.C51, 
 
 LIBRARY OF CONGRESS 
 
 ODDmt,t.SllD ^ : 
 
LM- 
 
 Some Misapprehensions 
 Touching Life Insurance 
 
 'Published by the 
 
 (J^Iarnegie Foundation 
 For the Advancement of Teacjiing 
 
 576 Fifth Avenue 
 New York 
 
In the experience of two hundred 
 years the only method by which large 
 numbers of men have been led to insure 
 is through the direct solicitation of 
 agents. This is particularly true of that 
 majority of men who most need insur- 
 ance, men of small income living on 
 fixed salary . . . 
 
 It is of course a fundamental ques- 
 tion whether teachers can be induced to 
 avail themselves of insurance facilities, 
 however favorable, without the pressure 
 of the soliciting agent. This is a matter 
 which only experience can demonstrate. 
 
 Twelfth Annual Report of the Carnegie 
 Foundation (191 7) 
 
 eiffc 
 Publisher 
 SEP IS i8J» 
 
SYNOPSIS. 
 
 The limited use of insurance by college 
 teachers is due to its lack of adjustment 
 to their needs, 3. 
 
 The Teachers Insurance and Annuity Asso- 
 ciation now provides, without overhead 
 cost, individual advice and adapted and 
 inexpensive policies not otherwise avail- 
 able, 4, 5. 
 
 The great insurance companies have co-oper- 
 ated with the Association which is in no 
 sense their rival, 6. A pamphlet, how- 
 ever, has been circulated, 7, attacking 
 the view of the Carnegie Foundation 
 that endowment insurance is not suitable 
 for teachers of limited income, 8. 
 
 Legitimate life insurance, 9, has been in- 
 volved with savings, speculation, and 
 agents' commissions, 10. Long term en- 
 dowment insurance is less suitable to the 
 teacher than separate term and annuity 
 contracts, 11, since it combines alternate 
 provisions, 12, both of which cannot be 
 realized, 13, and is therefore expensive, 
 and speculative, 14. 
 
 A combination of insurance and annuity is 
 definite, 15, less expensive, and provides 
 greater protection, 16. This is demon- 
 strated, 17, by fair comparisions, 18, of 
 actual rates, 19, benefits, 20, and con- 
 tracts, 21. Such a combination is inex- 
 pensive and unspeculative, provides 
 larger income, increasing protection, 22, 
 advantageous retirement, and secures the 
 co-operation of the college, 24. 
 
Commercial companies cannot provide these 
 features, 24, and the value of their en- 
 dowment insurance, 25, is reduced by 
 policy loans, 26. 
 
 Participating policies, 26, and mutual com- 
 panies, 27, cannot under insurance legis- 
 lation, 28, free policy-holders from over- 
 head expenses, 29. Mutualization, 30, 
 gives only apparent but not real control 
 to policy-holders, 31. 
 
 The Teachers Insurance and Annuity Asso- 
 ciation is supported by a philanthropic 
 corporation, 32, with prospective repre- 
 sentation of policy-holders, 33. Partici- 
 pation in "divisible" surplus, 34, the 
 same in stock and mutual companies, 35, 
 is never contractual, 36. The Teachers 
 Insurance and Annuity Association con- 
 ducts its business at the lowest net rates, 
 without overhead, without profit, with 
 the prospect of real participation, 37, 
 unusual security, and freedom from com- 
 mercial pressure, 38. 
 
 Misapprehensions concerning its policies are 
 based on lack of legal or technical knowl- 
 edge, 39, lack of information, 40, or mis- 
 leading comparisons, 41. Its premiums 
 are net, 42. Commercial companies load 
 premiums for expenses, 43, sometimes re- 
 turn "dividends" which reduce the net 
 cost, 44, but not to that in the Teachers 
 Association, 45, because of its net rate, 
 
 46, and freedom from overhead charges, 
 
 47, in addition to the suitability of its 
 policies, 48. 
 
 College annuities and salaries, 49, are, of 
 course, related, 50; contributions require 
 
self-denial, 51, even if salaries are in- 
 creased, 52, but they give certainty, 53, 
 in case of retirement, 54, or earlier with" 
 drawal, 55. 
 
 Insurance agents are not needed by college 
 teachers, 56, who are in institutional 
 groups, 57, and accustomed to the studj 
 of printed information, 58. The Teach- 
 ers Insurance and Annuity Association, 
 59, will provide full information, 60, and 
 individual advice, 61. 
 
 The Teachers Insurance and Annuity Asso- 
 ciation, 62, was organized by the Car- 
 negie Foundation, 63 ; its trustees are 
 financiers, actuaries, and educators, 64. 
 It assumes some of the work of the Foun- 
 dation, 65, which will continue its free 
 pensions for some fifty years, 66, and em- 
 bodies the results of the Foundation's ex- 
 perience, 67, and the desires of college 
 teachers, 68, with a few striking excep- 
 tions, 69. 
 
 The real questions before college teachers, 
 70, are not details but the fundamental 
 needs of protection against premature 
 death and dependence in old age, 71. 
 Free pensions do not provide this pro- 
 tection, 72. Inexpensive, joint, contribu- 
 tory, contractual retiring allowances do, 
 73. Leading institutions have recognized 
 this fact, 74, and the Teachers Insurance 
 and Annuity Association meets the need, 
 75. 
 
The Limited Use of Insurance by 
 College Teachers. 
 
 College teachers as a group make but 
 limited use of the facilities possible 
 through the world's knowledge and ex- 
 perience of life insurance. This is not 
 due, primarily, to the modest scale of 
 college salaries. Men whose families live 
 on fixed salaries are precisely those who 
 have most to gain by cooperation for 
 their common protection and exactly 
 those who stand in most need of some 
 effective agency for promoting such co- 
 operation. The inadequate participation 
 in insurance by teachers is due partly to 
 the lack of a form of insurance agency 
 suited to their circumstances and partly 
 to the tradition of extreme technicality 
 which has grown up about the subject of 
 insurance. The Teachers Insurance 
 and Annuity Association was established 
 to meet this situation by affording insur- 
 ance and annuity contracts specially 
 adapted to the circumstances of the 
 teacher's economic situation and to afford 
 him at the same time such information 
 concerning these policies as will enable 
 him to decide for himself the form of 
 policy suitable to his needs and to his 
 purse. 
 
The Advantages of the Teachers 
 Insurance and Annuity Association. 
 
 The essential advantages which it of- 
 fers to the teacher as compared with 
 ordinary agencies are these: 
 
 1. Poh'cies in insurance and in 
 deferred annuities that mutually supple- 
 ment each other and are best adapted to 
 the needs of one who expects to live on 
 a moderate but fairly secure income. 
 Some of these policies cannot be had in 
 existing companies. 
 
 2. These policies are free of over- 
 head cost of management by reason of 
 what is practically an endowment of 
 $1,000,000, given In the form of capital 
 and surplus of the Teachers Insurance 
 and Annuity Association. The overhead 
 cost absorbs on the average something 
 like 20 per cent of all premiums paid by 
 policyholders in the well conducted com- 
 mercial Insurance company. A company 
 so endowed can provide any stated form 
 of insurance at a lower rate than one 
 which must pay this charge out of the 
 premiums of Its policyholders. 
 
 3. Such a company cannot employ 
 agents to convert teachers to an appreci- 
 ation of these opportunities in the matter 
 of life insurance and old age annuities. 
 On the other hand, it deals with highly 
 
educated and intelligent men and 
 women. They are not Isolated Indi- 
 viduals but constitute groups in some 
 hundreds of colleges scattered over the 
 United States and Canada. It is thus 
 possible to put Into their hands the In- 
 formation necessary to decide what kind 
 of insurance policy and what annuity con- 
 tract is suitable to each IndivIduaL The 
 knowledge of the elementary principles 
 of insurance and annuities needed for 
 such a decision is attainable by any intel- 
 ligent man or woman who is willing to 
 give the matter brief attention and does 
 not trench upon the field of technical and 
 legal questions involved In the operation 
 of insurance companies and which have 
 divided insurance authorities for a cen- 
 tury. It may be safely assumed that the 
 teacher's true Interest will be more surely 
 served by this process than by leaving the 
 choice of a policy to an insurance agent, 
 often Innocent of any great knowledge of 
 the subject, and who, however good his 
 intentions, Is financially Interested In the 
 form of the policy to be chosen. Policies 
 designed to suit each teacher's needs, at 
 a cost free of all overhead, chosen with- 
 out any complication as to an agent's 
 commission, characterize the service 
 offered by the Teachers Insurance and 
 Annuity Assooiatlon. 
 
Co-operation of the Great Insurance 
 Companies. 
 
 An insurance and annuity association 
 upon the basis just described, offering 
 its service to a limited group of profes- 
 sional men and women, is clearly no rival 
 to the established insurance agencies. 
 The great insurance companies have 
 recognized this fact and their experts 
 have cooperated with advice and sugges- 
 tions in the establishment of the Teachers 
 Insurance and Annuity Association. To 
 this rule there has been a notable ex- 
 ception. The Provident Life and Trust 
 Company of Philadelphia, (which as its 
 name indicates is a combination of an 
 Insurance Company and a Trust Com- 
 pany) , has issued and is widely circulat- 
 ing a pamphlet which, while containing 
 various complimentary statements to the 
 effect that "The Teachers Association is 
 a fine conception . . . the general prin- 
 ciples laid down for its guidance are 
 sound. . . . The Carnegie Foundation 
 has ably analyzed the two major con- 
 tingencies facing the average man, etc.," 
 is nevertheless, an unfriendly attack upon 
 the policies offered by the Teachers 
 Insurance and Annuity Association and 
 an advertisement of its own wares. 
 
