United States. Temporary National Economic Committ.

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

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group insurance for its life-insurance protection.

The most significant question, then, concerns the choice between
the industrial and ordinary insurance. As between these two, the
cost of industrial insurance is much greater than the cost of ordinary
insurance but that cannot be made the sole criterion. Industrial
insurance includes services which are not available under ordinary
insurance. Most industrial insurance premiums are collected on a
weekly basis at the policyholder's home, while ordinary insurance
premiums generally must be paid annually (and less often, quarterly
or monthly) at the office of the company. Industrial insurance is
issued usually without a medical examination, whereas ordinary in-
surance is issued only after the applicant has demonstrated that he
is in satisfactory health by passing a medical examination. The
greater frequency of premium payments, the method of premium
collection, and the less stringent physical requirements of industrial
insurance account to a great extent for its cost being higher than that
of ordinary insurance. Therefore, the financial ability and the physical
condition of the individual must be considered in selecting the class of
insurance to be carried.

From the first principle there flows another consideration which
relates to the plan of insurance desirable. As among the various plans
upon which insurance policies are written it is more difficult to decide
which should be included in the insurance program of a particular
family. Term insurance, the plan upon which all group insurance is
written, is the cheapest form of protection. However, industrial
insurance is not sold on the term plan and little ordinary insurance is
originally issued in this form. All other plans of insurance contain an
element of savings in their premiums. There is less of the savings
element in whole life insurance than in limited payment life or endow-
ment policies. For that reason the premium on a whole life policy is
less than that on a limited payment life policy, and the premium on a
limited payment policy is less than that on an endowment policy.
The great variation that exists in the hopes and ambitions of families
finds expression in the variety of plans of life insurance written.
However, among those families which are either on relief or which
have such low incomes that they have insufficient means for current
living there should be no question but that their insurance programs
should be made up of policies written on the lowest premium plan.
In other words, relief families and other low-income families would be
well advised to carry only whole life policies whether these were
written as industrial policies or ordinary policies. A life insurance
program should be concerned with protection rather than with the
accumulation 'of wealth. In low-income families where voluntary
savings are difficult it is a costly and hazardous process to combine
protection with involuntary savings.

A second general principle in appraising a family's insurance pro-
gram relates to the manner in which the insurance is distributed upon
the various members of the family. It is a sound principle that the



CONCENTRATION OF ECONOMIC POWER 59

amount of insurance should vary directly with the economic im-
portance of the individual to the stability of the family. Thus, the
amount of insurance carried on the head of the family where no other
member of the family is employed, should, if possible, be large enough
to provide the family in the case of his death with cash enough to
maintain them over the period of readjustment. Where there is more
than one breadwinner in the family the concentration need not be so
great upon the chief breadwinner. Insurance carried on dependent
members of the family can be restricted safely to the amounts neces-
sary to care for final illness and burial.

From the foregoing it may be apparent that the criticism of an exist-
ing program of insurance in a particular family involves a knowledge
of many facts not easily obtained or capable of brief summarization.
Moreover, it must be borne in mind that the variety of circumstances
found in a family at a particular time may be quite different from the
circumstances that prevailed when insurance now in force was first
taken out. Therefore, one must be cautious in formulating a criticism
of either families, agents, or companies on the basis of particular
insurance programs. Nevertheless, it was felt desirable to present the
details of a series of individual case studies showing the types of
insurance programs found in a variety of families. These, it is hoped,
will illustrate the kinds of situations and problems revealed by the
survey. The facts described were obtained by the enumerators at the
time the family schedules were filled out. These were later verified
by field supervisors when calls were made to check the original work
of the enumerators. In every case names have been changed so as
not to disclose the identity of persons involved. In every other
respect the facts are exactly as reported on the respective family
schedules. It is hoped that these cases will enable the reader to
visualize the range of conditions found in the survey and to understand
better the meaning of the figures in the statistical tables.

The White Family

Nonrelief Family — Well-Planned Program of Industrial
Insurance — 50 Percent of Premium on Breadwinner — All
Policies on Whole Life Plan.

