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Surrender Values

SURRENDER VALUES. Even after level premium life insurance was introduced it was the general view that when one failed to pay the premium his insurance lapsed, precisely like any other in surance policy which expires and is not renewed. To the extent that this view obtained, men came to believe that the large accumulations of life insurance companies were unnecessary. An explanation of the nature of reserves and of the necessity for them made it clear that the holder of a level premium policy has paid more than the value of the insurance enjoyed, thus partially prepaying future costs. When this was understood, the demand for sur render values, unless held in check by the expectation of great gains from forfeitures, is sure to be well-nigh irre sistible.

The practice of making some allowance on surrender is very old. Provisions for it were contained in the rules of the Equitable Society as long ago as 1795, and there are repeated references to it in these rules at later dates; but the whole matter was one of discretion. In a few companies in Great Britain and elsewhere this discretion has been exercised in a manner so equitable and even liberal and beneficial to withdrawing policyholders that no hard and fast agreements have ever been demanded of these companies. The contrary course, however, has been so common on the part of most of the companies in this country that the public has demanded either the pro tection of legislation or definite guarantees of surrender values in the policies themselves.

The first general recognition in the United States of the equitable right of the policyholder to a surrender value resulted from the system of reversionary bonuses or divi dend additions. These bonuses being fully paid for and vested, the position could not well be taken that there was occasion for forfeiting them on the ground of non-pay ment of the regular premium. Others were much quicker to recognize this; however, than the managers of some of the companies; they were generally very reluctant to grant surrender values.

In the United States, the first agitation in favor of sur render values for life insurance policies was carried on by Elizur Wright in Massachusetts during the "fifties." Mr. Wright was made a commissioner of insurance for that State in 1858, and, from the vantage ground of his position, waged a campaign in favor, first, of compulsory net valuation by the Actuaries' Table and 4 per cent. in terest, as a test of solvency, and, second, in favor of grant ing surrender values both ultimately successful. • His idea of the proper form of surrender values was that the terminal reserve by the Actuaries' Table and 4 per cent. interest, less a surrender charge, be applied as a net sin gle premium for temporary insurance to keep the insur ance in force for the original amount as long as possible. This was devoting the money to the general purpose for which it had originally been accumulated, viz. : to meet future costs of insurance.

Mr. Wright's campaign was brought to a successful close on May io, 1861, when a law was enacted requiring Massachusetts life insurance companies to grant extended insurance in this manner, which extensions attached auto matically as soon as the premium failed to be paid when due. The campaign was a hard one, but it was attended and followed by relieving and even humorous features, Among them the following: T19 An objection urged to the plan was that the labor of de termining the term of extension was well-nigh intermin able and altogether intolerable. When the commis sioners' report for 1862 appeared, it was found to contain a complete table of net single premiums for temporary in surances at all ages and for all terms of an even number of years, according to the Actuaries' Table and 4 per cent. interest; so that the term of the extension could be ascer tained by inspection. The dismay of the objectors may be imagined, and their defeat was a foregone conclusion.

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