 Any constructive social machinery 
 newly established must expect not only 
 
criticism, but a certain amount of mis- 
 understanding. Genuine criticism ought 
 to be welcome and misrepresentation and 
 distrust may safely be left to time and 
 to fuller knowledge. The advantages 
 offered to younger teachers In the in- 
 surance and annuity contracts of the 
 Teachers Insurance and Annuity Asso- 
 ciation are so great that In time 
 these policies will make their own 
 way. When a man of 30 can by a pay- 
 ment of $5.00 a month, in cooperation 
 with his college, provide a retiring allow- 
 ance of $1,000 a year at age 65, the 
 social machinery necessary for his pro- 
 tection against the haziard of dependence 
 in old age has been brought within the 
 reach of the great body of teachers. 
 
 The pamphlet of the Provident Life 
 and Trust critic might, therefore, well be 
 left to time to answer had It been ad- 
 dressed only to the company's agents and 
 clientele. It has however been circulated 
 In great numbers among college teachers. 
 
 Under these conditions it seems desir- 
 able to point out that the pamphlet of 
 the Provident Life and Trust Company 
 is so framed as to mislead those who are 
 not familiar with the fundamental facts 
 of life Insurance. 
 
 The publication of this attack on the 
 part of an old and established company 
 is sought to be justified on the ground 
 
of certain general discussions of insurance 
 which appeared in the annual reports of 
 the Carnegie Foundation before the 
 Teachers Insurance and Annuity Asso- 
 ciation was born. The inadequacy of 
 this reason will be appreciated by all 
 who read the extracts quoted in the 
 pamphlet itself from the reports of the 
 Foundation. These set forth the fact 
 that no attack upon endowment insur- 
 ance is intended, that endowment pol- 
 icies will in fact be offered by the Teach- 
 ers Insurance and Annuity Association to 
 those who find them suitable to their 
 needs, but that the Teachers Insurance 
 and Annuity Association was designed 
 to .meet the needs of the modest salary of 
 a teaoher. The typical college teacher 
 begins with twelve to fifteen hundred 
 dollars a year at somewhere between 
 twenty-five and thirty years of age. He 
 anticipates an active service of between 
 thirty and forty years, during which his 
 maximum salary will not exceed three 
 or four thousand dollars. To one look- 
 ing forward to such conditions of salary, 
 whether his life be long or short, there 
 are other methods of insurance better 
 suited than tJhat of the endowment 
 policy. This Is common knowledge to 
 all insurance men. 
 
 The actual circumstance that led up 
 to this outburst on the part of an estab- 
 
llshed company can be appreciated best 
 by a brief reference to life" insurance 
 experience and history. Such a state- 
 ment will enable teachers — who compose 
 the only audience to which this paper is 
 addressed — to gain not only a clear view 
 of the immediate question under dis- 
 cussion, but to appreciate why those 
 seeking to meet the needs of the teacher 
 for insurance and annuities found it 
 necessary to establish a new agency for 
 this purpose. 
 
 Legitimate Life Insurance. 
 
 Life insurance in its true conception 
 is a device for protecting the dependents 
 of the insured against the risk of his 
 premature death. The simplest, most 
 direct and cheapest method of meeting 
 this purpose is through a policy covering 
 the simple life risk and entirely analogous 
 to a fire insurance policy. This original 
 purpose of life insurance became involved, 
 in time, with various plans for accumu- 
 lating savings for the benefit of the 
 insured. Some of these, like tontines, 
 had a large speculative element. 
 
 The various forms of policies whldh 
 have been gradually evolved are the re- 
 sultants of these two tendencies, but 
 throug'hout this process these facts are 
 prominent : Large numbers of men have 
 been induced to insure only by solicitation 
 
 .9 
 
of agents; hence arose the great com- 
 mercial insurance organizations, financ- 
 ially strong and rendering a great service 
 to society, but offering policies w^hose 
 forms were affected by two influences 
 oftentimes antagonistic, — the first the 
 sincere wislh to fit the policy to the needs 
 of the insured, the second the necessity 
 to offer a form of policy that would 
 enable the agent to make a living. 
 
 The teacher living on a professor's 
 salary desires to protect his family during 
 his income-earning period by insurance. 
 He desires to provide year by year a sum 
 of money which may afford him support 
 after his income-earning power dimin- 
 ishes or fails. The Teachers Insurance 
 and Annuity Association proposes to ac- 
 complish these two purposes by issuing 
 two policies, one a term insurance policy 
 to cover the life risk during the period 
 of active service; the second, a deferred 
 annuity contract to articulate with the 
 Insurance policy. 
 
 The actuary of the Provident Life 
 and Trust Company refers to this ar- 
 rangement as "hybrid" insurance and 
 Insists that the teacher can do much bet- 
 ter to take out a single long term en- 
 dowment policy (presumably in the 
 Provident Life and Trust Company) 
 which shall provide insurance during the 
 income-earning period of the teacher's 
 
 10 
 
life and a sum of money at the end of 
 that period as the basis of an old age 
 annuity. The argument of the actuary 
 of the Provident Life and Trust is based 
 on the case of a man aged 30 who takes 
 out a $10,000 endowment policy at that 
 age to mature at age 65. For compari- 
 son it will be useful to follow the same 
 illustration, though few teachers at age 
 30 on the typical teacher's salary can 
 afford to take out $10,000 endowment 
 policies. 
 
 A man aged 30 who takes out a thirty- 
 five year endowment policy to mature at 
 age 65 will either die during the interval 
 of thirty-five years, in which case he 
 will avail of his insurance and lose the 
 benefit of his accumulations, or he will 
 live to the end of the thirty-five year 
 term, in which case he will have had 
 the protection of his insurance and can 
 avail of his accumulations augmented by 
 a share in the payments of those who 
 have died. We will examine the two 
 contingences separately. 
 
 The Benefits of the Endowment 
 
 Policy in case of Death before 
 
 Maturity. 
 
 The endowment insurance policy is a 
 survival of the tontine regime in life in- 
 surance. "A pure endowment policy is 
 one payable only to those who live to 
 
 11 
 
complete the endowment period. Those 
 that die before the end of that period re- 
 ceive nothing. Regular endowment in- 
 surance provides for the payment of the 
 full amount of the policy to the bene- 
 ficiaries of any who die during the en- 
 dowment period and to those policyhold- 
 ers who live until the end of the period. 
 •The endowment insurance policy is 
 therefore merely a combination of term 
 insurance and pure endowment. Under 
 the former those who die during the 
 period are paid, and under the latter 
 those who live to the end of the period 
 are paid. The net annual premium of 
 a twenty-year endowment policy consists 
 of the net annual premium of a twenty- 
 year term policy plus the net annual pre- 
 mium of a twenty-year pure endow- 
 ment."* The term policy is pure insur- 
 ance, the endowment pure tontine. The 
 combination of the two which produces 
 the endowment insurance policy might 
 fairly be called a "hybrid." 
 
 For the simple reason just stated -any 
 man who purchases an endowment insur- 
 ance policy and who dies before the ma- 
 turity of the endowment is bound to pay 
 too much for the protection he has re- 
 ceived since he is paying for two benefits 
 and in case of death his family can re- 
 
 *The International Encyclopedia. 
 12 
 
ceive only one. If a man of 30 takes out 
 an endowment policy for $10,000 to ma- 
 ture at age 65 and dies during the 35 year 
 interval, he has been paying for a thirty- 
 five year term insurance policy and for a 
 thirty-five year pure endowment policy. 
 If he dies his family realizes only on the 
 term policy. In the Teachers Insurance 
 and Annuity Association a man of 30 can 
 buy a $10,000 term policy ending at 
 age 65 for a net annual premium of $122. 
 A $10,000 endowment insurance policy 
 will cost on the same net basis $219, both 
 including waiver of premium in case of 
 disability. One who bought a straight 
 term policy and put the $97 difference 
 into an annuity contract and who died 
 in his sixty-fourth year would leave his 
 dependents over $17,000 from the two 
 benefits as compared with $10,000 from 
 the endowment policy. The man who 
 buys an endowment policy over a long 
 term does so with the certainty that if 
 he dies before its maturity he has been 
 paying for two benefits while his bene- 
 ficiaries can receive only one. 
 
 Of one hundred men who take out 
 endowment policies at age 30 to mature 
 at age 65, more than forty* would die 
 before the maturity of the policy. Forty 
 out of one hundred are certain to pay too 
 
 *Ainerican Mortality. 
 13 
 
much for the insurance benefit they 
 receive. What a man really does in 
 buying such a policy is to speculate on the 
 chance that he will live to the maturity 
 of the policy, in which case his endow- 
 ment will be helped out by the deaths of 
 others which have occurred during the 
 long interval. The teacher who starts 
 with a salary of $1,500 a year and whose 
 maximum income is not likely to exceed 
 $4,000 cannot afford to speculate on this 
 possibility. 
 
 '""The process by which the writer of the 
 Provident Life and Trust pamphlet con- 
 trived to obscure these essential facts is 
 ingenious. During this part of his dis- 
 'tussion he avoids quotation from the a'c- 
 tual rates published in the Handbook of 
 the Association and proceeds to recompute 
 the deferred annuity on a 35^ per ceiit 
 basis. He shelters himself behind the 
 statement "This basis provides the small- 
 est net life insurance premiums permitted 
 by the law." The authot is, of course, 
 aware that the maximum rate for annui- 
 ties is four per cent and that this is one 
 reason for separating the annuity contract 
 from the insurance contract. The annual 
 premium of $244, which he uses is, there- 
 fore, purely fictitious and is much higher 
 than the rate quoted for the two policies 
 in the Handbook of the Teachers Insur- 
 ance and Annuity Association. 
 
 14 
 
The Combination of Insurance and 
 Annuity. 
 
