOLE LIFE



LIMITED
PAYMENT




ENDOWMENT



TERM



Source: Table 7



DS-luBO frefarea by Sec. t Sxch. Co*



survey. Almost 55 percent of the insurance on the limited-payment
life plan was ordinary, the balance industrial.

The whole life plan of insurance is the plan which predominates.
The amount of insurance in force on this plan was $1,898,366. This



30



CONCENTRATION OF ECONOMIC POWER



was 46.65 percent of the entire amount of insurance in force and more
than twice as much as on the next largest (limited payment life) plan.
This plan of insurance contract was found in three classes of insurance :
industrial, ordinary, and fraternal. Of all insurance on the whole life
plan, the industrial whole life policies accounted for over half (51.72
percent), ordinary for 38.24 percent, and fraternal for 10.04 percent.

Insurance in force by plans and classes
AMOUNTS



Plans


Classes


Ordinary


Industrial


Group


Fraternal


Total


Whole-life - -


$725, 984

461,468

188,522

28,050


$981, 776

380, 630

610, 649

47, 103




$190, 606


$1, 898, 366






842,098








799, 171


Term . -


$454, 597




529,750








Total -


1,404,024


2, 020, 158


454, 597


190,606


4, 069, 385







PERCENTAGES



Whole life


51.71

32.87

13.42

2.00


48.60

18.84

30.23

2.33




100


46.65






20.69








19.64




100




13.02








Total -


100.00


100.00


100


100


100.00







PERCENTAGES



Whole life


38.24

54.80

23.59

5.29


51.72

45.20

76.41

8.89




10.04


100




100








100




85.82




100








Total


34.50


49.64


11.17


4.69


100







Source: Table 7, p. 113.

Because of the predominance of two classes of life insurance —
industi al and ordinary — in the families surveyed, special interest
attaches to the plans on which policies in these classes are issued.
The chart which appears oq p. 29 (chart 12) permits a comparison to
be made of the relative importance of the different plans in these
classes. It will be observed that the chief point of difference lies in
the two plans represented by the middle two columns in the diagrams.
In industrial insurance endowment policies are considerably more im-
portant than the limited-payment life policies, whereas just the oppo-
site is the case in ordinary insurance. Based on the respective
amounts of insurance in force, endowments account for 30.23 percent
of the total industrial and for only 13.42 percent of the total ordinary
insurance.



CONCENTRATION OF ECONOMIC POWER 31

Industrial insurance — Plan and age of policyholder. In order to
determine the extent to which age might be related to the plan of
industrial insurance a special tabulation was made of the 8,214 indus-
trial policies. These policies were cross-classified according to plan
and the age at issue of respective policyholders. The results are
presented in chart 13 on next page (see table 13, p. 125), which shows
that the industrial insurance written on the lives of young persons
was predominantly on the endowment plan. Of the policies originally
written when the insured were infants less than 2 years old, 68.98
percent were endowments. Of the policies written on lives from 2 to
10 years, 59.13 percent were endowments. As the ages increase the
percentage of endowments written decreases. In the 50- to 60-year
group less than 5 percent of the policies were endowments.

On the other hand, there is a direct relation between age and the
proportion of whole life policies. Of policies written on lives under
2 years, less than 22 percent were whole life policies. As the ages
increase this percentage also increases until in the 60- to 70-year
group whole life policies account for 93.53 percent of all policies. 21

Limited-payment life policies constitute 16.85 percent of all indus-
trial policies. In this plan, the number of policies issued to the
youngest or oldest age groups is relatively small. Limited-payment
policies increase in importance with age, reaching a maximum in the
20- to 30-year group where they account for 38.3 percent of the
policies.

Industrial endowments — Age at issue. The analysis of industrial
endowment policies by age at issue reveals the distribution portrayed
above. From this it is evident that the great importance of endow-
ments in industrial insurance is to a large extent accounted for by
their being sold on the lives of very young persons. Almost one-fourth
of them were issued to infants under 2 years of age and over half
(55.8 percent) were issued to children under 10 years. See chart 14
on p. 33.