An example of industrial insurance well-planned to fit their economic
status was that of the White family. The family consisted of five —
father, mother, and three dependent children. Mr. White had
seasonal employment and earned $504 for the year, an average of
$101 for each member of the family. He had placed the largest
amount of insurance on himself. The next largest amount was
placed on the mother of the family, ?nd the children were covered
by the amount of insurance purchasable for a nickel a week. In each
case the insurance was on the whole-life plan. Premium payments
cost the White family 5.7 percent of their income.



£0 CONCENTRATION OP ECONOMIC POWER

The insurance holdings of the/ White family were as follows:
The White family and their industrial insurance in force Aug. 31, 1939



Family member


Present
age


Plan of insurance


Years
in force


Amount

of in-
surance


Annual

premium

paid by

family


Father, Jacob White


43
41
18
17
16


Whole life


.5
6
7
8
8


$378
204
152
167
173


$14.40




do


7.20




do -..


2.40




do


2.40


Son, William


do.


2.40














1,074


28.80


all insured.









Total family income, $504.

Average annual income per family member, $101
Premiums as a percent of income, 5.7 percent.
Fifty percent of total premium paid on breadwinner.
All policies issued by the same insurance company.

The Simmons Family

Nonrelief Family of Five, all Insured — Premiums
Amount to 12.5 Percent of Family Income — Practice
of Surrendering Policies for Cash in Emergencies.

Mr. and Mrs. Simmons with their three children occupied half
of an old duplex frame house located in one of the industrial areas of
Cambridge. Mr. Simmons was employed as a specialty cook in a
packing plant. During the past 52 weeks his salary had averaged
slightly better than $25 per week. On an annual basis, this amounted
to $1,320. The family had no savings other than their insurance
and were entirely dependent upon the weekly income. No "relief"
in any form had ever been received.

The Simmonses looked upon their insurance as a form of savings.
On occasions when they had needed cash in excess of current income
they had "cash surrendered" some of their policies and had replaced
them later when they were able. Such a transaction had actually
occurred in the interim between the date of original enumeration and
the date on which the supervisor called. Mr. Simmons had been
hard pressed for cash. Accordingly, one of Mrs. Simmons' policies,
a cumulative endowment policy, was turned over to the insurance
agent for cash surrender. There was every expectation that this
insurance would be replaced. This same performance had gone on
before, and eventually a new policy had been taken out to replace
the policy that had been cashed in.

It was evident that the Simmons family held their insurance agent
in high esteem. Both Mr. and Mrs. Simmons regarded him as an
individual who had helped them in time of need. If it were not for
him, they said, they would not have had the policies which gave them
their feeling of security and this ability to secure cash in an emergency.

The policies held by the Simmons family are shown in the following
table:



CONCENTRATION OF ECONOMIC POWER Q\

The Simmons family and their insurance policies in force Aug. 10, 1939



Family member



Fresent
age



Plan of insurance



Years
in force



Amount

of in-
surance



Annual

premium

paid by

family



-Father, John Simmons

Mother, Elsa

Son, William

Daughter, Suzanne

Son, John

Total, 5 family members,
all insured.



Industrial cumulative endowment.
do

Industrial whole life

Whole lifo (intermediate monthly) .

Term (group)

Industrial cumulative endowment

Industrial 20- payment life

Industrial whole life

Industrial 20-payment life

Industrial whole life

do

Industrial 15-year endowment

iDdustrial 20-year endowment



$174

174

477

1,167

2,000

175

250

328

295

435

225

82

100



$11.50
11.50
11.50
30.12
15.60
11.25
10.40
10.40
13.00
7.80
7.80
11.75
13.00



13 policies.



5,882



165. 62



Total family income, $1,320.

Average annual income per family member, $264.

Premiums as a percent of income, 12.5 percent.

Forty-eight percent of premiums on breadwinner.

All policies except term policy in the same insurance company.

The Varna Family

Nonrelief Family of 10 Members Paying 5.4 Percent
of Their Income on 23 Policies — Policies on the Parents
Sacrificed to Maintain Policies on the Children.

The Varna family is illustrative of a fairly common occurrence
where insurance on the parents has been sacrificed in order that
policies could be carried on the children. Mr. and Mrs. Varna had
carried insurance on themselves and on their children before the
depression. The children were not old enough to work at that time,
and Mr. Varna was the sole support of the family. As financial
conditions grew worse for the Varna family, Mr. and Mrs. Varna
gave up all of their own life insurance but kept what they could of the
insurance on the children. Even when the older children went to
work and contributed to the family income, Mr. and Mrs. Varna
took out more insurance on them and on the younger children, but
not on themselves.