 To set forth the actual facts there 
 was need simply to quote the rates 
 given on page 96 of the Handbook. 
 On this page is given an illustration of 
 the comlbination of a $10,000 decreasing 
 policy with a deferred annuity contract. 
 The decreasing policy has three great ad- 
 vantages: it has a constant premium, 
 the annual decrease in the face of the 
 policy after age 40 goes on coincidently 
 with the rise in the deferred annuity 
 accumulations, and in the third place, 
 the policy is full paid at age 65 and pro- 
 vides cash payment at death. In the 
 illustration given on page 96 the de- 
 creasing policy begins at age 30 with 
 $10,000. It remains at this level till age 
 41, when it begins to diminish $300 an-r 
 nually. At 65 the insured has finished 
 all payments and still has $2,500 of 
 insurance in case of death. At age 70 
 and thereafter it remains at $i,000, pay- 
 able at death. 
 
 On page 96 of the Handbook from 
 which the writer of the Provident Life 
 pamiphlet might have quoted is shown 
 the working of a combination of this 
 policy on a monthly basis of $8.58 with a 
 deferred annuity policy whose cost per 
 month is $10, one-half of which is paid 
 
 15 
 
by the college. The total monthly cost 
 is $18.58, the cost to the teacher $13.58. 
 These monthly payments would aggre- 
 gate in the year $222.96 ($220.23 if the 
 insurance premium is paid annually) or 
 to the teacher $162.96. If the insured 
 dies during the period between 30 and 
 65, he receives both benefits which, as 
 is clearly shown on page 96, will al- 
 ways be in excess of $10,000 and for 
 a great part of this time will be in 
 excess of $11,000 and at its maximum 
 $11,560. The argument of the author 
 of the Provident Life pamphlet that there 
 is an advantage to the insured in keeping 
 the total protection at exactly $10,000 is, 
 of course, pure moonshine. There is no 
 possible objection to an arrangement that 
 provides for the widow of a teacher $11,- 
 500 insurance at the time when the 
 responsibilities of a growing family are 
 heaviest instead of an exact $10,000. The 
 widow and her dependent family will 
 find no fault with the extra $1,500. 
 The essential facts are perfectly clear. 
 There is no way by which the teacher 
 may have the benefit of his insurance 
 policy and of his saving accumulation 
 during the long period of his active life 
 except by putting them in separate con- 
 tracts. The Teachers Insurance and 
 Annuity Association does this, the Provi- 
 dent Life does not, but for the reasons 
 
which will be made clear. We turn now 
 to the case of the survivors of the endow- 
 ment insurance policy. 
 
 The Benefits of the Endowment 
 
 Insurance Policy for those who 
 
 Survive to its Maturity. 
 
 In his discussion of this contingency 
 the author attempts to produce the im- 
 pression of superiority of his own wares, 
 by comparing the two plans under con- 
 ditions in which the benefits are widely 
 different, a fact not apparent to the read- 
 er unless he is familiar with the compu- 
 tation of policy rates. The comparison 
 purports to be one as between a $10,000 
 Endowment Insurance Policy issued by 
 the Teachers Insurance and Annuity 
 Association itself with the combination 
 of a decreasing insurance policy and a 
 deferred annuity contract, also issued by 
 the Teachers Insurance Association. 
 The argument is in the "out-of-your- 
 own-mouth I condemn you" form and 
 would be significant if true. It is best 
 to quote the exact language of the 
 writer : 
 
 "For example, from page 99 of the 
 Teachers Association Handbook, we 
 learn that $8.58 is the monthly premium 
 at age 30 for the Association's $10,000 
 decreasing insurance policy. From Table 
 
 17 
 
II on page iii we compute that $ii.o8 
 is the Association's monthly savings fund 
 premium to accumulate $io,cxx) in 35 
 years. The two together, therefore, 
 amount to $19.66. From page 109 we 
 learn that the monthly premium at age 
 30 for the Association's $10,000 En- 
 dowment at 65 is $18.80. On the year- 
 ly basis, therefore, the published rates 
 appear to indicate that the combination 
 costs but about $10 more than the en- 
 dowment." 
 
 Upon the non-technical reader this 
 statement produces only one impression, 
 namely, that the combined monthly 
 premiums of the decreasing insurance 
 policy and the annuity contract amount- 
 ing to $19.66 exceed the monthly 
 premium of the corresponding endow- 
 ment policy by $0.86 and that, there- 
 fore, on the yearly basis "the com- 
 bination costs but about $10.00 more 
 than the endowment." The reader will 
 naturally assume that the two sets of 
 figures refer to similar benefits, sinc^ 
 otherwise there can be no significance in 
 the comparison. Unless he is accustomed 
 to such comparisons he will not discover 
 that the decreasing insurance policy re- 
 ferred to above is full paid at age 65 and 
 has a cash surrender value at that time of 
 $865.00 which the author has coolly 
 neglected in his comparison. Nor will 
 
 18 
 
it occur to the reader to reflect that 
 during the whole period between age 30 
 and age 65 the insured has had under 
 the combination of policies a protection 
 in excess of Ji 0,000 and amounting dur- 
 ing a part of that time to as much as 
 $12,500. The net cost of this extra 
 insurance (which is of great advantage 
 during the active period of early life) 
 is $800. In other words, the comparison 
 quoted above is so worded that the reader 
 is not likely to realize that the combi- 
 nation that cost $19.66 a month carried 
 $1,665 of benefits in excess of the endow- 
 ment policy that cost $18.80 a month. 
 It goes without saying that when the 
 $1,665 of additional benefits are included 
 in the computation so as to make the two 
 proposals comparable the quoted higher 
 rate of the combined policies disappears. 
 A monthly payment of $10. 1 2 will at 
 the end of 35 years produce at four per 
 cent a guaranteed accumulation of $9,- 
 136.89. If the teacher then avails himself 
 of the cash surrender value of his full 
 paid insurance policy (which it would be 
 much against his interest to do) he would 
 have a cash endowment for the purchase 
 of an annuity of $10,001.89 and he would 
 have paid at the monthly rate of $18.70 
 (not $19.66 as given above). In ad- 
 dition he would have enjoyed during the 
 
 19 
 
whole 35 years a protection in excess of 
 $10,000. That protection would have 
 amounted at its maximum to $11,700. In 
 other words under the two policies, the 
 survivor would have his endowment of 
 something over $10,000 with which to 
 purchase an annuity at age 65, he would 
 have received in addition $560 worth of 
 extra insurance and the cost would have 
 been at the monthly rate of $18.70. Put 
 in tabular form the comparison stands as 
 follows, when both policies are upon ex- 
 actly the same basis: 
 
 Policy and 
 
 If the insured 
 
 If the insured 
 
 Monthly Cost 
 
 dies before maturity 
 
 survives to matunty 
 
 Kndowment 
 
 
 
 $18.80 
 
 $10,000 
 
 $10,000 
 
 Combination 
 
 Minimum 
 
 $10,002 
 
 $18.70 
 
 $10,000 
 
 or 
 
 
 Maximum 
 
 9,137 
 
 
 $11,700 
 
 with full paid 
 
 insurance as 
 
 follows : 
 
 at 65.... $2,500 
 66.... 2,200 
 67.... 1,900 
 68.... 1,600 
 69.... 1,300 
 70 and 
 after 1,000 
 
 In other words even for the survivor 
 of the endowment period the combi- 
 
 20 
 
nation offered by the Teachers Insurance 
 and Annuity Association is better than 
 the Single Endowment policy. 
 
 The method by which the author of 
 the Provident Life and Trust pamphlet 
 seeks to produce the opposite impression 
 consists in stating the full benefits of his 
 own plan while omitting some of the 
 benefits of the other. The figures he 
 quotes are technically correct. The 
 monthly costs which are compared — 
 $18.80 on the one hand and $19.66 on 
 the other — are taken from the Handbook 
 of the Teachers Insurance Association. 
 They refer, however, to entirely different 
 benefits, a fact which the author studi- 
 ously omits to point out, and which the 
 lay reader will not discover unless his 
 attention is drawn to it. One feels a 
 genuine sense of disappointment and 
 regret that an old and established com- 
 pany should feel it necessary to conduct 
 its propaganda upon this plane. 
 
 21 
 
The Reasons for Separating tlie 
 
 Insurance Contract from the 
 
 Annuity Contract. 
 
 Every consideration of the interest of 
 the teacher living on fixed salary lies on 
 the side of separating his insurance 
 policy from his annuity policy. The 
 principal reasons may be summed up as 
 follows : 
 
 1. The man who buys endowment in- 
 surance is certain to pay more for his 
 protection than the risk is worth if he 
 dies before the completion of the endow- 
 ment period, since he pays for two bene- 
 fits and can realize only on one. 
 
 2. Under the law the maximum rats 
 of interest on an insurance contract is 
 33^ per cent, while the deferred annuity 
 contract may be on a 4 per cent basis. 
 The teacher thus obtains a larger guar- 
 anteed result for his deferred annuity 
 contract by having it separate. 
 
 3. To take out an insurance policy 
 requires a medical examination, to take 
 out a deferred annuity contract requires 
 no medical examination. 
 
 4. Under an endowment policy cov- 
 ering a long term the proportions of in- 
 surance and investment are arbitrarily 
 fixed. In most cases a teacher will desire 
 
 22 
 
to change his proportion of insurance to 
 annuity accumulation as his age and 
 financial circumstances change. For ex- 
 ample, with increasing salary he will in- 
 crease his annuity accumulation, or, on 
 the other hand, In case of disability he 
 will desire to avail of his annuity at an 
 earlier age 'but to continue with his in- 
 surance. Under an endowment insur- 
 ance policy It is not possible to provide 
 these variations which the teacher is 
 certain to desire and which it Is the object 
 of the Teachers Insurance Association 
 to provide. 
 