Plans of insurance — Years in force. From the very nature of the
different plans upon which life-insurance policies are written it is to
be expected that there would be a wide variation in the number of
years the policies written on different plans would remain in force.
Whole life policies and limited-payment life policies are presumably
taken out with the intention that they will be maintained until the
death of the policyholder. Endowment policies, on the other hand,
terminate with their maturity. However, the premiums are highest
on the endowment policies and much lower on the whole-life policies.
In hard times, therefore, it would be reasonable to expect that endow-
ments might be dropped to a larger extent than in the case of whole
life policies. Also it is true that the loan and cash-surrender values
are greater in endowments and limited-payment policies than in whole-
life policies. The financial needs of policyholders in periods of unem-
ployment might be expected to result in the surrender of a larger pro-

»> In this connection it should be noted that insurance premiums on policies issued at older ages are higher
by reason of the fact that as age increases the probable length of continued life becomes shorter. Therefore,
as age increases the differences between the premiums charged for policies on different plans become less
significant. At age 65 the probability is very great that a man will die before he has reached 85, and that
the face amount of the policy will have to be paid. At age 65 the premiums for whole life, 20-payment life,
and 20-year endowment policies— all relatively high— are nearly the same. Therefore, the reasons for
purchasers in advanced ages to distinguish between these policies become less important.



32



PERCENTAGES

OP TOTALS

60



CONCENTRATION OF ECONOMIC POWER

Chart 13

ORDINARY AND INDUSTRIAL INSURANCE

IN FORCE UNDER D I F FERE NT ' P LANS

Based on Amounts



PERCENTAGES

OF TOTALS

60




WHOLE LIMITED ENDOW- TERM
LIFE PAYMENT MENT



WHOLE LIMITED ENDOW- TERM
LIFE PAYMENT MENT



(48.60) (18.84) (30.23) (2.33) (61.71) (32.87) (13.42) (2.00)



INDUSTRIAL LIFE INSURANCE

IS-mei Source: Table y



ORDINARY LIFE INSURANCE



Prepared by Sec. t txch. Con.



INDUSTRIAL INSURANCE
RELATIVE IMPORTANCE OF DIFFERENT POLICY PLANS ISSUED AT DIFFERENT AGES

AGE AT ISSUE 20 40 • 60 80 100



5 0-59



H • 19



3 0-39



2 0-29



0.-19



2 - 9



UNDER 2




Source: Table ig



PERCENTAGES OP POLICIES IN FORCE IN DIFFERENT PLANS

DS-1511 Prepared by Sec. I Ixch. Con.



CONCENTRATION OF ECONOMIC POWER 33

Chart 14

INDUSTRIAL ENDOWMENTS

CHART SH0WIH6 PERCENTAGES OF INDUSTRIAL ENDOWMENT POLICIES SOLD TO INDIVIDUALS
WHOSE AGE AT ISSUE WAS LESS THAN YEARS INDICATED ON SCALE AT BASE

PERCENT




portion of endowment and limited-payment life policies than whole life
policies.

Industrial policies on different plans and the number of years in
force. The accompanying table and chart 15 present the results of a
special analysis of 8,022 industrial policies according to plan of policy
and number of years each had been in force. It will be noticed that
most of these policies are very young policies. Those sold within the
12 months preceding the date of enumeration, 1938-39, composed
9.80 percent of the total. As 11.68 percent of the industrial policies
had been in force for 1 year (but less than 2 years) we may say that
21.48 percent had been in force for less than 2 years. Cumulating
upward it is possible to determine that proportion of the policies
which had been in force for less than any specified period of time.
Thus we find that 49.18 percent of all industrial policies had been in
force for less than 5 years. 22

" In this connection it may be indicated that generally industrial life-insurance policies do not acquire
nonforfeiture values that may be taken in cash (upon surrender) until premiums have been paid for at least
6 years.



34



CONCENTRATION OF ECONOMIC POWER



Chart 15



INDUSTRIAL POLICIES - YEARS IN FORCE

PERCENTAGES OF TOTAL NUMBER OF EACH PLAN IN FORCE

FOR INDICATED NUMBER OF YEARS

PERCENTAGE PERCENTAGE

OP POL ICIES OP POLICIES

10 i — raZ 1 10




WHOLE LIFE POLICIES



mmmfa.



imumium x*



20 25 30 35 40

YEARS IN FORCE



50



6 10 15 20 25 30 35 40 45 50 55 60




DS-IS08 Prepared by Sec. t FxeA. Coaa.



CONCENTRATION OF ECONOMIC POWER



35



Industrial policies classified according to plan of policy and number of years in force 1
[Numbers and percentages of policies]





Year of
issue


Number of policies


Number of years in force


Whole
life


Limited w „ ,„_

payment M 2 ^'
life ment


Total


50-59


1879-89
1889-99
1899-1909
1909-19
1919-21
1921-23
1923-25
1925-27
1927-29
1929-30
1930-31
1931-32
1932-33
1933-34
1934-35
1935-36
1936-37
1937-38
1938-39


16
66
128
275
86
97
137
159
238
122
116
141
170
218
250
292
334
346
319




16


40-49




2

l


68


30-39. .


