interest that the policyholder is forgoing on his policy's cash value. Thus, the actual cost of the policy rises year by year, just as it does for yearly renewable term. But the net protection provided by the cash-value policy is steadily shrinking, so that the actual cost per $1,000 of protection rises faster than it does for term. (For calculations covering two sample policies, turn the page.)

The greatest advantage claimed for cash-value life insurance turns out to be illusory, then: Though the premium remains the same year after year, the actual cost rises steadily. And only by complex calculations can you determine what a cash-value policy's cost truly is. Pricing term is, by contrast, easy. The premium you pay is the cost.

The only problem is to sort out the right kind of term for your requirements. Various authorities

Assuming you buy level term. Decreasing term costs are harder to compare, because the rate at which protection decreases may vary from company to company

have advocated decreasing term, term to age 65, five-year renewable term, and yearly renewable term. I have used five-year renewable term in my calculations, on the theory that its premiums remain stable for five years at a stretch, yet it gives you flexibility in readjusting the face amount of the policy to your current needs. As you choose, you can keep all your coverage or drop any part or all of it at each renewal date.

Easy though it is to shop for term insurance, it is astonishingly difficult to buy term. Again, my own unhappy experience is that patients, relatives, and friends in the insurance business are eager to "save money" for me by urging the purchase of high-priced coverages. The best way to get term at a good price, I've found, is from a stranger. Simply tell him you want term at the best price, and ask him to

show you comparative rates. Chances are you'll get what you

want if you impress on him that you know these basic facts:

The mortality cost for your present age must be paid, whatever kind of policy you choose.

¶You can't avoid this ever-increasing cost by buying a "levelpremium" policy. All you'll do is pay now a part of the higher rates you'd otherwise pay later.

¶Cash value is an unnecessary expense. It isn't added to the amount your policy will pay at your death. In terms of net risk, it is subtracted from your estate.

¶Renewable or decreasing term insurance, in which the entire premium goes for coverage, is the best buy at any age.

You know your own insurance requirements better than any agent or computer, and, as a physician, you know the state of your health better than any underwriting department.

Armed with these facts, you ought to be in a position to make a good insurance decision on your own. ☐

The American public is, in varying degrees, becoming a nation of more astute buyers. The size of the bite from our confiscatory tax structure is, in a large measure, forcing our citizens to make more intelligent decisions in the market place. Competitive merchandising and increased product knowledge are also enhancing the trend.

There are areas, nevertheless, where this proclivity does not exist. The late President, John F. Kennedy, summarized it as follows: "The consumer typically cannot know whether trug preparations meet minimum standards of safety, quality, and efficacy. He usually does not know how much he pays for consumer credit; whether one prepared food has more nutritional value than another; whether the large economy size' is really a bargain."

The lack of consumer knowledge, however, is perhaps nowhere more prevalent than in the purchase of life insurance In many cases the premium price tag is quite meaningless, and since next to food, clothing and shelter, few things are more urgent than the protection of a family from the disasterous results of a premature death, this presents a social and economic problem of major importance.

There are over fifteen hundred companies currently engaged in the sale of life insurance. They range in size from the very small company, which has recently opened its doors, to the giant multibillion dollar organizations some of which have been in business a century or longer. In any case each falls, regardless of age or size, into one of two categories. There are the stock companies, owned and controlled by the stockholders, and the mutual companies, owned and controlled (in theory at least) by the policyholders. The latter, in most cases, charge substantially higher premiums than do the stock companies, and they justify this overpricing by projecting eventual reimbursements called dividends. The word dividend as used here, however, is a misnomer. It conveys to the uninformed buyer the impression of profits whereas, in reality, it is solely the refund of an overcharge. Both the Internal Revenue Service and the U.S. Supreme Court concur on this point and have ruled accordingly.

Does the purchase of these overpriced policies constitute a sound financial transaction? The question has long been vigorously debated in insurance circles, but when given adequate study and honest evaluation, the answer is, almost without exception, an unqualified NO!!!

This statement will bring forth bitter denunciation from the proponents of mutual life insurance, but the following irrefutable facts provide ample proof that it is undeniably true.