 5. No life insurance company can 
 under the New York law issue an endow- 
 ment policy guaranteeing that the pro- 
 ceeds may be invested in any life an- 
 nuity upon terms as favorable as the 
 Association's rates based upon the Mc- 
 Cllntock Table with 4 per cent interest. 
 
 6. Colleges recognize their obliga- 
 tion to join with their teachers in con- 
 tributions to a deferred annuity policy, 
 but for obvious reasons they do not con- 
 tribute toward the premiums of Insur- 
 ance policies. 
 
 All of these considerations weighed In 
 the decision of those who were respon- 
 sible for the forms of policies adopted 
 by the Teachers Insurance and Annuity 
 
 23 
 
Association. The policies were planned 
 always from the point of view of the 
 teacher living on salary, not from the 
 point of view of one who has additional 
 financial resources. 
 
 The True Origin of Unfriendly 
 Criticism. 
 
 It remains to point out briefly why 
 the Provident Life and Trust Company 
 does not recommend the combination of 
 term insurance and deferred annuity to 
 its own policyholders. The reason is 
 simple. The Provident Life and Trust 
 Company cannot afford it. The terra 
 policy is the cheapest and simplest form 
 of insurance, and, therefore, yields the 
 smallest commission for the agent. 
 Furthermore, the Provident Life and 
 Trust (as is the common practice in in- 
 surance) discriminates against this form 
 of insurance by allowing for the agent's 
 commission a much smaller percentage of 
 the actual premium than that paid on an 
 endowment policy. Neither the company 
 nor the agents could afford to put any 
 large proportion of its business into term 
 insurance policies however the insured 
 might prefer them. The difference in 
 the point of view of the Teachers Insur- 
 ance and Annuity Association and that 
 
 24 
 
of the Provident Life and Trust Com- 
 pany lies in the fact that the former 
 can afford to recommend to the applicant 
 for insurance whatsoever policy best 
 suits his circumstances and needs with- 
 out involving the question whether the 
 agent can make a living. The latter 
 cannot. 
 
 The Justification for Endowment 
 Insurance. 
 
 It ought still to be said that endow- 
 ment insurance serves a useful purpose in 
 the economic problems of many thousands 
 of insured, notwithstanding the fact that 
 during the entire life of the policy 
 the insured is paying for two benefits 
 while he can realize on but one. The 
 reasons are mainly two — one has to do 
 with insurance, the other with human 
 psychology, and in insurance, as in most 
 of the affairs of life, the latter factor 
 cannot be ignored. 
 
 The endowment policy serves the real 
 interest of the insured when it provides 
 simultaneously for insurance during the 
 income-earning period of his career and 
 a fund against the needs of old age. 
 The other reason is that expressed by 
 the average man when he says, "If I 
 hadn't taken out an endowment policy, 
 I wouldn't have saved anything." As 
 
 25 
 
a compulsory saving device the endow^- 
 ment policy has justified itself in many 
 thousands of cases. This argument, 
 however, has been w^eakened of late 
 years by the grov^^ing habit of borrowing 
 on policies, to which the endowment 
 policy lends itself most readily. By this 
 means the very purpose of insurance is 
 defeated. The growing prevalence of 
 this practice is giving grave anxiety to all 
 insurance authorities.* For the man who 
 has a large salary or who has other re- 
 sources than salary the endowment insur- 
 ance policy may be justified. It is not 
 suited to the man living on a teacher's 
 salary. 
 
 Why is the Teachers Insurance Asso- 
 ciation not a "Mutual" Company? 
 
 The writer of the Provident Life and 
 Trust pamphlet is disturbed that the 
 Teachers Insurance and Annuity Asso- 
 ciation is not a mutual company issu- 
 ing participating policies. He writes, 
 "If the policyholder is to receive his in- 
 surance at actual cost the surplus must 
 eventually be distributed. The surplus 
 under the policies of the Teachers As- 
 sociation will undoubtedly be large, and 
 we see no valid reason why the contracts 
 
 * Huebner's Life Insurance, pp. 242-3. 
 26 
 
should not provide for participation un- 
 less it is desired to withhold the surplus 
 from the control of the teachers." 
 
 The actuary who prepared this 
 pamphlet is quite aware of the difficulties 
 in the way of starting a new Mutual 
 Company but his question has very 
 naturally been in the minds of many 
 teachers. 
 
 The reasons have been set forth in the 
 Reports of the Foundation but they may 
 be re-stated in a few words. They are 
 summed up in two simple facts : 
 
 1. It is practically impossible to 
 start a. new mutual insurance company 
 under the New York State Laws. 
 
 2. It was found to be entirely to the 
 interest of the future policyholders to 
 incorporate the Teachers Insurance As- 
 sociation as a stock company with non- 
 participating policies. 
 
 These conclusions were reached after 
 many months of study and with the aid 
 of the best legal and expert advice, 
 Including that of the experts of the of- 
 fice of the Superintendent of Insurance. 
 Let us consider each proposition in turn. 
 
 Practical Difl&culties. 
 
 The insurance laws of the State of 
 New York as well as those of other 
 neighboring states have become, since the 
 
 27 
 
insurance investigation of 1906, extreme- 
 ly detailed and exacting. The various 
 laws touching insurance regulation in 
 the State of New York fill a large vol- 
 ume and he would be a bold man who 
 undertook to find his way through these 
 complicated enactments without expert 
 assistance. This legislation is intended 
 to be in the interest of the policyholder 
 and in the main it is in his interest. 
 The law had in mind, however, the 
 commercial insurance company and its 
 relations to its policyholders. It did not 
 contemplate the case of a company which 
 undertook to relieve the policyholders of 
 the cost of management. 
 
 Section 97 of the Insurance Law of 
 New York provides that no domestic 
 Life Insurance Corporation shall in any 
 calendar year expend or become liable 
 for (on account of the various expenses 
 incurred in its operations) a sum in 
 excess of the aggregate amount of the 
 actual loadings upon premiums received 
 and assumed mortality gains. It is fur- 
 ther provided that this j)rohibition shall 
 apply to all amounts which any person, 
 firm or corporation is permitted to ex- 
 pend on account of any such domestic 
 life insurance corporation. 
 
 With respect to the limitations thus 
 placed on the expenses of a new company 
 the opinion of the Superintendent of 
 
 28 
 
Insurance was stated In the following 
 quotation: "It Is a fact that under the 
 provisions of that Section It would be 
 practically impossible for a newly organ- 
 ized life Insurance company on the 
 mutual plan to keep within the limits 
 presented by that Section." 
 
 Not only would It be necessary to 
 expend a far larger sum than could 
 possibly be realized at the beginning 
 from the loadings in premiums but it 
 was especially desirable to pay these 
 expenses out of funds provided by an- 
 other corporation so that policies might 
 be issued, without loading and at net 
 rates. The law provides a way for 
 carrying out this purpose by exempting 
 from the provisions of Section 97 "stock 
 corporations issuing and representing 
 themselves as issuing non-participating 
 policies exclusively." 
 
 All authorities agreed that the greatest 
 contribution that could be made to the 
 establishment of an Insurance and 
 Annuity Company intended to serve 
 teachers would be accomplished by pro- 
 viding what is practically an endowment 
 from the income of which the overhead 
 cost of managepient shall be met. This 
 arrangement accomplishes two great ends 
 — It relieves the policyholders of the cost 
 of management and makes possible the 
 Issuing of policies at the net legal rate 
 
 39 
 
free of any loading whatever* In order 
 to be free from the limitations imposed 
 on the expenditures of a mutual company 
 and to issue policies free of loading, it 
 was necessary that the company should 
 be a stock company and that its policy 
 contracts should be what are known as 
 non-participating. That is to say, the 
 policies issued by the company must 
 contain no assurance of participation in 
 any earned surplus available for distri- 
 bution. 
 
 Advantages and Weaknesses of 
 Mutualization. 
 
 This situation compelled those who 
 were engaged in the effort to solve the 
 problem of the teacher's protection to 
 go carefully into the question, are there 
 advantages to the policyholders in mu- 
 tualization and in participating policies 
 sufficient to counterbalance the great ad- 
 vantages to he gained by a form of or- 
 ganization that permits overhead cost 
 to be paid out of what Is practically 
 an endowment? In other words, — what 
 is Mutualization and what does it ac- 
 complish for the policyholders? 
 
 In the field of life Insurance as in that 
 of politics we become oftentimes the par- 
 tisans, and sometimes the servants, of 
 
 30 
 
phrases, which we treasure with real 
 emotion but whose actual meaning as 
 applied to our own conditions we often 
 fail to ascertain. The term "democracy," 
 for example, is on all lips but it may, 
 according to the temperament of the in- 
 dividual, mean anything from a free gov- 
 ernment resting on constitutional guar- 
 antees to an autocratic class rule resting 
 on force. The words "mutual" and 
 "participating" are discussed in much the 
 same temper as a sort of charter to the 
 policyholder confirming his essential 
 rights and privileges. Just what does 
 mutualization and what does the partici- 
 pating policy secure for the policy- 
 holder? 
 
 The argument as to the relative merits 
 of the mutual and of the stock company 
 methods of organizing and managing life 
 insurance business has gone on for many 
 years. The advantages claimed for the 
 mutual plan are these: First, no divi- 
 dends are paid to stockholders; secondly, 
 the company is controlled by the policy- 
 holders in such manner as they conceive 
 to be in their own interest; thirdly, the 
 insured will in time receive his insurance 
 at actual cost through the return (in the 
 form of so-called dividends) of such 
 charges as are found to be unnecessary. 
 
 31 
 
Organization of the Teachers Insur- 
 ance and Annuity Association. 
 