5


134


:o-29 -. -


16 1 12
9 | 53
15 Oi


303


18-19


148


16-17


203


14-15


20
30
60
32
44
48
61
97
122
147
172
204
302


167
210
286
176
193
157
143
180
261
297
341
387
165


324


12-13


399


10-11.


584


9


330


8


353


7


346


6


374


5


495


4. _


639


3




2


847


1


937


Less than 1 year.


786






Total


3,516


1,384


3,122


8,022




1879-89
1889-99
1899-1909
1909-19
1919-21
1921-23
1923-25
1925-27
1927-29
1929-30
1930-31
1932-32
1932-33
1933-34
1934-35
1935-36
1936-37
1937-38
1938-39




Percentages


50-59


0.46
1.88
3.64
7.82
2.45
2.76
3.89
4.52
6.77
3.47
3.30
4.01
4.84
6.20
7.28
8.30
9.50
9.84
9.07


!


0.20


40-49





0.06

.03

.38

1.70

2.91

5.35

6.73

9.16

5.64

6.18

5.03

4.58

5.77

8.36

9.51

10.92

12.40

5.29


.85


30-39

20-29


0.36

1.16

.65

1.08

1.45

2.17

4.33

2.31

3.18

3.47

4.41

7.01

8.81

10.62

12.43

14.74

21.82


1.67
3.78


18-19


1.84


16-17


2.53


14-15


4.04


12-13 ■


4.97


10-11


7.28


9


4.11


8 _


4.41




4.31


6


4.66


5

4


6.17
7.97


3


9.17


2


10.56


1 .,


11.68




9.80






Total


100.00


100.00


100.00


100.00









1 Adjusted to equal full years.



It will be noted that the number and percentage of industrial
endowment policies issued within a year of the date of enumeration
were smaller than in the previous year. Just the opposite condition
is shown for policies issued on the limited-payment life plan. The
increase in limited-payment life policies was particularly noticeable



36 CONCENTRATION OF ECONOMIC POWER

among the policies issued to children under 10 years. Only 11 of
these policies had been issued to this age group during the previous
year, whereas 98 of them had been issued during the year immediately
preceding the date of enumeration. A large part of the increase in
sale of limited-payment life policies and the decrease in sale of endow-
ment policies may be attributed to the decision made by the Metro-
politan, Prudential, and John Hancock Insurance Cos. not to sell any
industrial endowments during 1939. 23 This decision was made after
the passage of a New York law forbidding the sale of industrial
endowments within that State after December 31, 1938. The 3 major
companies did not issue any policies of this plan of insurance anywhere
in the country in 1939. The 165 industrial endowments found in the
survey and issued within a year prior to the date of enumeration may
be explained partly by the fact that this period included 5 months of
1938 before the New York law went into effect and partly by the fact
that the Boston Mutual Life Insurance Co. was not affected by the
New York law and continued to sell industrial endowments.

Breadwinners and their relation to the family's insurance. A
"breadwinner" is defined as a family member whose annual earnings
amounted to at least 50 percent as much as the average per family
member income in his family. Thus in a family of five, in which the
total income is $2,000, a son or a daughter who earns as much as $200
is classified as a breadwinner. The chief breadwinner is defined as
that individual in the family who earns the largest part of the total
family income. Thus in a lamily where both father and son are
gainfully employed, if the son's earnings exceeded that of the father,
the son would be classified as the chief breadwinner.

It was believed that breadwinners, and particularly chief bread-
winners, were of special interest in this survey because upon them
rests such a heavy responsibility for the maintenance of the family.
The death of the chief breadwinner threatens greater havoc to the
family than the death of any other member. Families which place
most of their insurance on members other than the breadwinner place
themselves in a vulnerable position. The death of the breadwinner
not only imposes heavy expenses but also removes the source of
family income from which all premium payments have to be met.
Lapses of all policies are likely to follow the death of a breadwinner
unless he is insured for a sufficient amount to cover all expenses includ-
ing premium payments for insurance on the others until the family
can become readjusted. Wisdom in planning an insurance program
should dictate that the bulk of a family's life insurance should be on
the individual or individuals who contribute the most toward the
family's support and whose death would cause the greatest financial
loss.

The analysis of the industrial policies by number of years in force,
summarized below, shows that 49.18 percent had been in force for less
than 5 years; 23.66 percent for periods between 5 and 10 years; and
27.16 percent for 10 years or longer. It should be noted that 192
extended-term industrial policies were not included in this analysis.


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