In the Interest of 103,000,000 Americans
The life insurance business in the United States has often been called a trusteeship for the millions of families and individuals who count on it for protection against income interruption. Here the Institute of Life Insurance tells the story of the role played by life insurance in adding not only to personal security but also to national progress in America.
Down East, in Maine, a 65-year-old man and his wife wind up local affairs in preparation for retiring to Florida.
In offices of the nation’s large airlines men revise flight schedules against the day when new fleets of planes signal conversion to the jet air age.
In the nation’s capital a sleek streamlined train, New York bound, picks up speed as it crosses the yards at Union Station.
In southern Illinois a tremendous new hundredmillion dollar plant supplies the power for an atomic energy installation on the other side of the Ohio River, and incidentally makes of a tiny hamlet a thriving, busy town.
In a small town in Wyoming a woman prepares to pay off the mortgage on the sheep ranch left to her by her husband.
On the West Coast a widow tells her tall young son yes, it will still be possible for him to finish college and go on to medical school.
And from coast to coast millions of families buy, build and improve houses and farms, in keeping with the American dream of owning a home of one’s own.
The Common Factor
An economist might be able to put his finger on the single factor common to the background of each of these mid-twentieth century American situations.
It is life insurance, acting as a creative mechanism, It is on the one hand the combined small savings of the many millions whose first objective as policyholders is to provide their dependents with financial protection against family income interruption. It is on the other hand the prudent investment of these savings by the life companies in nation-building skyscrapers and college buildings — power plants and railroads — highways and airlines—small retail enterprises and large factories — homes and farms from one end of the land to the other.
Life insurance is a business in which more Americans have an intimate and important stake than any other in the country. And each year the number sharing the stake grows and grows. In 1956 the nation’s families, dealing with more than 1140 American fife insurance companies with home offices in all 48 states and the District of Columbia, raised their ownership of life insurance to a new record level. By the year’s end, more than 103,000,000 individual policyholders owned well over 250,000,000 policies. The policies represent more than $400 billion in protection — or in the neighborhood of $7,500 per family.
Since World War II, ownership of ordinary life insurance — largest single component of all life insurance in force — has more than doubled. Group life—second largest bulwark of the business — has grown almost five-fold during the same period, and now covers one out of every two members of the nation’s work force. The smaller policies, represented by industrial life insurance, have expanded by 45%. And the newest form of coverage, credit life insurance — by which installment plan payments are protected in the event of the purchaser’s death before payments are concluded — has been breaking its own record with each succeeding year.
The Picture in Perspective
To see it clearly and to see it whole, however, the life insurance picture today must also be viewed from the perspective of past performance and greater future family security. True, Americans are among the best-insured people in the world, and today more of them own more life insurance and annuities than ever before. But they are putting proportionately a little less of their income into their policies than did the previous generation. The ratio of premiums to income after taxes — at 3.8% in 1955 — is .2% less than it was before the depression.
What’s more, the gain since 1929 in total life insurance in force—from $102 billion to $400 billion — is not as impressive as it might seem on the surface, quite apart from the depreciated dollar. In fact at the end of 1929 life insurance in force worked out to only about fifteen months of family income after taxes, and today’s still equals only seventeen months of income.
Viewed from that angle, it is clear that many more strokes are needed on the canvas before the picture of family financial security through adequate life insurance is as bright as advancing America would like it to be.
Unchanging Functions in a Changing World
The first and foremost function of life insurance today is essentially what it was when the Presbyterian Church established the first life insurance company in the United States some 200 years ago. That is, of course, to cushion the economic effects of loss of income following the death of the family breadwinner.
But other values built into a policy are important, too. Premiums paid for protection over the years, for instance, add up to a store of personal savings upon which the policyholder can draw in emergencies. Or he can convert this cash value of his policy into retirement income when his family protection needs grow less.
In the meantime, each policyholder’s yearly premium swells the stream of the nation’s life insurance savings into a mighty river. A major function of the life companies is to channel these savings into productive investments in business, industry, agriculture and government. These investments earn interest that helps the companies to reduce the cost of insurance. Furthermore, the people’s savings put to work in this fashion help to maintain and accelerate the growth of the entire economy. That in turn means a higher standard of living for everyone.
There are additional significant effects of life insurance in today’s economy. In times of inflation, for example, premiums drain off extra consumer purchasing power that might otherwise add more fuel to the fire. In time of war, the life insurance companies can be depended upon to marshal their assets in support of extraordinary government expenditures. During World War II, for instance, at one point nearly half of all life company assets were invested in federal securities.
And at all times the companies cooperate in promoting the health, safety, and longevity not of policyholders alone, but of all the American people. Witness their contribution of almost $9,000,000 to the Life Insurance Medical Research Fund during the last eleven years, to further heart research.