 With regard to the first of these 
 advantages claimed for the mutual com- 
 pany, it may be said that the stock of the 
 Teachers Insurance and Annuity Associa- 
 tion is held by the Carnegie Corporation 
 of New York, a charitable corporation 
 which has already shown its interest in 
 the cause by contributing one million 
 dollars for the capital and surplus of the 
 Teachers Insurance and Annuity Asso- 
 ciation. The stockholders are prohibited 
 by the Charter from using any of the 
 surplus of the company for profit to 
 themselves. In this respect the Teachers 
 Insurance Association is on the same basis 
 as a mutual company. 
 
 The claim that the policyholders of 
 a mutual company control it is purely 
 fictitious as is clearly shown in any 
 elementary book on insurance. It is 
 impossible for hundreds of thousands of 
 policy holders scattered over a continent 
 to participate in the government of such 
 a corporation and it has never been done. 
 On the other hand, the Carnegie Cor- 
 poration of New York, recognizing the 
 need for a real representation of the fu- 
 ture policyholders in the government of 
 the company, when it paid over to the 
 
 S2 
 
Teachers Association the one million dol- 
 lars, passed the following resolution: 
 
 "Resolved — That it is the inten- 
 tion of the Carnegie Corporation of 
 New York, whenever a group of poli- 
 cyholders has been secured sufficiently 
 large to be representative of the college 
 and university teachers of the United 
 States and Canada, in conference with 
 the interested parties to provide ma- 
 chinery by which the policyholders, 
 through representatives selected by 
 them, shall participate in the election 
 of the trustees who manage the Asso- 
 ciation." 
 
 So far as the actual representation of 
 the policyholders is concerned, therefore, 
 the Teachers Insurance Association rep- 
 resents a new and promising effort to 
 furnish a real, not a fictitious repre- 
 sentation. In this matter it is in advance 
 of the Mutual Company. 
 
 The single point that remains and 
 which forms the only basis of the demand 
 that the Teachers Insurance Association 
 should be mutualized is that feature of 
 the Mutual plan which provides for dis- 
 tribution of surplus. 
 
 33 
 
Participating and Non-participating 
 Policies. 
 
 While mutualization as a form of gov- 
 ernment of a Life Insurance Company 
 is open to very grave criticism, mutuali- 
 zation as a principle of returning to 
 policyholders any surplus, not needed for 
 expenses or for their legitimate protec- 
 tion, is a thoroughly just and sound one, 
 although the practical methods of de- 
 termining what part of this surplus is 
 "divisible" and of determining the meth- 
 ods by which it shall be apportioned 
 among the various classes of policyhold- 
 ers are still matters of wide difference of 
 opinion and of practice. 
 
 Every insurance company must retain 
 a surplus over and above its reserves for 
 the protection of its policyholders against 
 contingencies — for example against low 
 interest rates or unusual mortality of 
 which the recent influenza epidemic was 
 a notable example. At the outbreak of the 
 world war some of the more conservative 
 companies cut down dividends. The pos- 
 session of a considerable surplus is there- 
 fore always necessary for any company 
 to guard against contingencies. The 
 amount of this surplus retained from 
 premiums and not divided with the 
 policyholders depends somewhat on the 
 management of the particular company. 
 
 34 
 
The superintendent of agencies is likely 
 to insist on large dividends so that his 
 agents can make a good showing in com- 
 petition with other companies. The act- 
 uary's office is the conservative influence 
 generally insisting on a sound surplus 
 against all contingencies. According as 
 a life insurance company is the more 
 affected by one or the other of these in- 
 fluences it is likely to be conservative or 
 liberal in its interpretation of the term 
 "divisible" surplus. Over both stands 
 the Superintendent of Insurance. 
 
 The method of determining ''divisible" 
 surplus will be exactly the same in a stock 
 company as in a mutual company, while 
 a company which neither paid dividends 
 to its stockholders nor used any of the 
 premiums of the policyholders to pay 
 cost of management would naturally 
 have a margin of "divisible" surplus 
 larger than the commercial company 
 whether it does business on the mutual 
 plan or on the stock plan. 
 
 What guarantee does the holder of a 
 participating policy in a mutual company 
 have as to dividends? 
 
 The man who does not read his policy, 
 and few policyholders do, is under the 
 Impression that he has a contract for 
 future "dividends." This is a misap- 
 prehension. The very principle of the 
 mutual company is that the company 
 
 35 
 
may call on the policyholder for the full 
 loaded premmm if it finds it necessary 
 or desirable tD do so. What the policy 
 does contain is an agreement that the 
 policy designated as participating shall 
 share, in its due proportion, in any "di- 
 visible" surplus the company may dis- 
 tribute. Future dividends can not be 
 made contractual. The stock company 
 writing non-participating policies will 
 deal with any actually earned surplus 
 which is "divisible" in exactly the same 
 way. It is not permitted under the 
 law to promise in advance to distrib- 
 ute any "divisible" surplus, but when 
 such surplus has been accumulated it 
 may distribute it either by dividends or 
 in such other way as the law may per- 
 mit. This has been the practice of such 
 companies in the past. 
 
 It is distinctly stated in the Charter of 
 the Teachers Insurance and Annuity 
 Association that the purpose of the cor- 
 poration shall be "to provide insurance 
 and annuities for teachers ... on 
 terms as advantageous to its policyhold- 
 ers as shall be practicable; and to con- 
 duct its business without profit to the 
 corporation or to its stockholders." 
 
 By incorporation in its present form 
 the Teachers Insurance and Annuity 
 Association secured to its policyholders 
 these great advantages: 
 
 36 
 
1. Freedom from overhead cost which 
 
 absorbs some twenty per cent of 
 the premiums of policyholders. 
 
 2. Policies having no loading and is- 
 
 sued at the lowest net rate which 
 the law will permit. 
 
 3. An opportunity to work out in the 
 
 future a real participation of the 
 policyholders in the government 
 of the Association. 
 
 Was it in the interest of the future 
 policyholder to forego these great ad- 
 vantages in order to put into his policy 
 an agreement that it should share in 
 any distribution of future surplus which 
 the Company determined to be 'divis- 
 ible"? Such action would have sac- 
 rificed great and enduring advantages 
 for a phrase which has come to have an 
 exaggerated importance in the eyes of 
 the general public and which ignores the 
 fact that the real security for the policy- 
 holder depends not on the promise of 
 participation in future dividends, which 
 no one can estimate in advance, but on 
 the strength and security of the com- 
 pany, on the fidelity and ability of those 
 who conduct it and on the nature of the 
 scrutiny to which the operations of the 
 company are subjected by the public 
 authorities. Responsibility and public- 
 ity are the foundations of the future 
 
 37 
 
"divisible" surplus, not the form of 
 organization of the insurance company. 
 While the stock company writing non- 
 participating policies may not promise 
 such distribution in advance, once a sur- 
 plus Is earned the question of its "divis- 
 ibility" is the same whether the Com- 
 pany be organized in the one way or in 
 the other.* 
 
 There is a valid reason why the 
 great insurance companies with their 
 enormous accumulation of funds in re- 
 serves and surplus should not be stock 
 companies. The stock of such companies 
 are at the mercy of contending financial 
 interests which seek to control them. 
 Some of the large companies have en- 
 countered serious misfortune in the past 
 from this source** and such a situation 
 lends itself to a constant danger of man- 
 ipulation by stockowners whose interests 
 are not primarily those of the policy- 
 holders. The policyholders of the 
 Equita:ble Company acted wisely when 
 they mutualized that company two years 
 ago by retiring the stock, even though 
 they paid two and a half million of dol- 
 
 * The foregoing distinction between control 
 of companies by stockholders and by policy- 
 holders has not proved of much importance 
 in the past. Huebner, page 319. 
 **YaIe Readings in Insurance, pages 299- 
 300, 
 
 98 
 
lars for $100,000 par value of 7 per cent 
 stock.* That action removes the possi- 
 bility of manipulation by stock control, 
 but it will not put the control of the 
 company into the hands of the policy- 
 holders. It Is this situation which has 
 made the mutual form of organization 
 the predominant one In the United 
 States. In England and In Canada for 
 example the stock company form of or- 
 ganization predominates. 
 
 OTHER MISAPPREHENSIONS 
 
 The long suffering college professor 
 has been memorialized not only by the 
 Provident Life and Trust Company but 
 by certain amateur exponents of the 
 theory and practice of life Insurance, 
 who are also critical of the Teachers In- 
 surance Association — its policies, its 
 trustees, and Its relation to the Carnegie- 
 Foundation. The misapprehensions con- 
 tained In these publications are found- 
 ed mainly on lack of knowledge either 
 of the facts or of the legal and technical 
 details which entered Into the establish- 
 ment of a new Insurance agency. Most 
 of these misunderstandings will vanish 
 
 *The policyholders of the Prudential paid 
 nearly seventeen million dollars to retire 
 capital stock the par value of which was 
 slightly less than two million dollars. 
 
 39 
 
as younger teachers — who are those most 
 interested in the policies of the Teachers 
 Insurance Association — come to under- 
 stand the unique opportunities that 
 these policies afford them. It is natur- 
 al, however, that the teacher who has 
 not hitherto given serious attention to 
 insurance should be somewhat confused 
 when he finds himself confronted with 
 the statement that he can obtain quite as 
 good facilities for his protection and for 
 that of his family through fisting in- 
 surance companies as through the Teach- 
 ers Insurance and Annuity Association. 
 If this were true there would be no 
 sufficient reason for the existence of the 
 Teachers Insurance Association. Exact- 
 ly the opposite is true — the teacher can- 
 not obtain in any exi^st^ng insurance 
 organization policies so suited to his 
 needs or at such rates as he can obtain 
 from an agency designed to serve his 
 particular group, which is free of all 
 overhead cost, which is by the terms of 
 its charter prevented from accepting any 
 profit for its trustees or its stockholders 
 and is committed to the principle of 
 offering insurance and deferred annui- 
 ties to its policyholders "on terms as 
 advantageous as shall be practicaJble." 
 