At the time of enumeration, there were 4 employed members of
the family. Mr. Varna earned $20 a week; the eldest son, $15 a
week; another son, $13 a week, and the daughter earned $12 a week.
The total family income for the year was $3,120. The only whole-
life policy was carried by the eldest son. Eighteen of the remaining
22 policies were short-term industrial endowments, the other 4 being
industrial 20-payment life policies. Mr. and Mrs. Varna stated that
they wanted to secure for their children a nest egg with which to
start them out in life, and their means of doing so is indicated by the
similarity of plans of the policies taken out on the children.



(J2 CONCENTRATION OF ECONOMIC POWER

The Varna family insurance holdings were as follows :

The Varna family and their life insurance policies in force Aug. 24, 1989



Family member



Pres-
ent
age



Class and plan of insurance



Years

in
force



Amount
of in-
surance



Annual
premium
paid by
family



Father, Daniel Varna

Mother, Maria

Son, Nicholas

Son, Samuel

Daughter, Vivien

Son, William

Son, Robert

8on, Joseph

Son, Albert

Son, Richard..-



Niece, Helen (not living with
family).

Total, 10 family mem-
bers, plus 1 not living
with family; 8 family
members insured.



23



Insurance lapsed or surrendered.

.—do

Ordinary endowment at 85

Industrial 20-year endowment-
Industrial 16-year endowment...

...do... „•

Industrial 20-payment life

Industrial 15-year endowment-
Industrial 20-payment life

Industrial 20-year endowment...

do

— do —

do

Industrial 20-payment life..

Industrial 20-year endowment...

do

do

—do

Industrial 20-payment life

Industrial 20-year endowment...

do-

..—do

do -

do— —

do.



$2,000

515

167

167

256

167

256

53

52

52

104

256

53

52

52

104

256

53

52

104

52

256

160



$32.54
25.32
10.75
10.75
0.90
10.75
6.44
2.10
2.15
2.20
4.40
5.98
2.10
2. If
2.20
4.40
5.52
2.10
2.15
4.40
2.20
11.25
11.00



23 policies (1 ordinary and 22
industrial).



5,239



Total family income, $3,120.

Average annual income per family member, $312.

Premiums as percent of income, 5.4 percent.

Chief breadwinner uninsured; other breadwinners, 31 percent of premiums.

All policies issued by the same company.

The Kelly Family

Nonrelief Family Paying Premiums on 6 Persons at
Home and 1 Away From Home — 35 Lapsed Policies —
13 Industrial Policies in Force.

An example of the confusion and carelessness frequently found in
industrial life insurance holdings is illustrated in the insurance of the
Kelly family. There were six members of the family living at home —
a father, mother, and four children. The father and one son had jobs
in private employment, and together had earned $2,548 during the
year previous to the date of enumeration.

The Kelly family had in their possessioD records of 35 industrial
policies which had been permitted to 4apse after premiums had been
paid for 2 to 3 years. They reported that they had also had other
policies which had lapsed previously, but there were no records to



CONCENTRATION OF ECONOMIC POWER



63



show the nature of these policies. The lapsed policies in their posses-
sion showed that previous to lapse there had been liens on policies of
each member of the family — some 19 liens in all. The policies had
lapsed before they had acquired any nonforfeiture values. Two of the
lapsed policies were on Mrs. Kelly's brother whose present address was
unknown.

The insurance in force on the Kelly family at the time of enumera-
tion consisted of 13 industrial policies, all taken out on the same day
with the same company, the same company which had issued the
lapsed policies. They were all 20-payment life policies, except one
which was a 20-year endowment. The family had paid the premiums
on these policies for a year and a half, as was indicated in the premi-
um receipt book, but they claimed that they had never received the
13 policies from the agent of the insurance company. That the family
was having difficulty in meeting the premium payments was indicated
by the fact that the last payments had been made almost 4 weeks
previous to the date of enumeration. These policies were, therefore,
very near the point of lapsation as the grace period allowed had almost
expired.

