Reasons for the Disability Clause

This rapid extension in the use of the disability clause is due to two reasons. One lies with the agent; the other with the, policyholder. The agent desires it because of its value as a factor in competition, while the insured finds it a valuable means of guaranteeing the permanence of his insurance because it covers a risk not contemplated by the usual life-insurance contract. The policyholder's reason is fundamental, of course, and the disability clause must be tested ultimately by its value as an insurance measure. This, however, is probably not the immediate cause of the phenomenal interest shown in the clause in recent years. The history of life insurance in the United States is written in the policy contract. Successive changes in this document are indicative of changing attitudes on important insurance questions. For instance, the payment of cash surrender values was radically opposed by some companies until competition or statute law required such values to be given; and when once it was found that these privileges had a competitive value, they were advertised to the limit. So it is with the disability clause. It has been bitterly opposed by some, but wide-awake= agency managers have recognized it as a powerful competitive weapon. Many small companies have been organized in recent years in the South" and West and for a time have confined their efforts to their immediate localities. Here the appeal to patronize home companies -has given them a great advantage; but with the normal growth of their business they have found it necessary and desirable to solicit insurance beyond local surroundings and have come into competition with the older and larger companies. This is their opportunity to exploit a selling feature and they have found it in the disability clause. Of the .companies using the clause on January 1, 1912, over 78 percent, have been organized since 1901 and 70 percent, of them since 1905.

This motive of competition, however, is not sufficient to guarantee the permanence of the disability clause in the life-insurance contract. Before agents saw its business-getting possibilities it must have been recognized that the clause added a factor of real value to the insured. The question is: Is permanent and total disability a risk of any consequence to the average policyholder? It will readily be understood that the idea back of the clause is to prevent the lapsing of a policy and the loss of insurance by that living death which leaves a man helpless to continue insurance, if he is dependent on the income from his services, and in a condition which from his viewpoint justifies the maturing of his policy, or at least justifies freeing him from the burden of further premium payments.

This question can only be answered statistically, for it is necessary to know the magnitude of the risk of total and permanent disability. According to figures derived from data of disability among fraternal society risks the probability of becoming disabled within one's life expectancy is as follows:

In other words the chances that a person aged 20 will become disabled within his life expectancy are one in twenty-five; at age 35, one in ten; at age 45, one in five; at age 55, one in three; and at age 70, three in four. These figures are based on actual experience among fraternal society risks and lead to the conclusion that the risk of disability is a very considerable one indeed. The policyholder, therefore, has an adequate reason for wanting his life contract supplemented by the protection furnished by the disability clause.