 The teacher sincerely seeking to find 
 his way to a solution of the problem of 
 his own protection will find his doubts 
 
 40 
 
still further Increased when he is con- 
 fronted with figures which purport to 
 be quotations from the offerings of cer- 
 tain Insurance companies and which upon 
 their face seem comparable in cost with 
 similar policies in the Teachers Insur- 
 ance Association. Unless the exact con- 
 ditions attaching to each policy are fully 
 stated such comparisons may be made 
 on paper as would deceive the very 
 elect.* Any comparison of policies is 
 likely to be misleading which is not 
 based on an actual examination of the 
 
 * For example, there was printed in one of 
 the memorials addressed to college teachers 
 the following comparison of annuities pur- 
 chasable at age 65 for $1,000: 
 
 Amount of Annuity 
 
 Teachers Insurance Association... $113.24 
 
 Metropolitan 116.92 
 
 Prudential 112.61 
 
 A footnote attached to the last two com- 
 panies contained the word "Annual," but 
 did not convey to the reader the fact that 
 the last two policies covered a form of an- 
 nuity that began a year, rather than a month, 
 after the teacher's retirement. The compara- 
 ble figures, equally accessible to the author 
 of this statement, are as follows: 
 
 Amount of Annuity 
 
 Teachers Insurance Association... $114.24 
 
 Metropolitan 111.00 
 
 Prudential 108.84 
 
 41 
 
policies themselves. Few college teach- 
 ers are in a position to do this, but the 
 whole subject may be made clear by 
 a brief statement of the method by 
 which rates are determined in the regu- 
 lar life insurance companies and the his- 
 tory of the typical policy in a sound, well 
 administered commercial company. 
 
 All life insurance policies are based 
 upon a net rate fixed by legal require- 
 ments as to the assumed interest and the 
 assumed mortality; the interest, 3^ 
 per cent,* the assumed mortality that 
 of the American Table of Mortality. 
 This is the lowest net rate that can be 
 assumed, and is the rate offered in the 
 policies of the Teachers Insurance and 
 Annuity Association. For example, at age 
 30 the net rate per $i,ocx> for an ordi- 
 nary whole life policy with disability 
 benefits is $17.40, and this is the rate at 
 which the Teachers Insurance Associa- 
 tion would issue such a policy. The 
 contract provides that this rate shall 
 never be increased, but it contains no 
 promise that the policyholder shall have 
 the benefit of any distribution of future 
 surplus that may result in the operation 
 of the company. 
 
 The ordinary good commercial com- 
 
 *Som€ insurance companies prefer to 
 reckon their reserve liability on the very 
 conservative basis of 3 per cent. 
 
 42 
 
pany issuing this same policy will start 
 from the net rate of $17.19 for insurance 
 plus 2 1 cents for disability benefits and 
 add a loading of from 30 to 35 per cent, 
 so that the policy will be issued at about 
 $22.62, and the company collects from 
 the policyholder at this rate every year 
 in the future, returning at the end of 
 the year what it is willing to allot as a 
 dividend. 
 
 If one follows the history of this 
 policy in any good company it will be 
 found to be approximately as follows: 
 After the first year the policy will re- 
 ceive the benefit of dividends — in other 
 words, a return of part of the premium. 
 These arise from three sources. The 
 loading is generally greater than the 
 cost of management, so that a part of 
 the loading can be returned. Most com- 
 panies realize more than 3 5^ per cent 
 on their investAients and most companies 
 have a mortality experience below 'the 
 expectation of the American Table. 
 From these three sources therefore arises 
 what is called a dividend apportioned 
 to policies upon a basis under which the 
 dividend increases with the age of the 
 policy. Consequently the net cost will 
 diminish as the age of the policy ad- 
 vances, and if the policy remains in 
 force over a long period the actual cost 
 will approach the net rate. In the or- 
 
 43 
 
dinary good companies it will require 
 from fifteen to twenty-five years for the 
 net cost to get down to the net rate. 
 Evidently a company that can combine 
 an economical management, a high in- 
 terest rate and a low mortality over a 
 long term of years will be able to fur- 
 nish insurance at a lower cost than a 
 company less favorably situated. Pre- 
 dictions for the future based on excep- 
 tional conditions in certain companies 
 are, however, likely to be misleading. 
 For example, a company by a very strict 
 medical examination and by extensive 
 solicitation that brings in a great num- 
 ber of young lives may be able to make 
 an extraordinary showing in its mortal- 
 ity experience for a period of years, but 
 estimates based on this showing and pro- 
 jected into the distant future are likely 
 to be disappointing. The experience of 
 the oldest, strongest conservative Amer- 
 ican companies that have been operating 
 through a period covering two genera- 
 tions indicates that an overhead cost of 
 1 8 to 22 per cent, an interest rate of 
 somewhere between 4j^ and 5 per cent, 
 and a mortality of approximately 70 per 
 cent of the expectation are as good con- 
 ditions as are likely to be realized over 
 long periods of time. Projecting the 
 favorable experience of a few years into 
 predictions for the future in the solicita^ 
 
 44 
 
tion of insurance is in some states pro- 
 hibited by statute. 
 
 One may therefore assume that at 
 some period, which probably will be be- 
 tween 15 and 20 years, the loaded policy 
 rate will come down by the application 
 of dividends to the net rate. This is, 
 however, longer than the life of the aver- 
 age policy. In other words, the average 
 policyholder will not see his actual 
 premium come down to the level of the 
 net rate. 
 
 If the policy remains in force beyond 
 this period and the interest rate and 
 mortality remain satisfactory the pre- 
 mium diminished by dividends will fall 
 below the net rate by an increasing 
 amount as time goes on. This circum- 
 stance has been used to create a certain 
 amount of confusion. In any group of 
 teachers who discuss this matter there is 
 likely to be some one who has a policy 
 purchased thirty or forty years ago and 
 whose annual cost is at this moment well 
 below the net rate of the same policy in 
 the Teachers Insurance Association. Al- 
 most is such an one persuaded that this 
 cherished policy is already a source of 
 income. 
 
 45 
 
Advantages of the Teachers Insur- 
 ance and Annuity Association. 
 
 It still remains true that even in the 
 long lived policy the teacher will have 
 a great advantage in buying his insurance 
 or his annuity from the Teachers Insur- 
 ance Association entirely aside from the 
 fact that some of its policies are not du- 
 plicated in existing companies. 
 
 The reason is extremely simple and 
 includes but two considerations. The 
 owner of a long-lived policy forgets the 
 number of years which elapsed before 
 his policy came down to the net rate. 
 In only a few cases and those in policies 
 of very long life will the average cost 
 of the policy be below the net legal rate. 
 In such comparisons also it seldom hap- 
 pens that the interest on the excess paid 
 in earlier years is taken into account. 
 In a comparison made of a $io,000 
 twenty payment life policy in a com- 
 pany whose interest rate and mortality 
 had been among the most favorable and 
 assuming similar favorable dividends for 
 the future (a very large assumption) 
 the following is the comparison with 
 the net rate. The first year the loaded 
 policy costs $93 more than the net rate, 
 at the 15th year the loaded rate as 
 affected by the assumed dividends would 
 reach the level of the net rate, at the 19th 
 
 46 
 
year the net rate would exceed the load- 
 ed rate as affected by the assumed divi- 
 dends by $40. Allowing 4 per cent in- 
 terest on all balances, whether in favor 
 of one policy or the other, at the end of 
 20 years there would be a balance of 
 $250 in the total payments in favor of 
 the policy issued at net rate as against 
 the loaded policy affected by the extraor- 
 dinarily favorable dividends assumed. 
 
 The second consideration is this. The 
 non-participating company issuing poli- 
 cies at the low net rate cannot under the 
 law promise to distribute any surplus it 
 may accumulate, but with correspond- 
 ing interest rates and mortality experi- 
 ence, it ought to be able to accumulate 
 a corresponding surplus. Such a com- 
 pany, free of overhead cost, which ap- 
 plied its surplus to dividends on the net 
 rate would of course be able to offer 
 rates impossible to any commercial com- 
 pany. 
 
 This statement of the history of the 
 ordinary policy together with the pre- 
 ceding information cohcerning the rea- 
 sons for the organizations of the Teach- 
 ers Insurance and Annuity Association 
 completely cover this matter. 
 
 There is still one other statement 
 which works to the confusion of those 
 unacquainted with insurance business. 
 The teacher has been presented with 
 
 47 
 
quotation of rates on certain life insur- 
 ance policies offered by only a few com- 
 panies and which as he is told, and 
 as they are described, seem to be com- 
 parable with policy rates in the Hand- 
 book of the Teachers Insurance Asso- 
 ciation. 
 
 The explanation of this situation is 
 found in the keen competition which 
 goes on in the insurance business. As 
 has been stated, the ordinary sound 
 commercial company starts its policies 
 with a loading of from 30 to 35 per 
 cent, thereby giving itself a margin of 
 safety within which its business can be 
 securely conducted. Some companies 
 have issued a few exceptional policies 
 having a very small loading — in one 
 case of only 5 per cent. It goes without 
 saying that no company whose overhead 
 expense amounts to 20 per cent of the 
 premiums paid by its policyholders could 
 afford to put any large amount of its 
 business on this basis. It is against the 
 principle upon which such a company 
 operates and such policies cannot bear 
 their fair proportion of the overhead 
 which must therefore be borne by other 
 policies. It will be found generally that 
 these policies carry conditions that pre- 
 vent any general use of them. 
 