The insurance policies in force in the Kelly family were as follows:

The Kelly family and their industrial policies in force Sept. 18, 1939



Family member


Present
age


Plan of insurance


Years
in force


Amount

of in-
surance


Annual
premium
paid by
family




44
45
25

21
19

17
8






$250
250
250
250
250

250
250
250
250
250
250
250
250


$15.60




do


15.60


Mother, Mary


do. . t

....do


15.60




15.60


Son, Robert (not living with


do.


9.88


family).


do


9.88


Son, John __ __


do


9.36




do....


9.36


Daughter, Agnes


do


8.84




do


8.84


Son, Albert


. .do


7.80




...do


7.80


Daughter, Rose




13.00














3,250


147. 16


plus 1 not living at
home, all insured.









Total income of family, $2,548.
Average annual income per family member, $425.
Premiums as percent of income, 5.8 percent.

All policies including lapsed policies issued by same insurance company.
Percent of premiums paid on chief breadwinner, 21 percent; on other bread-
winner, 13 percent.

There seems little reason to doubt the claim of the family that they
never received the policies on which they were paying premiums,
especially as this report was made in a number of instances. The
situation indicates carelessness on the part of the agent as well as
the family.



64 CONCENTRATION OF ECONOMIC POWER

The family is now paying premiums on 12 20-payment life policies
amounting to $134.16 annually for $3,000 of insurance. Considering
the previous insurance history of the family, a question might be raised
as to the wisdom of the concentration on the relatively expensive 20-
payment life policies. The Kelly family had obviously had difficulty
over a period of years in meeting premium payments. Therefore it
might have been better if they had been sold on the least expensive
plan — whole life. However, if their agent had sold them the same
amount of insurance ($500 on each person) on the same plan but with
monthly premiums (on the monthly debit ordinary basis) he could have
reduced their premiums by 12 percent.

On the other hand, if their agent had sold them whole life policies on
the monthly debit ordinary basis he could have staggered the premium
payments on these policies so that each person could have had the
same insurance protection and the family would have to pay $2.47 on
each of only 8 weeks each month. They now pay $2.82 every week of
the year for no greater protection.

The Baker Family

Forty-three Policies in Force in Four Different Com-
panies — High Income Family Paying 10.9 Percent of
Its Income for Industrial, Ordinary, and Group
Policies.

In general the survey found two relationships between families and
their insurance: (1) The larger the income, the greater the amount of
insurance carried; (2) the larger the number of dependents, the greater
the proportion of income spent for insurance.

The Baker family is an example of these relationships. It consisted
of a father, mother, and 8 children ranging in age from 26 to 7 years.
The father held a good job in private employment, the eldest daughter
had a clerical position, and the eldest son had a part-time job. Among
them they accounted for an annual income of $4,224. Like other
families in similar circumstances the Bakers held life insurance in a
number of different companies. This was only partially due to
policies taken out before marriage, as almost all of the policies held by
this family were taken out after the marriage. In addition to a group
certificate held by the daughter, there were 42 policies, of which 7 were
ordinary policies held in three different companies, and 35 were indus-
trial policies held in three different companies. The distribution of
these 35 policies among the three companies was 14, 11, and 10; 24
were short-term endowments and 23 were on the children. Of the
ordinary policies, premiums were paid monthly on 3, quarterly on 2,
semiannually on 1, and annually on 1. Premiums on the 35 industrial
policies were paid weekly to the 3 different agents representing their
insurance companies. The large number of policies distributed among
so many companies and the system of premium payments made a
difficult bookkeeping problem for the Baker family, especially as it
was not well informed on either the face value of its policies or the
premiums to be paid on all the policies. They were unusual, however,
among large families with many policies in that they had never had
any life-insurance policies other than the ones in force on the date of
enumeration. Only once had the Baker family borrowed on an
insurance policy, and that was during the depression. They owned
their own home, and had a savings account. The savings features of



CONCENTRATION OF ECONOMIC POWER



65



short-term endowments impressed them strongly and they carried
such policies on every member of the family in varying amounts.
But in order to carry these endowments and the other policies they
held, the Baker family had to allocate 10.9 percent of their annual
income to the payment of life-insurance premiums.

