2. Special provisions affecting the policyholder. Most of the privileges granted to industrial policyholders are also found, as regards the principles involved, in ordinary life contracts. Some of these provisions, however, must be adapted to conform to the special requirements of the business. Thus four weeks' grace is allowed the policyholders in the payment of premiums, and reinstatement is usually permitted within one year from the date of lapse provided all arrears are paid and the company is satisfied with the insured's physical condition. The "incontestible" and "misstatement of age" clauses are similar to those found in ordinary policies. It is also the general rule to provide that the insured may pay his premiums at the home office so that, in case the agent should fail for some reason to collect the premium at the home of the insured, he is obliged to pay the same at either the home or district office before the expiration of the four weeks' period of grace.

Some companies give the insured, in case he is dissatisfied with his contract, the privilege of surrendering the same within two weeks after its issue and receiving a refund of the premium. Other companies, again, give the insured the option of converting his industrial policy into one on the ordinary plan, provided that when application for such conversion. is made the insured has attained a stated age (usually 18 or over), has paid all his premiums for ten or some other stipulated number of years, and can offer satisfactory evidence of insurability. In making such conversions it is customary to give the full legal reserve as a surrender value and to apply the same in payment of premiums on the ordinary policy. It is also interesting to note that some of the companies allow their policyholders to participate in the management by voting either in person or by proxy; but the exercise of this right to vote will necessarily be limited when it is realized that one company granting the privilege recently had over 2,300,000 policies in force and another nearly 13,000,000.

Like ordinary policies, industrial contracts contain cash, paid-up, and extension clauses to apply in the event of lapse,

but cash surrender values are not paid, as a rule, until after the policy has been in force for a period of, say, ten years. Until recently most industrial policies were issued on the nonparticipating plan, yet the leading companies followed the practice for years of distributing large surplus accumulations to their policyholders in the form of voluntary dividends, which might otherwise have been paid to the stockholders.

3. Provisions protecting the company. As previously stated both infantile and adult policies are limited to certain ages as regards their issue, and also contain restrictions as to the maximum amount of insurance that may be taken out at certain ages. Aside from these limitations, industrial policies are comparatively free from the restrictions frequently found in ordinary contracts, especially as regards occupation, residence, military service, suicide, etc. The companies, however, have found it desirable to limit the powers of their agents by incorporating a clause which, to use the wording adopted by one large company, provides that "no condition, provision or privilege of this policy can be waived or modified in any case except by an indorsement hereon signed by the president, one of the vice-presidents, the secretary, one of the assistant secretaries, the actuary, the associate actuary or one of the assistant actuaries. No modification or change shall be made in this policy except such as is in accordance with the law of the state in which the same is issued. No agent has power in behalf of the company to make or modify this or any other contract of insurance, to extend the time for paying a premium, to waive any forfeiture, or to bind the company by making any promise, or making or receiving any representation or information."

4. Rules relating to the beneficiary.— Except in the case of minors, it is the general practice to require the beneficiary's specific consent to the insurance before the same will be written. Likewise, policies will not as a rule be issued, except for a limited amount, to non-relatives or others who do not possess an insurable interest in the life which is to be insured. 66 This means," to quote the rule of a certain large

company, "that the beneficiary must be dependent upon the insured for support, or that the insured is indebted to the beneficiary in an amount sufficient to justify the sum insured, or that the beneficiary has some other substantial pecuniary interest in the life insured, or will be liable for the expenses of the sickless and burial of the insured." Importance should also be attached to the policy requirement that "the company may make payment either to the beneficiary above named, if living, or to such other living beneficiary as may be duly and finally designated, and recognized by indorsement hereon, or to the executor or administrator of said insured, or to any relative by blood or connection by marriage, or to any person appearing to the company to be equitably entitled thereto by reason of having incurred expense in any way on behalf of the insured for burial or for any other purpose; and the receipt of any such payee shall be conclusive evidence that payment has been made to the person or persons entitled thereto and that all claims under this policy have been fully satisfied."

BIBLIOGRAPHY

DRYDEN, JOHN F., "Industrial Insurance." Yale Readings in Life Insurance, i, 382-397.

HOFFMAN, FREDERICK L., "Industrial Life Insurance," in H. P. Dunham's The Business of Insurance, i, chap. 28, 452-488.

History of the Prudential Insurance Company of America. Newark, N. J., 1900.

"Industrial Insurance." Annals of the American Academy of Political and Social Science, xxvi, 103–119.

CHAPTER XXII

DISABILITY INSURANCE

By

BRUCE D. MUDGETT

DEVELOPMENT OF DISABILITY INSURANCE

A new clause has appeared in life-insurance contracts in the United States in recent years, granting protection against the risk of total and permanent disability. The first known instance of its kind appeared on October 16, 1896, when an American company issued such a policy on the life of its president. Since then interest in the clause has grown so rapidly that nearly one hundred and fifty companies are now using it. Insurance against disability is not in itself new. Under the name of invalidity insurance it forms a prominent feature of the workmen's insurance laws of a number of European governments, where protection has long been granted against both temporary and permanent invalidity caused either by accident or disease. As early as the eighteenth century invalidity insurance was furnished to members of the mutual aid societies of Germany and Austria and it was extended rapidly in the nineteenth century to many classes of workers. The friendly societies of Great Britain and the fraternal orders and labor unions in the United States have likewise paid disability benefits. With the stock companies in the United States insuring accident and health risks this sort of protection has, of course, held first place, but the value of accident and health policies has been greatly restricted by the fact that these companies issue a one-year term contract and possess the option, there

fore, of refusing to renew at the time when the insured may be most in need of the protection.

The incorporation of disability protection in a life-insurance contract is a recent innovation, as stated above, and marks the introduction of a new principle, namely, that of permanent protection against the risk in question. Furthermore, while the accident and health companies insure against disability of any duration, the clause used in life-insurance contracts in the United States covers only those cases which are both permanent and total. It is not, in itself, therefore, full and complete protection against disability, but a supplementary feature added to the life contract to cover contingencies not comprehended in insurance against death. Permanent and total disability may endanger the permanence of a man's insurance by cutting short his income and making it impossible for him to pay further premiums; or disability may have the same effect as old age-the man being no longer a producer should be cared for by his accumulated capital. While the occurrence of this risk, therefore, places a man or his dependents in the same position as old age or death, the regular life-insurance contract furnishes no protection against it.

The German insurance companies were the first to incorporate a disability clause in their life contracts. It was used there as early as 1876, and since 1900 has been adopted by most of the leading companies. Two forms of contract have been used, the first, issued in connection with regular term, life, or endowment policies, promising to waive payment of premiums after disability or to mature the policy and allow it to be paid in installments over a period of from ten to twenty years. The second form of contract is a life annuity payable from the time of disability until death, purchased independently of any insurance policy, and paid for by a single, or by annual premiums, each payment creating the right after three years to an annuity based on the age at which the payment is made. The disability insurance ceases in either form of contract at age 65. The Russian companies