First let's consider the basic operational concept of the two types of companies. The mutual version can possibly best be demonstrated by a typical sales presentation-

"Mr. Prospective Buyer: I represent the Mutual Life

This is basic and easy to understand, but there is a slight cost involved whereas the mutual agent projects a hypothetical profit, Viewed in this light, the uninformed buyer naturally leans toward, what he assumes to be, the lower cost participating (par) policy The mutual cost illustration, however, is predicated on only a portion of the relevant facts and is, therefore, incomplete. Being incomplete, it is inaccurate, and being inaccurate it is certainly misleading. Analysis shows the cost differential to be more fictional than factual

In support of this statement, consider the following. First, the most obvious difference in the two policies is the premium The "par" policy requires $24.13 per thousard and the "non-par" only $18.90. The 85.23 extra premium loading totals over $100.00 for the 20 year projection period

Secondly, an interest factor on the premium differential is mandatory. The buyer who is mart enough to retai. this overcharge in his possession certainly will not be foolish enough to hide it under the mattress or a brick in the fireplace as this would nullify the investment potential The $ 23 invested at 4 has a 20th year value of $161 97 at 6 8208 93 With interest corsi lered in this proper per spective, the $123,0 projected dividerd tends to dwindle in value The basic principle, moreover, is not mitigated should the dollar differential be applied more advantageously to decrease bank loans, or to accelerate car or home payments etc, thus effecting substantial interest savings Ever should the money be used to enhance the family's standard of living. it must be conceded that the premium differential has a definite and measurable worth.

In the third place, a "margin for safety" is necessary Most state laws require agents to inform prospective buyers that dividend projections are neither "guarantees" nor "e ti mates" of future results Nevertheless, this does not prevent them from presenting cost illustrations which, when calcu

lated to the last penny, provide a significant aura of validity. For this reason the law should also demand that prospective buyers be apprised of past discrepancies between projected dividends and those actually paid. To cite a few

from 1932 to 1952 twenty leading companies missed their projections on the Ordinary Life plan, age 35, by an average of 35%. In 1951 a company, now listed among the leaders in low net cost, projected a dividend of $23.00 and paid $5.17 -a 345% error. From 1946 to 1951, one of the largest mutual companies projected a dividend of $52.31 and actually paid $4.58-an error of 1,042%. From 1932 to 1952, thirteen major participating companies paid an average of $3.83 on their projected $17.50. Another leading company, in 1960, paid 92.70% on the Ordinary Life plan; 67.18% on 20 Pay Life and only 38.46% on 20 Year Endowments. On numerous occasions companies have suspended dividend payments entirely. The list is endless, but when failures of such magnitude have occurred in some of the most affluent years of our entire economic history, it provides-if negativelyan unprecedented endorsement of the "guaranteed cost" principle in life insurance. The full impact of these errors in dividend forecasting, however, cannot be fully comprehended until it is realized that these lamentable discrepancies are computed without regard for the important interest factor on the premium overpayments.

All companies allow substantial margins for contingencies in their own operation, and one would think that an equivalent "safety factor" would be incorporated in the "net cost" illustrations presented to potential buyers. Το our knowledge, however, this has never been done. It therefore becomes essential for the buyer to provide his own. margin for safety. The exact percentage, of course, is arbitrary, but here, after a detailed study of dividend payments made over the past half century, a very conservative 20% is used. Should the reader, after an appraisal of past dividend histories, consider this percentage inadequate he is. of course, at liberty to choose one of more realistic proportions.

With these facts in mind, and for additional clarity and understanding, let's compare the policies, in chart form, on a year by year basis. A $100,000.00 policy is purposely selected to emphasize the substantial variation in cost. Also, in an attempt to avoid any possible charge of discrimination, the "par" policy is a composite average of the rates and values obtained from the ten largest mutual companies, and the "non-par" policy was formulated in exactly the same manner from the ten leading stock companies. As over two-thirds of all the life insurance in force today is under the jurisdiction of these twenty companies, the analysis could hardly be more authoritative.

