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Insurance of Impaired Lives

Another method in use when the impairment is not believed to be great is to issue the policy at participating rates, exactly as applied for, but in a special dividend class.

Since the prohibition of deferred dividend plans in most States, the plan of "rating-up" to the premium for a higher age has been more frequently employed some times with the surrender values based on the actual age, thus really making the excess premium over that for the actual age a mere extra one-year term premium but most frequently with the surrender values for a policy issued at the age assumed or "rated up." The four plans mentioned above had all been used in other countries, the company usually determining what it would offer after the application and examination were received and considered. If the impairment is believed to add a constant amount to the hazard, regardless of the age, an extra premium is deemed the suitable equivalent of it. If the impairment is believed to be an increasing one as, for instance, one that really impairs the vital force the plan selected is that of "rating-up," which not 135 merely gives a higher "cost of insurance" the first year but one which is at all times greater than the tabular cost at the actual attained age and greater in an increasing ratio. If the impairment is one that tends to improve, if not soon fatal, the diminishing lien plan is employed, which gives a maximum percentage of increase over the tabular "cost of insurance" the first year, gradually subsiding. In other countries, it has usually been the opinion that impairments are more frequently of the second class and call for "rating-up." This view seems now to be gaining ground in the United States.

It is undeniable, however, that here a considerable pro portion of the lives accepted as "first class," especially prior to the introduction of plans for insuring under average lives, were such as, in some other countries, where impaired lives have long been accepted, would have been penalized by a lien, extra premium or rating-up.

Doubtless the principal reason why the lien plan long held precedence here, aside from the fortuitous circum stance that it was the first introduced, is to be found in the requirements of our agency system. The applicant, being much solicited, is unwilling to make his choice until he knows what is offered; consequently agents find it im practicable to submit cases to the company for special rating. This is in part the result of the agent's training, or want of it; but a proposal to "rate up," it being un known in advance whether it will be two years or twenty, is neither so concrete nor so attractive as a proposal to lien, especially if diminishing. In Australia the leading company overcomes this difficulty by sending the medical examiner about with the agent.

There is no certainty that, because the lien plan pro vides sufficient in the first years to cover the actual cost of the insurance, it will show a margin in later years. That, unless a special reserve to cover extra hazard is maintained, must depend upon whether the lives really do tend to improve, which can be certainly determined only by the experience of many years. This does not apply to Actuary Fouse's original lien plan with an in creasing lien, offset only by an actual "self-insurance" accumulation.

The success of "rating-up," if carefully and intelli gently done, may be regarded as established by the suc cessful use of it by many excellent companies. These experiences, however, do not indicate that the perma nently increased "cost of insurance," which the plan pro vides, is unnecessary; for the ratio of actual to expected losses at the attained ages on the rated-up basis is at best fully as great as the ratio of actual to expected losses at their actual ages on lives which were accepted as first class.

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