Objections Urged Against the Disability Clause

While the disability clause has been thus generally adopted as a part of the life contract it has been the object of much criticism. The following are among the more important of the objections advanced:

1. It is not life insurance. The attitude is that this is a risk distinct and separate from life insurance and should be covered, if at all, by a company organized for this specific purpose. It is quite in line with the hazards undertaken by an accident or health company. This objection quite disregards the fact that the occurrence of permanent and total disability may necessitate the lapse of insurance that is badly needed, and that the protection offered by the accident and health companies is one-year insurance which the company may refuse to renew when the risk of disability becomes great by reason of old age or disease. Real disability insurance must comprise permanent protection against this risk.

2. Risk is small and interval brief between disability and death. The data above show the magnitude of the risk. At the younger ages the chances of disability are small indeed, and the larger figures for the older ages are due largely to disability occurring at an age covered by very few of the clauses in existence. Furthermore, on the basis of data compiled by Mr. Sidney H. Pipe the average interval between the time of disability and the time of death is found to be one year, four months, and twenty-eight days. This objection fails to recognize the true function of insurance which is the elimination of risk and not protection merely against a few well-known hazards. It is true that the figures quoted show the risk to be reasonably small, but the figures are true in the aggregate only and in individual cases the protection afforded may be very important. The size of the aggregate risk is, therefore, not a real criterion. There are many cases, for instance, where persons lose both legs or arms or become totally blind or totally paralyzed and live for years. It is for these individuals that the protection is important for there is no means in the ordinary policy contract whereby the insured is guaranteed protection under these circumstances.

3. Misrepresentation by agents. A familiar objection is that agents are given an opportunity, knowingly of through. ignorance, to misrepresent the facts and to claim more for the clause than it deserves; and that great dissatisfaction may result in later years when a company attempts to construe its clause strictly. This is to some extent justified, in view of the fact that a few clauses exist, the only apparent .purpose of which is to furnish a talking point in competition. But nearly every important provision in the policy contract has undergone the same experience, and the failure of the companies to meet with great dissatisfaction is due to carefully written clauses and liberal interpretation. There is no reason to believe that this objection is fundamental for it strikes at particular clauses rather than at disability insurance in general.

4. Difficulty of defining disability. The difficulty of defining disability, like the last objection, is largely a question of wording and interpretation. The clause should be so worded as to include within the scope.of its benefits every legitimate case of total and permanent disability. Dissatisfaction will doubtless arise with those clauses that have attempted to restrict the definition of disability in case the companies using them insist on strict construction, but the difficulties of the problem are at a minimum as compared with the situation facing accident and health companies insuring against both permanent and temporary disability. The problem of malingering in connection with the determination of temporary disability offers far greater difficulties than does the question affecting permanent disability and yet temporary disability is invariably covered by the companies in question.

5. The lack of disability statistics. Probably the most serious objection advanced against the adoption of the disability clause is that there is no scientific basis for; ascertaining the risk involved. In the short time elapsed since this clause first appeared in an American life-insurance contract there has indeed been no opportunity to collect data from the experience of these companies with which to measure the risk of permanent and total disability. But the subject has recently attracted the attention of American actuaries and several studies of the disability risk in other fields have been made and presented at meetings of the Actuarial Society of America. German tables of invalidity based on the experience among railway employees and data from the friendly societies of Great Britain have both been used in calculating disability premiums for American companies. No actual use has been made of these premiums, however, since it is felt that foreign experience may not be a fair measure of the risk to which the old-line companies in the United States will be exposed. More reliable data for this purpose have been found in the experience of American fraternal societies. Tables of disability and of mortality among disabled lives have been constructed from the records of certain of the larger fraternal orders, and the cost of disability insurance in connection with the life contract computed from these rates combined with the American Experience table of mortality. These premiums have been generally accepted among American actuaries as safe, and as a fair measure of the risk involved until experience of the old-line companies themselves is available. Indeed, the state of New York has already adopted one set of these rates as a basis for the valuation of disability contracts there issued.