At this point your attention should be called to ar error which is incorporated in all mutual cost illustration Premium payments and dividend returns are not simultaneous transaction s as universally shown The pr maum is always paid at the beginning of the policy year, and dividends, if any, are declared and paid for credited) at the end of the policy year This time lag has a direct and substantial bearing on the interest earnings of the prenum differentia! and from ar. accounting starp it, car only be shown by recording the dividend returs, as being made at the beginning of each, sub paert policy year This procedure is used in the following cost illustrations

In Chart A, for instarce, a $523.00 overpayment is re quired with the initial premium. No dividend is returned A second premium with a $523.00 overcharge is exacted at the beginning of the second policy year. A token premium

return of $82.00 is now projected. BUT ONLY AFTER THI MUTUAL COMPANY HAS APPROPRIATED FOR IT OWN USE, OVER $1,000.00 IN EXCESS PREMIUMS Ac the end of ten (10) years the total overcharge amounts Sa $5.230.00, but the predicted return, even if paid on a basis, amounts to only $3.159.00 – which leave, the port. holder with a deficit in excess of $2,000.00. A further study of this chart shows that it is not until the begin 13th policy year that a break-even point occurs. Here w ever, (see column 5) the mutual compary has premium loading and interest earnings, acquired mat $4,000.00 which should, and would, belong to the post. had he purchased the "guaranteed cost" policy in the fir place.

This cost differential is amplified to a degree when consideration is given to the tax factor L our present tax system a mar in the 50%, bracket is reg.mp to earn $2.00 in order to have $1.00 of spenjake my This taxpayer then, as a policyholder, mast earn $10 each year in order to meet the $523.00 overchange wit demanded by the mutua! company and this area sizable $20,920.00 in "required earnings" ver the period. "Required earnings" and not "take home however, is certainly a more realistic approach to the lem. This is one of the economic facts of life when we dat to live with, and it could be compensated for a te by adjusting the premium differential to confirm win individual tax bracket. (In this case, $i (46cm) $523.00).

Chart A illustrates the excessive premium accumulated at 4, which would be c lected by the V

Company (with a corresponding loss to the should the face value of the policy be paid to the benefit gr as a death claim.

$27,600.00 $

2 $27,600.00 $ 82.00 $27.600.00 $ 213.00 $27,600.00 $ 262 00 $27,600 00 $ 315.00 $27,600.00 $ 369.00 $27,600 00 $ 413.00 $27,600.00 $ 457.00 $27,600 00 $ 502 00 $27,600.00 $ 546.00 $27,600 00 $ 591 00 $27,600.00 $ 640.00 $27,600.00 $ 689.00 $27,600.00 $ 738.00 $27,600.00 $ 788.00 $27,600.00 $ 837.00 $27.600.00 $ 884.00 $27,600 00 $ 931.00 $27,600.00 $ 978 00 $27,600.00 $1,024.00 $27 600 00 $1,071 00

3

4

5

6

7

8

9

10

12

13

(4)

(5)

14

Co. A Surrender Value

Total Surrender Value Differential

15

16

17

18

GROSS PREMIUM DIFFERENTIAL $ 523 00

.00 $ 544.00 $ .00 $ 544.00 20.00 $ 1,061.00 $ 100.00 $961.00 414.00 $1,864 00 $1,600 00 $ $1,833 CO $ 2,133.00 $ 3,966 00 $ 3.500.00 $ 466.00 5 $2,188.00 $ 3.905.00 $ 6.093.00 $ 5,300.00 $ 793 00 6 $2,513.00 $ 5.570.00 $ 8,083.00 $ 7,400.00 $ 683.00 7 $2.814.00 $ 7,340.00 $10,154.00 $ 9,400.00 $ 754.00 8 $3,090.00 $9,130.00 $12,220.00 $11,400.00 $ 820 00 9 $3.340 CO $10,910.00 $14,250.00 $13,400.00 $ 850 00 10 $3,563.00 $12,680.00 $16.243.00 $15.300.00 $ 943 00 11 $3.757.00 $14,460.00 $18,217.00 $17,300.00 $ 917 CO 12 $3,919.00 $16,360.00 $20,279.00 $19,200.00 $1,079 CO 13 $4,046 00 $18,260.00 $22,306 00 $21,100.00 $1,206.00 14 $4.139.00 $20,150.00 $24,289.00 $23,000.00 $1.289.00 15 $4,193 00 $22,060.00 $26,253.00 $25,000 00 $1,253 00 16 $4.208.00 $23.950.00 $28,158.00 $26,900.00 $1,258 00 17 $4,185.00 $25,940 00 $30,125.00 $28,800.00 $1,325.00 18 $4,121 00 $27,930 00 $32,051 00 $30,800.00 $1,251.00 19 $4,017.00 $29,910 00 $33,927.00 $32,700.00 $1,227.00 20 $3.870 00 $31,920.00 $35,790 00 $34,500.00 $1,290.00 (20) $3,013 00 $33,880 00 $36,893 00 $36 600 00 $ 293.00