The insurance holdings of the Baker family were as follows:

The Baker family and their insurance in force Sept. 15, 1989



Family member



Pres-
ent
age



Class of insurance and
company



Group



Ordi-
nary



Indus-
trial



Plan of insurance



Years

in
force



Amount

ofinsur

ance



Annual

premium

paid by

family



Father, Richard Baker.



Mother, Joseprnne.



50



Daughter, Helen.



20



Son, Richard, Jr.



Son, Albert.



Son, William.



Son, Henry.



Daughter, Katherine..
Daughter, Gwendolyn.

Son, Edward



Whole life

20-payment life

do

20-year endowment.

Whole life

do

.— .do-—

do

do

do

do

do .

Term.

30-payment life

20-year endowment. .

do

30-payment life

20-year endowment..

do

do

— do.—

do

do

do

20-payment life

Endowment at 85...
20-year endowment- .

do

do

do

30-payment life

15-year endowment- .
20-year endowment. .
Endowment at 60 ...
20-year endowment. .
15-year endowment- -
20-year endowment..
Combination en-
dowment and
whole life.
15-year endowment. .
20-ycar endowment.

do

do.

do



$5,000

1,000

•600

374

250

178

125

112

198

199

380

55

1,000

1,000

271

100

1,000

98

90

90

100

106

200

100

249

1,000

108

50

50

92

1,000

186

50

652

255

167

100

100



130
100
250
100
150



$116.90

32.18

Paid up

22.56

7.36

3.70

3.68

4.00

3.10

1.30

26.00

2.10

20.44
10.80
5.28
19.44
4.20
4.30
4.30
4.80
4.20
8.00
3.70
7.80
10.43
4.10
2.00
2.40
4.80
19.68
10.25
2.00
13.00
10.00
10.75
5.20
4.32



13.00
4.80

12.00
5.20
7.80



Total, 10 family mem-
bers, all insured.



43 policies (including 1 group certificate, 7 ordinary, and 35
industrial).



17, 415



461. 87



i This policy was for $1,000 face value, but $400 was borrowed on it. Family pays interest annually.
• Nonoontributory; premiums paid by employer.



66



CONCENTRATION OF ECONOMIC POWER



Total family income, $4,224.

Average annual income per family member, $422.

Premiums as percent of income, 10.9 percent.

Percent of premiums on chief breadwinner, 32 percent; on other breadwinners,
16 percent.

Four insurance companies issued these policies; one issued 5 ordinary, 11
industrial, 1 group; the second issued 1 ordinary, 10 industrial; the third issued
1 ordinary; and the fourth issued 14 industrial.

The Asta Family

Relief family of 11 Persons, All Insured — Mixture of
Industrial and Ordinary Policies in Force in 2 Different
Companies — 16.4 Percent of Family Income Paid as
Premiums.

Juan, the father, and Maria, the mother, were born in Portugal, but
the 9 children, ranging in age from 4 to 23, were all born in the United
States. Mr. Asta was 54 and unable to work, and his wife was the
housekeeper for the large family. The oldest son, the "chief bread-
winner," was working for the Work Projects Administration, the sec-
ond son was receiving aid from the National Youth Administration,
and the third son worked as a laborer to receive city welfare assistance.
The whole family was living "on relief." In addition to what was
paid the sons in cash, the family received food, milk, and clothing to
a value of approximately $280. The total family income was $1,248
for the year, and averaged for the 11 family members, $113. This
family paid $204.89 in life-insurance premiums. These premium pay-
ments represented 16.4 percent of their total annual income.

The family carried insurance with two companies and held both
ordinary and industrial policies. They had held other policies which
had been lapsed or cash-surrendered, but their holdings at the time of
enumeration were as follows:

The Asta family and their insurance in force Sept. 19, 19S9



Family member



Father, Juan Asta.

Mother, Maria

Son, Juan, Jr

Son. Manuel

Son, Ricardo -

Daughter, Beatrice

Son, Robert

Son, Albert

Daughter, Mary...
Son, Michael

Son, Joseph..



Total, 11 family mem-
bers, all insured.



Present



Class and plan of insurance



Ordinary whole life

Industrial 20-year endowment-
Ordinary whole life

do

Industrial 20-payment life

do_...

do....

do.. -

do

Ordinary, endowment at 85. ..

do

Industrial 20-year endowment-


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