 There is no compulsion on any teach- 
 er to buy insurance from the Teachers 
 
 48 
 
Insurance and Annuity Association, and 
 if he can get the same protection else- 
 where at better rates he ought by all 
 means to do it. He cannot. But the 
 teacher who makes the attempt will have 
 an enlightening experience In the matter 
 of insurance. 
 
 THE RELATION OF THE OLD 
 AGE ANNUITY TO COLLEGE 
 SALARIES 
 
 Such questionings as are directed 
 toward the policies issued by the Teach- 
 ers Insurance and Annuity Association 
 have been answered lo the preceding 
 pages. There remain a few enquiries 
 which concern themselves with the 
 teacher and his ability and willingness 
 to cooperate in such a system of old 
 age annuities. 
 
 The plan offered In the Teachers In- 
 surance Association rests upon the only 
 principles which can insure contractual 
 security, the widest measure of freedom, 
 and a cost determinable in advance. 
 The colleges and universities that are 
 participating in the contributory system 
 of old age annuities say to their teachers 
 — If you elect to take out an annuity 
 contract the college will cooperate with 
 you by a similar contribution not to 
 exceed five per cent of the salary and 
 
 49 
 
up to an agreed maximum. While the 
 conditions of cooperation vary somewhat 
 In different colleges and universities 
 they are in effect those just stated. 
 
 While this arrangement has been 
 welcomed by many teachers a few 
 doubts have been expressed in some such 
 enquiries as these. Is the teacher on his 
 meager pay able to contribute five per 
 cent (or any sum he may prefer) toward 
 an old age annuity? Will not the an- 
 nuity contribution of the college be- 
 come In time merely deferred pay? 
 These matters have been dealt with in 
 the various reports of the Carnegie 
 Foundation, but a brief re-statement 
 may be of Interest to those who have 
 not read these voluminous documents. 
 
 The college professor, like every 
 other man on salary, feels the pinch of 
 the present high prices. His pay has 
 risen In the last ten years, and In the 
 last fi\c years, but not so much on the 
 average as the pay of men in certain 
 other callings. The question of the scale 
 of salaries is however an entirely dif- 
 ferent question from that of making 
 available to the great body of teachers 
 an effective means for the protection of 
 themselves and of their families. If the 
 teacher's pay Is to be so small that he 
 can do nothing under the best machin- 
 ery possible for his own protection, 
 
 50 
 
then the future of the college professor 
 is hopeless. As a matter of fact, no 
 scale of salaries that can ever come Into 
 existence will enable teachers to devote 
 even a moderate part of their income to 
 Insurance or to an old age annuity w^ith- 
 out a certain measure of self denial. 
 This Is true of all other callings. The 
 average lawyer's income, for example, is 
 probably below that of the average col- 
 lege professor. Furthermore no scale of 
 salaries will ever fit the needs of all men 
 in a given group at any one time. There 
 will always be men on part time or 
 with large families on Inadequate sal- 
 aries who will be disturbed at the notion 
 of devoting any part of their modest 
 pay to such a purpose. No plan can be 
 invented short of the millcnium to care 
 for each individual case. The teacher 
 with a family of six children living on 
 a salary of one thousand dollars a year 
 — even In a village — would need ex- 
 traordinary management and self-denial 
 to put aside anything for the future. 
 No system can be set up, or ought to be 
 set up, based on his situation. For the 
 great body of teachers the question of 
 participation In a system of old age an- 
 nuities is one of moderate resolution and 
 self-control. College salaries will never 
 be put on a basis where these qualities 
 will not be necessary, In some meas- 
 
 51 
 
ure, if the future of the teacher and of his 
 dependents are to be safeguarded at all. 
 The Teachers Insurance and Annuity 
 Association offers such a man the best 
 machinery which can be desired to carry 
 out this purpose, whatever be the scale 
 of salaries of the future. 
 
 The establishment of a fair living 
 salary for the college professor is an- 
 other problem and one to be worked out 
 patiently and hopefully but in full view 
 of the various factors involved. The 
 average salary of the college professor in 
 the United States and Canada is probably 
 larger than the average pay of any other 
 professional group. There are however 
 no great financial prizes such as come 
 to a few lawyers and physicians. Fur- 
 thermore, of the one thousand colleges 
 in the United States and Canada, fully 
 half have no means to pay salaries be- 
 yond a bare living. This fact will al- 
 ways affect the general scale of salaries. 
 
 College salaries have also been enor- 
 mously diluted by the tendency of most 
 college faculties and governing boards 
 to bid for students by extending the cur- 
 riculum over the whole field of knowl- 
 edge, a process which means great in- 
 crease in the number of teachers and the 
 consequent leveling down of salaries. 
 Without going into the general discus- 
 sion of the salary question this much may 
 
 52 
 
be said — the salary scale and the protec- 
 tion of the teacher and his family are sep- 
 arate questions. The establishment of a 
 sound system of annuities combined with 
 Insurance suited to his needs and at the 
 lowest net rate found to be practicable 
 Is absolutely In the interest of the 
 teacher. In this respect the contrib- 
 utory plan has an enormous advantage 
 over any system of free pensions be- 
 cause the question of pay and the 
 question of pension are separated and 
 each stands upon its own feet. For 
 example, In the experience of the Car- 
 negie Foundation young men of thirty 
 have declined Increases of salary of from 
 six hundred to a thousand dollars a 
 year In order to remain in an associated 
 institution for the prospect of a pension 
 at 65 of $1,200 a year. An examina- 
 tion of the rates of policies In the Hand- 
 book of the Teachers Association will 
 make clear the fact that the Increase of 
 salary would have paid for the pension 
 several times over. 
 
 Contribution by tbe College. 
 
 The complaint that the contribution 
 of the college (In this case the em- 
 ployer) will In time be absorbed in 
 the salary schedule and that hence the 
 teacher will, In the long run, pay hjs 
 
 53 
 
own old age annuity has been fully dealt 
 with in the reports of the Foundation, 
 leading up to the establishment of the 
 Teachers Insurance Association. The 
 literature of the subject is covered in 
 these reports. It is there shown that 
 in a system of pensions paid for by the 
 employer — or by anybody else — the pen- 
 sion privilege will in time be considered 
 a part of compensation. The disadvan- 
 tage of the pension paid wholly by the 
 employer — aside from its other weak- 
 nesses — lies in the fact that the pension 
 privilege is valued beyond its financial 
 worth and that while it affects all salaries 
 only a minority receive the benefit. 
 
 Under the contributory plan contem- 
 plated in the deferred annuity contracts 
 of the Teachers Insurance Association 
 the compensation of the college teacher 
 for the future will be salary plus an an- 
 nuity. For the next ten or fifteen years 
 or perhaps longer the college contribu- 
 tion to this annuity will be in effect an 
 increase in compensation. By that time 
 if the use of the contributory system be- 
 comes general the college contribution 
 to the annuity will come to be a part 
 of the total compensation but dedicated 
 to a special purpose in which the college 
 and the teacher alike are interested. 
 The result is, the salary has been put on 
 a higher level and it will still remain 
 
 54 
 
to the great advantage of the teacher and 
 his family that his employer, the college, 
 continue to advance this money and 
 place It to his credit In the annuity ac- 
 count. In other words — for the time 
 the compensation of the teacher is in- 
 creased so as to become salary plus old 
 age annuity. Upon this higher level 
 the annuity will In time become a regu- 
 lar part of compensation and future in- 
 creases of the salary scale will be deter- 
 mined exactly as In the past. This ar- 
 rangement is wholly in the Interest of 
 the teacher, for even when looked upon 
 as deferred compensation the contri- 
 bution of the college must In every case 
 return with its accumulation to the 
 teacher or his family. Meantime the 
 essential objects are accomplished — the 
 teacher Is protected, the college faces its 
 responsibility and the scale of compen- 
 sation is bettered. 
 
 Any teacher who feels the college con- 
 tribution, to be, under these conditions, 
 against his Interest, has a very simple 
 remedy. He needs only to decline It. 
 
 55 
 
THE TEACHER AND THE IN- 
 SURANCE AGENT 
 
 The fundamental question as to the 
 service which the Teachers Insurance 
 Association may render to the great 
 body of teachers in the United States 
 and Canada is not a question of the 
 teacher's salary nor of his ability to pro- 
 vide for his ow^n protection by the aid 
 of machinery so completely fitted to his 
 economic needs. That uncertainty is 
 the one voiced in a former report of the 
 Foundation and quoted on the cover of 
 this brochure. 
 
 "It is of course a fundamental 
 question as to w^hether teachers can 
 be induced to avail themselves of 
 insurance facilities, however favor- 
 able, without the pressure of the 
 soliciting agent. This is a matter 
 which only experience can demon- 
 strate." 
 
 No great body of men or women has 
 hitherto been gathered into insurance 
 companies except under the pressure of 
 the agent's solicitation. The acquire- 
 ment of old age annuities is like the 
 process of getting religion — the young 
 are not interested in it when it can be 
 had on favorable terms and the old can't 
 
 56 
 
get it. Will college teachers as a group 
 avail themselves of the extraordinarily 
 favorable facilities for insurance and for 
 old age annuities provided by this new 
 agency without the gentle pressure of 
 the insurance agent? 
 
 Some two years ago when the details 
 of the formation of the new company 
 were' under discussion an able actuary 
 of one of the great companies made the 
 hopeful prediction that owing, to the 
 superior intelligence of the group to 
 whom the appeal is made the facts will 
 be understood and acted upon, while, as 
 he added plaintively," we who are in the 
 commercial companies must carry our 
 salvation to the man in the street who 
 cannot be converted or informed by a 
 printed page." Some such reasoning 
 formed the basis of the faith that such 
 an agency would be availed of by the 
 college teachers of the United States and 
 Canada through the medium mainly of 
 the printed statement and without the 
 pressure of the soliciting agent. 
 
