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Insurance of Impaired Lives

INSURANCE OF IMPAIRED LIVES. In the United States the insurance of impaired lives was first essayed by the Universal Life Insurance Com pany, chartered in New York in 1865. Of it Elizur Wright says in his report for 1865, as Commissioner of Insurance : "A part of the business they propose is that of insuring at advanced rates such portion of the lives rejected by other offices as they may consider properly insurable in that way. This has been practiced with ap parent safety to the company and benefit to the public by several companies in England, and that it is desirable here no one who has any faith in life insurance or ac quaintance with the business can doubt." The career of the Universal was meteoric in more ways than one. Mismanagement, bad investments and the sudden determination of insurance departments to dis allow loans on renewal commissions as assets, caused its collapse. It may be that the insurance of impaired lives had something to do with it, though that is by no means certain. Carelessness in that regard would, of course, be fatal. In any event, the system was considered to have been discredited. The failure, too, of the American Pop ular, which also undertook the business, confirmed this impression.

For many years no further effort was made to deal with this matter in any broad way. All the companies gradually came to discriminate between the lives offered which were acceptable. In most cases the mode of deal ing with those which were not deemed strictly first class, was to offer an endowment insurance policy, preferably 133 for a short term, such as ten or fifteen years. Such a policy contributes no more "cost of insurance" or pro vision for current mortality in proportion to the actual insurance than does any other; but the actual insurance diminishes more rapidly, and after a term of years is extinguished without the privilege of renewal, except upon new application and examination. Extra premiums were also occasionally charged, but usually only for sex or occupation.

In 1892, under the guidance of Mr. L. G. Fouse as consulting actuary, a plan was formulated for insuring "under-average" or "sub-standard" lives, as they now came to be called. This plan was adopted for the use of a com

pany organized to transact that business solely. It con sisted in charging an increasing lien against the insur ance, equal at all times to the single premium at the cur rent attained age, and collecting a cash premium equal to the regular premium for a policy on the plan desired. Part of this premium was applied to pay for natural pre mium insurance for the diminishing actual insurance, and the remainder to furnish an increasing "self-insurance" fund in abatement of the lien. The company came to grief through gross mismanagement; but before that time others had taken up the idea.

A variation of this original lien plan was adopted by competing companies. The variation most common and acceptable in practice, which is also still employed, is to charge a single premium lien which neither increases nor bears interest, diminished every year by the amount of the premiums actually paid upon the policy. This lien plan was not new; it had long been used in other coun tries. But its use, as a hard-and-fast system applicable to all cases, was new; it had elsewhere been utilized as a part of a plan for taking care of each case when offered, according to its idiosyncrasies.

134 The inflexibility of the lien system had to be consider ably relaxed, as the insurance of impaired lives became more extended; because it was soon discovered that there were many grades of impairment which offered a fair prospect of being dealt with successfully in this manner. The least that could be done was to make three or four classes, the amount of lien originally charged being ac cording to the degree of impairment.

At least one of the companies which actively engaged in this business used also the system of "rating-up" the life, by which is meant accepting the applicant on the precise plan and for the precise amount applied for, but at the premium for a higher age. Another sometimes accepts an extra premium as an equivalent of the lien.

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