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Operation of Savings-Bank Life Insurance in Massachusetts and New York

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Operation of Savings-Bank Life Insurance in Massachusetts and New York UNITED STATES DEPARTMENT OF LABOR Frances Perkins, Secretary BUREAU OF LABOR STATISTICS Isador Lubin, Commissioner (on leave) A . F. Hinrichs, Acting Commissioner + Operation of Savings-Bank Life Insurance in Massachusetts and New York Revision of Bulletin No. 615: The Massachusetts System of Savings-Bank Life Insurance, by Edward Berman ♦ Bulletin 7s[o. 688 UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1941 For sale by the Superintendent of Documents, Washington, D. C. Price 20 cents Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis UNITED STATES DEPARTMENT OF LABOR F rances P er k ins, S e c r e t a r y + BUREAU OF LABOR STATISTICS I s a d o r L tjbin, Commissioner (o n lea v e) A. F. H in r ic h s , Acting Commissioner Donald Davenport, Chief, Employ­ Aryness Joy, Chief, Prices and Cost of ment and Occupational Outlook Living Branch Branch N. Arnold Tolies, Chief, Working Con­ Henry J. Fitzgerald, Chief, Business ditions and Industrial Relations Management Branch Branch Hugh S. Hanna, Chief, Editorial and Research Sidney W. Wilcox, Chief Statistician CHIEFS OF DIVISIONS Herman B. Byer, Construction and Charles F. Sharkey, Labor Law In­ Public Employment formation J. M. Cutts, Wholesale Prices Boris Stern, Labor Information Ser­ W. Duane Evans, Productivity and vice Technological Developments Stella Stewart, Retail Prices Swen Kjaer, Industrial Accidents John J. Mahanev, Machine Tabula­ Lewis E. Talbert, Employment Sta­ tion tistics Robert J. Myers, Wage and Hour Emmett H. Welch, Occupational Out­ Statistics look Florence Peterson, Industrial Rela­ tions Faith M. Williams, Cost of Living i i Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS Page Preface_____________________________________________________________________ ix Introduction_______________________________________________________________ 1 Basis of life insurance_________________________________________________ 2 Part I.— Savings-bank life insurance in Massachusetts____________________ 5 Chapter 1.— Origin and growth of savings-bank life insurance________ 7 Enactment of savings-bank insurance law________________________ 9 Growth of savings-bank life insurance____________________________ 10 Chapter 2.— Administration of the system____________________________ 17 Policies available and their terms________________________________ 17 Administrative organization______________________________________ 20 Operation of insurance banks and their agencies_________________ 22 Publicity and promotion features of the system__________________ 26 Regulation________________________________________________________ 27 Chapter 3.— Financial operations of the system______________________ 29 Dividends________________________________________________________ 29 Expenses_________________________________________________________ 30 Taxation_________________________________________________________ 32 Investments______________________________________________________ 32 Chapter 4.— Savings-bank insurance and company insurance: Selling methods, policy terms, and policy maintenance____________________ 34 Administrative organization______________________________________ 34 Payment of insurance agents_____________________________________ 35 Comparison of policy provisions__________________________________ 37 Maintenance of insurance by policyholder_______________________ 44 Chapter 5.— Savings-bank insurance and company insurance: Costs to policyholder______________________________________________________ 50 Cost to the policyholder__________________________________________ 50 Expenses of operation____________________________________________ 55 Taxation^________________________________________________________ 58 Earnings on invested assets______________________________________ 62 Mortality experience_____________________________________________ 63 Chapter 6.— Factors affecting growth of savings-bank life insurance. _ 70 Public support___________________________________________________ 70 Activities of employers and of Associated Industries of Mass­ achusetts_______________________________________________________ 72 Attitude of the savings banks____________________________________ 72 Chapter 7.— Criticism of savings-bank life insurance_________________ 76 The original purpose_____________________________________________ 77 Services to policyholders______________________ 83 “ Subsidies’’_______________________________________________________ 84 Chapter 8.— Summary and conclusions_______________________________ 93 Part II.— Savings-bank life insurance in New York_______________________ 97 Chapter 1.