Column (1) shows premium savings accumulated at 46 and is transposed from Column (5) in Chart A. Column (2) represents Company B cash values. Column (3) is obtained by adding Column (1) premium savings and Column (2) cash values to get the total surrender value. Column (4) indicates the surrender value of Company A. and Column (5) clearly shows investment advantages gained by the "guaranteed cost" policyholder during each of the 20 policy years

In Chart C still a third method of comparison is shown. Here an identical premium is utilized to purchase the maximum amount of insurance from both Company A and Company B. The $27,600.00 difference is not only startling, but highly indicative of the additional values incorporated in the "guaranteed cost" contract.

$170.00 $ $210.00 $ $252.00 $ 758 CO $26,842 00 $295.00 $ 1,095 CO $26,505 00 $330.00 $ 1,482 00 $26 118.00 $366.00 $ 1,922.00 $25,678 00 $402.00 $ 2,417.00 $25,183 00 $437.00 $ 2,968.00 $24,632 00 $473 00 $ 3,578 00 $24,022 00 $512.00 $ 4.254.00 $23,346 00 $551.00 $ 4,997.00 $22,603 00 $590.00 $ 5,811.00 $21,789.00 $630 00 $ 6,698 00 $20,902 00 $670.00 $ 7,663.00 $19,937 00 $707 00 $ 8,705 00 $18,895.00 $745 00 $ 9.828.00 $17,772 CO $782.00 $11,034.00 $16.566 CO $819 00 $12,327.00 $15,273.00 $857.00 $13,712 00 $13,888.00

As you can readily see in this chart, the variation ranging from $27,600.00 to $13,888.00 represents a considerable amount of coverage. With an identical premium require. ment the Mutual policyholder should obtain identical protection, but what happens to it? Where does it go? Who can lose but the beneficiary of the insured, and who can gain but the Mutual Company?

There are other factors beyond the scope of this article which confirm and further establish the superiority of the "guaranteed cost" plan such as "ratio of positive loss to possible gain," "premium deduction for surplus build-up," "the impact of capital investment," "the end result of a depressed or inflated economy," "mortality, lapse and surrender statistics," ctc., etc., but the foregoing analysis is, in itself and of itself, sufficient to establish beyond ary shadow of doubt, the monetary advantages which accrue to the vast majority of "non-par" buyers.

Admittedly, premium overcharges were required a century ago when the business was in its infancy, but in the light of modern science, advanced statistics and improved medicine, are today cumbersome, costly and economically unsound. Supposedly overcharges are returned. but as the agent gets his share in commission, the state gets its share in taxes, a substantial portion is allotted to surplus, and as there is also the company cost attendant upon collecting, accounting for and eventually returning that which remains to the policyholders - this becomes a physical impossibility. These added costs are applicable only to the participating plan, and this fact completely invalidates the illusion that mutual policies can be purchased at bargain prices.

When a reasonable and intelligent buyer of life insurance has this incontrovertible data at his disposal he will invariably purchase a "guaranteed cost' policy. He will never accept a mere speculation as a substitute for an infallible guarantee. Never will he docilely submit to an entirely un necessary, continuous ard irrevocable premium loading in or der to acquire the dubicus privilege of having his own money, partially and belatedly, returned to him at the complete dis Always cretion of the company exacting the overcharge will he demand, from the company of his choice, a "rate guarantee" as well as a "risk guarantee," and last, but by no means least, he will, annually, retain in his own bank account the equivalent of a "guaranteed dividerd" which is his to utilize and administer as he, and he alone, deems fit