Life Insurance as a Means of Indemnification Against Loss Through the Death of Officials and Valuable Employees

Turning now to a discussion of the numerous business uses to which life insurance lends itself, we find that one field for its application consists of the numerous businesses which depend upon, in fact have been built around, some one man whose capital, energy, technical knowledge, experience, or power to plan and execute make him a most valuable asset of the organization and a necessity to its successful operation. Numerous examples may be pointed to as illustrating the dependence of successful business upon the personal equation. Thus a corporation or firm may be vitally interested in one of its officers whose financial worth as an indorser, or whose ability as an executive, may be the basis of its bond issues or bank credit. A manufacturing or mining enterprise may be dependent upon someone who alone possesses the chemical or engineering knowledge necessary to the concern. A publishing house may have engaged someone who alone can be the author of a proposed work and may be obliged to incur considerable outlay before it is written. The sales manager of a large business establishment may have made himself indispensable through his ability to organize an efficient body of salesmen, to employ the most effective methods of selling, and to develop profitable markets. Again, some officer of the concern, although not actively engaged in its daily operations, may prove indispensable because he is its principal owner and because his experience and business connections make him its chief adviser.

These are only a few illustrations of the many that might be given to show the importance of a human life as an asset to the successful operation of a business. Now why not insure the business against the loss of that life that asset through death? Surely, the extinction of such valuable lives will in many instances prove a more serious loss than that by fire or any of the other sources of loss in business against which insurance is invariably procured. The death of the officer whose indorsement or executive ability is the basis for the firm's bank and bond credit might result in a refusal on the part of lenders to renew old and make new loans, thus possibly jeopardizing the business because of a lack of capital. If adequately insured, however, for the benefit of the business, the firm would immediately upon his death receive the face value of the policy. Not only would the insurance proceeds help to enable the company to meet any obligations falling due during the period of adjustment, but the mere knowledge that the business was the recipient of a large amount of cash would be a powerful factor in allaying doubt and in restoring confidence on the part of creditors. Similarly the death of the person who alone possessed the chemical and engineering knowledge required by his employer might result in the lowering of the quality or the volume of the output of the commodity in question, thus causing much inconvenience and possible loss of business; while the death of the sales manager might involve the disintegration of the selling force and the consequent loss of profitable markets. Furthermore, in many instances an untimely death may leave a special piece of work unfinished and subject the employer to a loss of the advances made, since no one else can be found to bring the unfinished project to completion. Here the amount of life insurance protection may be made to equal approximately the outlay incurred, and if the work is known to require only a few years for its completion, the term of the policy may be made to cover only this limited period. Such short-term policies also often prove desirable for the protection of a business against the death of its owner or manager during the first five or ten years required for the business to become firmly established.

All losses of a character like those enumerated may be guarded against by making the business the beneficiary of a sufficiently large policy on the lives of the officers or employees under consideration. See Footnote 1. In the event of death the business will promptly be indemnified for the loss of the services of the deceased and the proceeds received will enable it to bridge over the period necessary to secure the services of a worthy successor. Mr. Stewart Anderson writes:

"In the conservation of business, many other kinds of insurance, highly useful because deeply needed, are employed fire, casualty, surety, employers' liability, title, plate glass, etc. but none of these, except casualty (and that only in case of accident), defends against loss or destruction caused by the death of a man who is the blood, brains, gold, and very life of the business. Curious omission, dangerous neglect, is it not? fire ? insurance;. embezzlement ? insurance; accident to a workman? insurance; title? insurance; broken pane of glass? insurance? but against the staggering loss or the supreme disaster of total ruin following the snuffing out of a man upon whom the whole fabric of the business rests no insurance! and that snuffing out occurs in innumerable cases as quickly and as suddenly as the smashing of a plate glass front. Business has greater need of life insurance than of any other kind, because it is the only form that completely encircles with impregnable protection against utter destruction through death."

Footnote 1: The following may be mentioned as a few of the notable instances of business insurance which are commonly cited as illustrative of the extent to which certain men use life insurance for the benefit of copartnerships and corporations: George E. Nicholson, Kansas City, $1,500,000 in favor of four cement companies of which he is president; H. N. Byllesby, Chicago, $1,250,000 as managing engineer of electric companies; John H. Jones, Pittsburgh, $1,000,000 in favor of the Pittsburgh-Buffalo Co., of which he is president; John H. MacMillan, Minneapolis, $500,000 in favor of the Carigal Elevator Co., of which he is vice-president; F. B. Wells and F. T. Heffelfinger, Minneapolis, $500,000 each in favor of the F. H. Peavey Co.; and Arthur S. Ford, $1,000,000 in favor of the Portland Cement Co., of which he is treasurer.

Mr. Edward A. Woods, in a recent address on "The Use of Life Insurance in Bank Credit" states: "Among conspicuous illustrations of insurance more or less for the purpose of protecting credit is the insurance, said to be $3,500,000, carried by John Wanamaker, and the $4,000,000 carried by his son Rodman Wanamaker; the $1,000,000 carried by Harry G. Selfridge in establishing his American department store in London; the $500,000 on the late Charles Netcher, the department store manager of Chicago, who died while enlarging his store, the prompt payment of which, after but one premium was paid, largely assisted his wife in continuing the business and suggested her carrying $1,200,000 insurance herself".