Life Insurance and the American Family

Along with the automobile and the telephone, life insurance has become part of the way of life of the American family. This reflects the American concept: that a father has an obligation to provide financial support for his family for as long as the family has need of funds, even if he should not live to fulfill that need. So often, in many lands, the death of the head of the family is accepted not only as a great personal loss but also as a financial misfortune which the widow and children must bear with courage and little else.

Accordingly, life insurance is used by families to fill financial needs created by the loss of the breadwinner, which are: (1) money to meet final expenses, (2) money to live on while the family readjusts itself to the new conditions with the father gone, (3) an income for the family while the children are growing up and finally (4) an income for the mother after the children have left home.

A family's life insurance program is developed as the family grows and it can be adapted to meet the changing needs at various stages of the family cycle. In times past, individual life insurance policies bought by various members of the family alone offered opportunities to develop an adequate protection program. In recent years, employer-employee programs providing benefits under group insurance plans contribute largely in this area. Social Security is a third factor in helping families provide adequate financial protection. This makes the development of a family's financial program easier to attain but more complicated than ever - calling for the guidance of a well-trained life insurance agent.

Life Insurance Dollars at Work

Life insurance is based on the natural law of human mortality – the inescapable fact that, as people grow older, an increasing proportion must die. And no one lives forever.

Part of the premium dollars are therefore set aside to guarantee future obligations to policyholders and their families. Until needed, these funds are invested, and the earnings help keep down the cost of insurance to policyholders.

As a result of the need for investing these funds, life insurance is one of the most important sources of capital to finance the nation's economic growth and to provide jobs for an expanding population. The obligations of U.S. life insurance companies are backed by some $205 billion, invested in an almost endless variety of ways. Under the broad heading of investments in mortgage loans and real estate, life insurance funds help to build homes, farms, apartments, office buildings, stores, shopping centers, hotels, motels and other essential facilities. The life insurance business also set in motion a special urban investment program to invest $2 billion for needed housing and jobs for people living in blighted city areas.

Under a second broad heading of investments in American business and industry, life insurance funds help to provide modern plants, equipment and working capital for almost every type of enterprise. For example, life insurance funds are a vital factor in financing jet planes for airlines, nuclear generating plants for electric companies, radio and television broadcasting facilities, natural gas pipelines, and research and production facilities for the plastics, chemical and drug industries.

Still other life insurance investments include Federal and local government bonds, some foreign securities and loans to policyholders themselves.

Thus, life insurance dollars play a significant role in helping to provide the nation with the capital needed for its growth. They are put to work for the policyholders until needed to pay the benefits for which they were purchased.

Modern life insurance plans are designed to meet almost every circumstance in which there is loss of earning power.

In recent years coverage has not only been liberalized, but policyholders can select the payment plan that is easiest for them. Most people have individual policies or group plans, or both.

Although insurance plans go a long way back in history, it was not until 1854 that life insurance began to meet the needs of large numbers of people. In that year a new type of individual life insurance plan became available to low-income industrial workers in England. The new policy was cheaper than past plans and was paid for at the home when the life insurance agent called each week or month. This type of insurance was introduced into the United States in 1875 and became very popular, reaching far more people for many years than did the earlier type of individual policies. The insurance is known as industrial insurance, the word coming from the industrial workers for whom it was designed. The earlier type of individual insurance is called ordinary insurance, a term which was perhaps not well chosen but which appears to be embedded in the language of life insurance.

"Ordinary"

Life Insurance

"Ordinary" life insurance is used to provide not only a sum of money to enable one to "die even with the world," but also a continuing income to a widow and children, making it possible to keep

the family and home together. In addition, it is purchased to provide a life income to the widow after the children are grown. It can pay the children's way through college and retire the mortgage on the family home.

People use ordinary life insurance not only for protection but also as a means of accumulating money through cash values for their own use in later life. The value of the policy may then be taken either in one sum or in an income which will continue as long as the insured person lives.

In addition to these individual and family uses, ordinary life insurance is very frequently used in the business world to insure the lives of business executives and other key men for the benefit of the business. In small corporations and partnerships all part-owners are often insured. This makes it possible when a part-owner dies to promptly pay his family a prearranged price for his interest in the business. It enables the surviving part-owners to continue the business. It avoids delay in settlement or even liquidation.

Premiums for ordinary policies are usually paid directly to the company annually, semi-annually, quarterly, or monthly. Policies are almost always issued in units of $1,000 or more. The average size ordinary policy purchased in 1969 was $10,760. A medical examination is frequently required of each applicant as one factor in qualifying for a policy, although most companies write "nonmedical" ordinary policies for limited amounts.

Group Life Insurance

Group life insurance was introduced in 1911 and, as the name implies, this form of insurance provides a means for insuring a group of people under one policy.

The most usual group is made up of the employees of a business organization who are insured without medical examination under a master contract issued to the employer. Each insured employee receives a certificate stating the amount of his insurance, the name of the beneficiary he selected and a summary of his rights and benefits. His insurance is often one to two years' salary or earnings.

Group life insurance is usually issued on the term insurance basis. That is, the premium collected for the entire group buys protection only from one year to the next and does not buy permanent protection. The employer and employees usually share the cost of group insurance, the employees' portion being deducted (with their con

sent) from their salary or wages, and the balance of the premium being paid by the employer. The employer may, however, pay the entire cost.

If an employee leaves his employer he loses his group insurance, but the employee has a valuable right, namely that he may buy an individual policy for the same coverage (paying the premium at his age) even though he may be uninsurable at that time. This conversion privilege must be exercised within 30 days of the termination of his employment.

In recent years various plans of group permanent life insurance have been developed. The cost of these is higher. However, the employee leaving his employer retains some part of his group protection as fully paid permanent insurance. He also has the right to buy an individual policy, without evidence of insurability, equal to the balance of his group protection.

Originally, when an employee retired his group life insurance stopped. But now it is generally continued by his employer. The amount of coverage is usually reduced. For some the reduction is immediate and to a nominal amount of $1,000 to $2,000; for others, the reduction is made, in steps over a five-year period, to about 50 per cent of the benefit prior to retirement.

Industrial Insurance

With the economic gains of American workers in recent decades, and with their increased ability to purchase larger policies in the ordinary category, the total amount of industrial life insurance in force in the United States has declined gradually since the mid 1950's while, as a percentage of total protection it has decreased from some 14 per cent twenty years ago to 2 per cent at the end of 1970.

Many of those who in prior years would have purchased industrial insurance are still receiving, however, the service of a life insurance agent, who is calling at their homes, but now they are buying ordinary insurance and paying monthly premiums. This insurance is classified in the statistics of the business as monthly debit ordinary

insurance.

Industrial life insurance is issued in individual policies almost always less than $1,000. The average size industrial policy purchased in the United States was $810 in 1969. This form of insurance is usually issued without medical examination, although an examination may be requested by the company.