If the reader has found it a little difficult to follow the foregoing analysis, he may from that fact form some con ception of the respect and authority which Elizur Wright's great services had earned for him in Massachusetts, and which enabled him to obtain the favorable attention of legislators for these arguments. No one else has ever equaled Elizur Wright in perspicuous and convincing statement of the complex subjects of actuarial science.
As the reactionary tontine wave gradually subsided, the demand for more liberal cash surrender privileges became more insistent. The extremely liberal values allowed upon the termination of the tontine period, no surrender charge being deducted from the reserve, had something to do with it; but much more effective was the conviction that the gains from forfeitures, in fact realized, were a poor return for the risks taken. The following facts also had their influence : The companies which allowed lib eral surrender values, even when in cash, did not exhibit materially heavier discontinuances than others nor the alarming consequences of adverse selection which had been anticipated; and to offset any relative loss of earn ings by paying such values they were able to procure in 123 surances for commissions materially lower than most companies which were illiberal in this regard found it necessary to pay. The publication of the mortality expe rience of the company paying the most liberal cash sur render values in the world, the Australian Mutual Prov ident Society, also influenced men's views : for that com pany exhibited the lowest mortality among insured lives yet observed, and also very remarkable persistency of policyholders. The opinions of many, including, it is proper to say, the author of this book, were by these con siderations modified as regards the influence of cash sur renders upon adverse selection, in effect as follows : So long as a company is in good repute, the privilege of a cash value on surrender at any time does not materially, if at all, increase the number of withdrawals, especially if loan privileges are also granted, and therefore does not cause more adverse selection than do other forms of sur render values. On the other hand, the analysis of expe rience as to the effects of such privileges, if offered but once or only at long intervals, invariably reveals marked adverse selection.
These considerations greatly weakened the resistance of all companies to the demand for more liberal cash sur render privileges; but competitive necessity was, perhaps, the more potent factor, and the action of the New York Life Insurance Company, upon the accession of President McCall in 1892, was the beginning of the end in that re gard. That company introduced into its policies loan privileges, rather than cash surrender values, but by mere failure to repay the money borrowed, such became in effect cash values, though the company has successfully resisted such utilization of it, when advised of this pur pose in advance. Several other companies, including all
the Massachusetts companies, the National of Vermont and the Mutual Benefit, were already granting cash values 124 or loans, or both; but the New York Life was so much more active in the field and had so opposed the practice of guaranteeing the allowance of cash loans that its de parture had great weight with the others, especially as it proved to be a valuable competitive advantage.
In 1896, the Equitable's guaranteed cash value policy made its appearance, offering values equal to the Ameri can Experience 3 per cent. reserves, the Northwestern cash value policy in 1897, and the Mutual Life's in 1898. The last-named offered, indeed, cash values at the end of distribution periods of fifteen and twenty years much in excess of the ordinary reserves, the excess having been accumulated out of the premiums to provide against ad verse selection, it having been found that the average of health is lower among those who continue their insurance instead of taking cash.
In recent years, according to the general view, the pendulum has swung in some cases too far in the direc tion of liberal values in the earlier years of insurances. Thus some companies allow cash values equal to the full reserves at the end of the third policy year under policies with premiums loaded on the net level premium basis. Values so large cannot, of course, be accumulated from the premiums actually received, after deducting the pol icy's share of mortuary losses and expenses, if its share of the cost of the procurement of new business is to be made good out of its premiums. In arguing for his cash surrender charge, Elizur Wright gave, as an alter native measure of the surrender charge, this : "A sum sufficient to procure another freshly-examined life to take the place of the life retiring;" and, whether on that ground or otherwise, it seems clear that the value allowed upon surrender ought not to exceed what has been ac cumulated from the premiums paid, after meeting all expense and mortuary contributions properly charge able thereto. 125 Surrender values, then, generally take three forms, available at the option of the policyholder, viz. : Cash, paid-up fractional insurance of the same kind as the orig inal, paid-up temporary or extended insurance for the original amount. Commonly, the others are made pre cisely equivalent to the cash value by some standard; but this is not always the case. The privilege of surrender ing for a life annuity or for a temporary life annuity, or even for a temporary annuity certain, may also be given.
Usually one of these values more commonly the ex tended insurance attaches at once upon failure to pay premiums when due; while to take advantage of the others requires action on the part of the insured.
A special form of extended insurance is the grace of one month for the payment of premiums, which most com panies now give.