— Savings-bank life insurance in NewYork ________________ 99 Participation of banks____________________________________________ 101 Cost of insurance_________________________________________________ 102 Two years* experience____________________________________________ 103 Conclusions_______________________________________________________ 105 i n Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis IV CONTENTS Page Part III.— Appendixes_______________________________________________________ 107 Appendix A.— Group insurance in force in Massachusetts____________ 109 Appendix B.— Insurance guaranty funds_____________________________ 110 Appendix C.— Insurance reserves and surplus________________________ 112 Appendix D.— Mortality ratios and unification of mortality_________ 114 Appendix E.— Basic dividend scale___________________________________ 116 Appendix F.— Comparison of surpluses of insurance companies and of insurance departments of banks__________________________________ 117 Appendix G.— Costs to policyholder__________________________________ 118 Appendix H.— Comparison of taxes paid to State by insurance com­ panies and savings-bank life-insurance system______________________ 122 Appendix I.-— Amount of insurance held by individual policyholders._ 123 Appendix J.— Illustration of method of classifying applicants for savings-bank life insurance_________________________________________ 124 Appendix K.— Comparison of amounts of endowment insurance in force with insurance companies and with the banks________________ 126 Appendix L.— Bibliography___________________________________________ 128 List of Tables Table 1.— Order in which savings banks entered the insurance system and dates of beginning of operations___________________________________________ 11 Table 2.— Growth of savings-bank life insurance, 1908 to 1940___________ 12 Table 3.— Growth in number of policies and amount of insurance, 1908 to 1940_____________________________________________________________________ 12 Table 4.— Amount of ordinary savings-bank insurance, ordinary company insurance, and industrial insurance in force in Massachusetts, 1926 to 1939_____________________________________________________________________ 13 Table 5.— Average amount of insurance per policy, 1908 to 1940_________ 14 Table 6.— Income and disbursements of the savings-bank life-insurance system, 1908 to 1940 (statement to Oct. 31, 1940)______________________ 16 Table 7.— Number and types of establishments at which applications for savings-bank life insurance might be made in June 1939________________ 25 Table 8.— Disbursements of Division of Savings Bank Life Insurance, 1907 to 1933___________________________________________________________________ 31 Table 9.— Percentage of total admitted assets of the system invested in cer­ tain kinds of property, 1931 to 1940____________________________________ 33 Table 10.— Terms of policies issued by the savings banks, 7 of the insur­ ance companies, and 3 industrial-insurance companies__________________ 42 Table 11.-— Proportion of lapsed insurance to new insurance written, at 4-year intervals, 1911 to 1931___________________________________________ 45 Table 12.— Ratio between number of policies lapsed and number of new policies written, 1931 to 1939___________________________________________ 46 Table 13.— Proportion of cash surrender to new insurance written, at 4- year intervals, 1911 to 1938_____________________________________________ 47 Table 14.— Percentage of assets invested in policy loans, 1928 to 1939____ 48 Table 15.— Annual net costs of a $1,000 straight life policy issued in 1930, at age 35, based on actual dividends paid during following 10 years, and assuming policy was surrendered in 1940___________________________ 51 Table 16.— Annual net costs of a $1,000 ordinary 20-payment life policy issued in 1930, at age 35, based on actual dividends during following 10 years, and assuming policy was surrendered in 1940_________________ 52 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS V Page Table 17.— Annual net costs of a $1,000 ordinary 20-year endowment pol­ icy issued in 1930, at age 35, based on actual dividends during following 10 years, and assuming policy was surrendered in 1940_______________ 53 Table 18.— Net costs of $276 of straight life insurance policies issued in form of industrial policy by 2 companies, and in form of ordinary policy by savings banks, based on dividends paid in 1940_____________________ 54 Table 19.— Net costs of $200 of 20-year endowment insurance issued at age 35 in form of industrial policy by 2 companies, and in form of ordi­ nary policy by savings banks, based on dividends paid in 1940_________ 55 Table 20.— Percentage total expenses are of premium income in savings- bank insurance, ordinary insurance, and
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