Benefits Granted  Kinds and Amounts
Two classes of benefits are ordinarily given by these clauses, the one
allowing the further payment of premiums to be waived without in any way
affecting the values granted in the insurance contract; the other allowing
the policy to mature and the value to be paid in some form to the insured.
Payment of the policy may take one of three forms: a fixed number of installments,
a single cash sum, or a life annuity. Some clauses give only one benefit,
others allow a choice.
In case the waiver of premium benefit is given, its cost to the company
will consist of the number of premiums that will fall due between the time
of disability and the time of death. The magnitude of the benefit will,
therefore, depend statistically on the average time elapsing between disability
and death. From the only American data bearing on the subject it appears
that this period is one year, four months, and twentyeight days 5 among
fraternal society risks. Accepting these data as being approximately true
for the oldline companies, the benefit will therefore equal an average
payment of two premiums, for at the time of death the face value of the
policy will be payable in any case. This fact explains the small cost of
the disability clause.
The above data likewise furnish a basis for estimating the proper value
that should be given where maturity benefits are promised and for comparing
this value with the values actually given. If the average period between
.disability and death is one year, four months, and twentyeight days, then
the value of a policy at the time of disability, scientifically determined,
will be that sum of money approximately6 which with interest for one year,
four months, and twentyeight days will equal the face value of the policy,
say $1,000. If this amount were given as a maturity benefit it would be
exactly equivalent to the waiver of premium benefit so generally available.
The insured would hesitate to accept any smaller amount except under the
pressure of urgent necessity if he realized this fact clearly. If the full
face value of the policy were given at the time of disability its cost to
the company would be only the difference between $1,000 due now and the
value now (present value) of $1,000 due in one year, four months, and twentyeight
days, and no company would be increasing its liability to unwarrantable
proportions by giving a value equivalent to $1,000 at the time of disability.
The ordinary installment benefits consist in the payment of specified amounts
per year for a period of ten, fifteen, or twenty years. The amount is usually
named as onetenth, onefifteenth, or onetwentieth of the face value of
the policy. The discounted values of $1,000 paid in ten installments of
$100 each, fifteen installments of $66.67, or twenty installments of $50
on a 3½ percent, interest basis, are, respectively, $861, $795, and
$736. Thus the policyholder surrenders for these amounts a policy that in
less than one and onehalf years would mature for $1,000. By giving a maturity
benefit such as the above a company thereby actually decreases its liability.
A few companies have provided for the payment of the policy as a continuous
installment, that is, twenty guaranteed payments, and in case the insured
lives beyond the period of these certain payments, the same yearly amounts
will continue until death. Considering the average life of a disabled person,
this continuous feature will occasion but little extra liability. The first
case of a continuous installment based on ten certain payments appeared
in 1915.
The settlement of a disability contract by the payment of a cash sum is
offered by a few companies. The full amount insured is given in a few instances,
but this apparent liberality is destroyed by the restrictions under which
the benefit is paid, the clauses covering disability due to accidental injury
only, and in some cases limiting the kinds of injury. Equally open to criticism
are clauses which promise to pay half the face value on disability.
The payment of the policy as an annuity is allowed in some cases after
disability, the payment being so much per year until death. In one case
$50 per year is paid; in another, $100 per year, but the latter is limited
to five payments at most, thereby making the maximum recoverable under this
contract equal in present value to $467, and since death is probable to
occur in one and onehalf years, the amount received in most cases will
be far less than $467. Other annuities pay an amount, based on the age at
the time of disability, which could be purchased by the face value of the
policy, but the death rate among active lives is used in computing this
amount and not the death rate among disabled lives.