The Dynamics of a Popular Institution
For many American families, the benefits of life insurance have been apparent since the first commercial companies were chartered in the first half of the last century. But it was not until industrialization and urbanization signalled the passing of the traditional self-contained family economic unit that the concept began really to lake hold. During this century the increase in the awareness of the modern family’s need for life insurance protection has been steady. As a result, in terms of combined assets, geographical distribution, and number of companies and agents, the growth of the business has been phenomenal.
The explanation for the phenomenon lies in the fact that life insurance has performed basic and essential social services for the American people. The business as a whole has grown because it has served so many so well for so long. Its flexibility has spurred the development of new kinds of policies to meet new or newly appreciated needs. To name a few of the newer life services, there are family income insurance, credit life insurance, education insurance, and home mortgage redemption policies, all designed to broaden the security of the mid-twentieth century family.
Flexibility is also largely responsible for the fact that the vast majority of life insurance companies attained their present positions by organic growth rather than by mergers, by working individually to meet or anticipate different and changing consumer demands.
Characteristics of Life insurance Policyholders 1955
In 1900 there were 84 American life insurance companies, located mainly in the Northeast and Middle Atlantic states, with combined assets of $1,742,000,000. Today there are over 1140, with at least one company in every state, main offices in over 275 cities from coast to coast, and combined assets of more than $95,000,000,000. Growth in the number of companies established since 1940 has been at a faster rate than ever before in the history of life insurance. Growth in the share of the total business done by the smaller and newer firms has been steady since the turn of the century.
The older companies traditionally have made available to the newcomers much material bearing on mortality experience, underwriting practices and administrative and management problems. This cooperation has undoubtedly been a factor in getting the new companies off to a good start. Thereafter their vigor helped them expand in new and old areas of the ever-broadening life insurance market, so that the rate of growth of these newer companies has been considerably faster than that of the older and larger companies. Moreover, among the older and larger companies themselves there has been considerable shifting around in relative ranks over the years.
Contributing their share to the process of advancement has been a growing army of highly trained agents employed as part of each company’s effort successfully to attract and serve the consumer. There were 128,700 full time agents at the end of World War II. There were 189,600 — 5,500 of them women, incidentally — only a decade later. And through special courses and other educational opportunities they were far better equipped to advise families and individuals about custom-tailored life insurance programs, and to be of continuing service as the needs of their clients change.
The life companies vie not only with each other in their quest for new business. They also compete for their share of the consumer dollar with all other types of savings opportunities, including banks, savings and loan associations, mutual funds, private pension plans, government bonds, home ownership, and so forth. Thus, although savings have grown at a more consistent pace in life companies than in any other institution, they account for only about one-tenth of America’s total annual savings.
Under the Microscope
Even so, the life companies have been and are the guardians of precious billions of the people’s dollars. That being the case, it is natural that within the past fifty years the life insurance business has come in for its full share of governmental scrutiny, to guarantee that it is living up to its responsibility to serve the public interest.
But scrutiny of the many operations of the business neither begins nor ends with special governmental inquiries. It has been said that life insurance is an enterprise that is conducted with the shades up all over the house. For it is a matter of record that the watchful eyes of insurance commissioners or superintendents in every state and the District of Columbia are continuously on every major aspect of the business.
So it is that legal supervision as well as managerial choice restricts the companies to certain types of investments. In addition the position of the companies as trustees for their policyholders makes them seek primarily safety of principal, together with as large and stable investment income as is compatible with safety. Over and above that consideration, the companies’ responsibility to the nation as a whole, as a major source of investment capital, makes them weigh carefully the potentialities for general social and economic progress that exist in any given investment opportunity.
Within these limitations, the list of productive investments made by the life companies is an impressive footnote to the unique chronicle of the nation’s tremendous growth during the past century. In point of fact, life insurance funds have always flowed to those sectors of the expanding economy where they were needed most. As the railroad and later the public utility industry became seasoned, for example, substantial amounts of life insurance funds were channeled into those areas. Similarly, life insurance funds are impor. tant factors in the development of pipelines, aviation, turnpikes, manufacturing enterprises, urban and rural housing, and small business.
Forecast: Fair and Broader
If the life insurance buying record of the past decade can shed any light on what we may expect in the next, a look into tomorrow is encouraging. By 1965 life insurance in force in this country may well exceed three-quarters of a trillion dollars, almost doubling today’s figure. Translated into less astronomical figures, that means that the average family will own $12,000 in life insurance in 1965, compared with about $7,500 today.
That substantial gain in voluntary financial protection could not stand as an isolated phenomenon on the American scene. It must be one of many important reflections of the economic and social development that can and will distinguish this nation further as it moves forward into the latter half of the twentieth century. But it will also be a reflection with personal meaning to almost every man, woman and child in the land. For broadened life insurance programs will contribute largely to a greater individual family security than the country has ever known.