Nevertheless, except in the operation of the "loan-note" plan (which was generally discarded after the 70's be cause it had been sold on the representation that the divi dends would take care of the notes, and this they failed to do, with the result that decreasing insurance, the notes being deducted at death, was furnished at an increasing rate, interest on the indebtedness being added to the cash part of the premium), American life insurance companies did not until after 1890 favor granting loans. Especially was this true of all companies that opposed cash surrender values, with a single exception; while all the companies that allowed cash surrender values, also with a single ex ception, granted loans also. After the crisis of 1873, a leading company, which did not give cash values, sagely proceeded to save as much of its insurance in force as pos sible by giving credit, and by this means largely it suc ceeded in actually increasing its volume of insurance in force each year during a period within which the aggre gate insurance in force in all the regular companies of the United States fell off one third. Singularly enough, an other leading company was during the same period in fluenced to adopt a most illiberal course as to loans through fear that they would be availed of as cash sur render values, and upon the representation of one of its principal agents ,that policyholders were realizing on their policies in that company in order to keep up their insur ance in other companies that were less liberal.
There was a very strong disinclination on the part of many companies to grant loans. It was argued that to do so was to encourage the policyholder to put in jeopardy the provision which he had made for his beneficiary; and much almost tearful solicitude was expressed in that re gard. It was ignored that the policyholder had shown a proper sense of responsibility as regards the beneficiary, by taking the insurance, and was obviously the best judge as to his duties in this respect; and also that in many cases the ability to borrow may save the family from pinching distress and from the loss of the protection of the policy as well. In attempting to avoid such loans, at least one company was once so inconsistent as to create means by which others could lend upon its policies at higher rates than could be obtained 'upon other loans with se curity so unquestionable.
An objection at one time offered to making any policy loans whatsoever was the disrepute into which the "loan note" plan eventually came, by reason of bitter disappoint ment regarding the dividends received. The distinction between the results of the representation that these notes would be covered by dividends and never need be paid and the results of merely lending upon policies was not at first clearly apprehended, or, in some cases, may have been obscured purposely.
An attempt was made by more than one company to confine policy loans to advances for the purpose of pay ing premiums. This did not work well, however; for when the policyholder was forced to realize on his policy, he had, in such cases, to address himself to a professional lender, with the usual result. The insured was thus wronged and the company not benefited.
All the companies have now been brought, by legisla 130 tion or by their own determination of what is wisest and best, to recognize that the only question which the com pany can properly take cognizance of is : "How large a loan may safely be granted against the security repre sented by the policy ?" This question has been answered in various ways, as follows : Some companies have been known to confine the aggre gate amount available as a loan to a .small percentage of
the terminal reserve, say 5o per cent. Others have per mitted advances up to the full terminal reserve, less the interest payable in advance. Others have fixed upon other percentages. Yet others lend an amount equal to the full terminal reserve at the end of the next year of in surance, deducting interest in advance and all premiums to fall due before the end of the next policy year. The cash value, if less than the reserve, is usually the meas ure of the loan which may be granted, and the loan is limited to the entire cash value or to a certain percentage of it.
A special form of loan privilege has been as follows : After the point has been reached in the course of the dividend period of a deferred dividend policy, when the premiums payable thereafter to the end of the period do not in the aggregate exceed the cash value guaranteed at the end of the period, it is provided that any or all premiums will be advanced, if requested.
The "loan-note" plan was revived a few years ago in a particularly objectionable form, i. e., to advance a portion of each premium during the dividend period of a deferred dividend policy, the remainder being paid in cash. Such plans usually involve, also, allowing the interest to accu- , mulate, and a return-premium provision is also frequently a feature, yielding sufficient, so that the indebtedness is released at death in addition to the face of the policy being paid. The "same old lie" about accumulated surplus 131 being certain to pay off all loans was furbished up anew and made to do service. Often the victim, since he did not pay interest, did not know there was a large indebtedness accumulating against his policy.
A special form of premium advances is an automatic non-forfeiture premium loan provision, first introduced in Australia, to the effect that upon failure of the insured to pay a premium when due, it shall be paid for him and be charged against his policy as a loan, provided the loan value, in excess of existing indebtedness, will enable this advance to be made. Under this provision the insurance is continued in full force, without the loss of dividend or other rights, except that one or two companies require proof of good health as a condition to resuming payment. Such advances are continued, if premium payment is not resumed, until the entire loan value of the policy has been absorbed by the advances and interest upon them the loan value at the end of the policy year when the last premium could be advanced. As originally employed by one company at least, the insurance was continued only until the amount of the loan value at the time the first of such advances was made, had been so absorbed. This was manifestly unfair, because each premium, charged as a loan, set forward the reserve and loan values by one policy year precisely as if it had been paid in cash.