since it is felt that foreign experience may not be a fair measuse 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.3

THE DISABILITY CLAUSE IN PRACTICE

There are, as previously stated, nearly one hundred and fifty life-insurance companies in the United States which had adopted a disability clause by the beginning of the year 1915. In the brief space of time since the clause first appeared, or since it has come into general use, there has been slight opportunity for its provisions to become standardized by practice, or for any standards to be set by state laws. Under the pressure of competition, therefore, a great variety of clauses has resulted. They differ as regards the restrictions imposed on their use, benefits promised, and in other ways, and it is by a comparison of these differences that the relative merits of the several contracts may be established. The disability clause in practice may be studied from four angles, viz: (1) risks not covered by the clause; (2) the definition of disability; (3) age and time limits to the application of the clause; (4) benefits granted.

For a fuller discussion of the statistical data available for measuring the risk of disability see the author's The Total Disability Provision in American Life Insurance Contracts, chap. 3.

Risks Not Covered by the Disability Clause.-Since the disability clause is in a more or less experimental stage, many companies have attempted to confine its use to those policies or those risks on which a normal mortality experience may be expected. Term insurance furnishes one of the mooted questions to-day among insurance companies. Even among those companies which have sold a great number of term policies the fear has arisen that it may have been a mistake and that the company may suffer because of the large proportion of term insurance which it carries. As a probable result of these misgivings the disability clause is often refused on term policies. If the objection to term insurance is the fear of adverse selection or of a high mortality as compared with other policies, this objection is properly corrected in the premium charged; and if the disability clause is designed to guarantee the permanence of insurance in case of total and permanent disability, there is as much need for it with term policies as with any others.

There is, however, a more serious objection to the inclusion of the clause in term policies. Many of these policies to-day allow renewal at the expiration of the term at a higher premium, based on the age attained at the time of renewal; or allow conversion into some other kind of policy requiring a higher rate of premium, these privileges being granted without a new medical examination. The presence of a disability clause in a renewable-term policy may require the company to pay the higher premiums due after renewal, if disability occurs shortly before the end of the term, and the renewal privilege is exercised. This objection is likewise easily corrected in the premium charged for the disability clause. The insured should unquestionably pay the exact cost of the privilege of releasing him from premium payments. Convertible term policies offer greater difficulties. Such contracts might, after disability has occurred, be converted into short-term endowments and under the guise of relief from premium payments the insured might thus obtain an endowment at the expense of the company or of the other policyholders. In

this way the insured might convert a term policy with a $10 premium into a ten-year endowment costing $100 per year, and by the terms of his agreement compel the company to pay the $100 premiums. This would be equivalent to obtaining a ten-year endowment without paying for it. The solution of this difficulty lies, not in refusing to issue the disability clause on term policies, but in refusing to extend the waiver of premium benefit after the conversion of the policy.

The main reason for disallowing disability benefits on jointlife policies as is done by a few companies, seems to be the difficulty of determining when the premium will be waived or how much of it will be waived, for joint-life policies comprehend insurance against two or more lives. The question arises, therefore, whether the premium will be waived in case one insured person is disabled, or whether both must be disabled in order to obtain this relief. This problem should offer no difficulties to the actuary, for disability benefits can be made payable under like circumstances with death benefits. For instance, the ordinary joint-life policy matures upon the death of either insured; the disability benefit could be paid upon the disability of either insured. But even these actuarial refinements are unnecessary and it is equally satisfactory, as is done in some cases, to waive one-half the premium in case of disability of one, or the entire premium in case both persons are disabled.

Women are ordinarily excluded from the benefits of the disability clause. Disability is usually so defined as to mean inability to carry on any occupation for gain or profit, and since women frequently have no such occupation they are not considered as acceptable risks. Some companies exclude them without exception, and others make exception only in case of married women and women without occupation.

Sub-standard lives are assumed to be subject to a higher rate of disability than normal lives and are therefore often denied the right to disability benefits. In the absence of any statistical basis to determine the truth of this assumption the restriction is probably desirable. Persons engaged in haz

ardous occupations are unquestionably in a select class that will show a high rate of disability and are, therefore, often refused the benefits of the disability clause. Cases of partial impairment sometimes exist, as, for instance, where a person has lost a hand, a foot, or an eye, and these are sometimes made reasons for refusing the clause. A better method would be to make exception of those cases of disability affected by the partial impairment and allow the clause to operate in all other cases. Few of the foregoing restrictions appear in the clauses, but the companies give their medical directors full discretion to exclude the clause from any policy submitted to them. A number of companies, however, have advertised that they will make no restrictions whatever and will include the clause in any policy accepted by them.

The Definition of Disability.-The difficulty of ascertaining what constitutes total and permanent disability is one of the main objections that has been advanced against this clause. Disability may be defined with reference to its effect upon the occupation or profession of the insured or it may be defined with reference to the causes of disability. In the first case the disability that is of consequence to the insured is that which renders him totally and permanently incapable of fulfilling the duties of his own occupation. An injury to the fingers of a concert violinist, for instance, may totally incapacitate him thereafter from carrying on the duties of his profession and he is in this sense totally disabled. The same injury would be of little consequence to a commercial salesman. Loss of speech on the other hand would mean to the latter inability to follow his profession, but might scarcely affect the violinist. In this way it might be shown that there are many injuries, diseases, and defects that have vastly different effects on the earning capacity of men in different occupations. If protection is to be obtained against the financial consequences of disability these different results must be considered in defining the clause offering such protection. The usual form of definition requires that "the insured shall furnish due proof that he has become wholly

and permanently disabled by bodily injury or disease, so that he is and will be permanently, continuously, and wholly prevented thereby from performing any work for compensation or profit. . . ." This definition does not consider disability from the standpoint of its financial consequences to the insured. Literally interpreted, the violinist is not disabled by an injury to his fingers, since he may now become a salesman. Such interpretation neglects the fact that transitions from one profession to another are difficult and sometimes disastrous to the person concerned. In spite of the fact that all clauses are stated in this way many companies no doubt will not interpret them with such severity as is suggested above. The practice of liberal interpretation is followed in connection with other features of the policy contract in cases where fraud and dishonesty are not present and such liberality will certainly be extended to the interpretation of the disability clause.

Disability may be further defined with reference to the causes of disability. From this viewpoint the clause quoted above has much to commend it. It promises benefits for disability due to bodily injury or disease, and that bodily injury and disease probably cover the majority of cases is evident from the data on page 296. Bodily injury and disease, therefore, cover all cases with the possible exception of the last or miscellaneous group, the composition of which is unknown. A large majority of clauses define disability in this way. Some add the following specific cases, taken probably from the contracts of the accident and health companies: "The entire and irrecoverable loss of the sight of both eyes, or the severance of both hands above the wrists, or of both feet above the ankles, or of one entire hand and one entire foot." In a few cases specific mention is made of deafness and insanity as acceptable cases of disability; dumbness is nowhere referred to, but is equally important with the above. A very few companies agree to pay benefits upon the occur

• The Transactions of the Actuarial Society of America, ii, 179.