 Just how large a part the agent's 
 solicitation plays in the securing of per- 
 manent life insurance policies is not 
 easy to determine. So long as great 
 soliciting organizations must be main- 
 tained all business will be credited to 
 this source. The situation is somewhat 
 like that of Billy Sunday touching those 
 
 57 
 
who tread the "sawdust trail." He 
 counts all as saved (and of course by 
 his machinery) although a little exami- 
 nation makes it clear that a large pro- 
 portion of the trailers are church mem- 
 bers (they had got their own insur- 
 ance), a very large proportion do not 
 stick (they allow their policies to lapse), 
 and only a minority are permanently 
 saved (hold on to the policies they are 
 persuaded by Mr. Sunday to take out). 
 
 In other words it is not clear just 
 how many of a particular group in the 
 body politic could be induced to insure 
 under some other system than that of 
 direct solicitation by agents, nor how 
 this number would compare with that 
 of those who remain insured. The 
 amount of insurance written by the Bu- 
 reau of War Risk Insurance shows what 
 can be done under exceptional circum- 
 stances and upon a non-commercial basis. 
 Nevertheless experience so far is all one 
 way. Where men must be reached indi- 
 vidually, the method of solicitation Is 
 the only one that has gathered large 
 groups into Insurance companies. 
 
 On the other hand, the college teach- 
 ers of the United States and Canada 
 constitute not only a highly Intelligent 
 group, but the fact that they are already 
 assembled In college faculties makes a sit- 
 uation quite different from that of reach- 
 
 58 
 
ing the individual independently of his 
 group. The college is itself interested 
 in the annuity side of the Teachers In- 
 surance Association and the college bur- 
 sar or treasurer will become in time a 
 ready source of information to a teacher 
 who is contemplating either insurance or 
 annuity. 
 
 In addition the Teachers Insurance 
 Association, being free of commercial 
 pressure, is enabled to propose policies 
 based upon the simple and direct prin- 
 ciples of life insurance entirely compre- 
 hensible by any intelligent man or 
 woman willing to devote a brief time 
 tb V^a ;study of the meaning and use of 
 msiirance. It is a part of the work of 
 the Teachers Insurance Association to 
 put this information into the hands of 
 teachers. The present bulletin is in- 
 tended to serve this purpose, by remov- 
 ing certain misapprehensions that have 
 been created in one way or another. It 
 will be followed by similar (but briefer) 
 bulletins upon "What is Life Insur- 
 ance For?" "How Much Insurance 
 Ought a Man to Carry?" "How to 
 Choose a Policy," and similar topics. 
 In other words, the Teachers Insurance 
 Association will pu| into the hands of 
 teachers information touching insurance 
 such as will enable them to decide in- 
 telligently how their interests may best 
 
be served in these fields. This is a very 
 different matter from that of explaining 
 insurance business and organization. It 
 is true that similar information has been 
 given out by other insurance organiza- 
 tions that operated without agencies and 
 not always with the highest success, but 
 not to a homogenous group of persons 
 engaged in a single profession and gath- 
 ered into convenient bodies. The ex- 
 perience of the Presbyterian Ministers' 
 Fund, the oldest insurance company in 
 the United States, indicates that such 
 information can be successfully placed 
 in the hands of a professional body 
 united by common ties when it is diffi- 
 cult to do the same thing for the same 
 number of individuals. The final pur- 
 pose of the Teachers Insurance and An- 
 nuity Association will not be attained 
 unless it reaches in time the great body 
 of the college teachers of the United 
 States and Canada. Whether they can 
 be reached by methods that do not suc- 
 ceed with the average man remains to 
 be seen. The experiment is an interest- 
 ing one from many points of view. For- 
 tunately the matter does not need to be 
 settled in haste. The Teachers In- 
 surance and Annuity Association offers 
 policies carrying extraordinary advan- 
 tages. Beyond obtaining a moderate 
 number of policies sufficient to give a 
 
 60 
 
fair distribution of the risk it has no 
 occasion to strive for numbers and the 
 outcome will be interesting not less from 
 the point of view of the Association 
 than from that of the teachers them- 
 selves. It offers its policies to teachers 
 end employes in higher institutions of 
 teaching and of research — colleges, tech- 
 nical schools, normal schools, institu- 
 tions of research, etc. — upon the most 
 favorable terms consistent with complete 
 financial security. It will sell either 
 an insurance or an annuity policy. It 
 will deal with the individual teacher or 
 will cooperate with the teacher and his 
 college. It will give all information 
 possible to any teacher or employe of 
 these institutions who cares to inquire. 
 It has no agents and issues policies only 
 from its home office. It will do all in 
 its power to furnish information about 
 its policies. It is for the college teach- 
 ers to decide how far they will make 
 use of this service. 
 
 €i 
 
RELATION OF THE TEACHERS 
 INSURANCE ASSOCIATION 
 TO THE CARNEGIE FOUN- 
 DATION 
 
 It remains finally to say a few words 
 concerning the relations between the 
 Carnegie Foundation and the Teachers 
 Insurance and Annuity Association. 
 
 They are distinct and independent 
 corporations. The former is, in the 
 eyes of the law, a charitable institution, 
 chartered by the Congress of the United 
 States; the latter is an insurance com- 
 pany chartered under the laws of the 
 State of New York and subject in all 
 its operations to the authority of the 
 Superintendent of Insurance. The Car- 
 negie Foundation can, under its charter, 
 make discriminations among institutions 
 upon educational, denominational or 
 other grounds. Its charter compels it to 
 make certain discriminations in regard 
 to institutions that require denomination- 
 al tests of trustees or teachers. The 
 Teachers Association can impose no such 
 tests, it makes no discriminations and 
 cannot be used for the purpose of edu- 
 cational propaganda in any form. In 
 dealing wHth the Teachers Insurance 
 Association, teachers are concerned only 
 with questions that pertain to all insur- 
 ance companies — its financial solvency, 
 
 62 
 
the fidelity and trustworthiness of its 
 management and the effectiveness of the 
 scrutiny of any state department of In- 
 surance. All this is perfectly understood 
 by those who have looked into the facts. 
 It remains true, however, that the 
 Teachers Insurance Association grew 
 out of the experience and study of the 
 Foundation. It was made a separate 
 corporation under state supervision to 
 accomplish two results — first to make 
 the pension a matter of individual con- 
 tract; second, in order that the question 
 of old-age annuities might be divorced 
 from any question of educational studies 
 or discriminations. The Teachers In- 
 surance and Annuity Association is the 
 child of the Foundation and it would be 
 strange indeed if it failed to receive 
 from the Foundation full assistance and 
 support. 
 
 The Trustees. 
 
 The Association has sixteen trustees. 
 The first trustees had to be named in the 
 charter and were therefore selected by 
 the incorporators. The sole basis of 
 their selection was fitness for the duties 
 of trustees. The incorporators** 
 
 ** The incorporators of the Association 
 were the following: Elihu Root, Nicholas 
 Murray Butler, Arthur Twining Hadley, 
 
 63 
 
deemed it necessary for the purposes of 
 the Association to include a strong finan- 
 cial group and a group of able and ex- 
 perienced business men. 
 
 They also felt it necessary to have 
 represented upon the board actuarial ex- 
 perience and knowledge. The action of 
 the Corporation as expressed in the 
 resolution already quoted provided for 
 a representation of policyholders in due 
 course. It was thought desiralble, how- 
 ever, in the meantime, to have upon the 
 board representative teachers. With this 
 object in view two of the associates of the 
 Foundation engaged in the work of the 
 division of Educational Enquiry consent- 
 ed to become members of the Board for 
 the purpose of organization and two 
 members of the Committee on Pensions 
 of the Association of American Univer- 
 sity Professors were invited at their 
 convenience to become trustees of the 
 Teachers Insurance Association. One 
 of these has since declined and in his 
 place was elected a well known pro- 
 fessor of insurance in one of the large 
 universities, the chairman of one of the 
 
 Jacob Gould Schurman, Alexander C. Hum- 
 phreys, Charles A. Stone, John Bassett 
 Moore, Robert Weeks de Forest, George 
 Woodward Wickersham, Newcomb Carlton, 
 Edward Robinson, George Foster Peabody, 
 Henry S. Pritchett. 
 
 64 
 
actuarial committees which reported on 
 the plan of the Association. 
 
 The board of trustees is therefore 
 made up at present (May, 19 19) as 
 follows: There are sixteen trustees, of 
 whom fourteen are from the United 
 States and two from Canada; four of 
 this group are among the ablest finan- 
 cial men in America, whose knowledge 
 of opportunities for sound investments 
 is not exceeded by any group of men 
 on the continent; five are business men 
 of varied experience; one is an actuary 
 of one of the great insurance companies; 
 three are college professors (two of 
 whom are expert actuaries), one is a 
 college president, the two remaining be- 
 ing the president of the Carnegie Foun- 
 dation and temporarily one of the staff 
 of the Foundation. 
 
 Of the sixteen trustees four are trus- 
 tees of the Carnegie Foundation — three 
 business men and the president of the 
 Foundation. The entire choice of trus- 
 tees has been made with the purpose of 
 forming a group of men competent to 
 conduct an insurance company. The 
 Carnegie Foundation neither controls 
 nor desires to control this board of 
 trustees. The intimation that the Foun- 
 dation might desire to effect such con- 
 trol for the purpose of educational 
 propaganda is both short sighted and 
 
 65 
 
ungenerous. The purpose of the Insur- 
 ance Association is clearly stated in its 
 charter. It can be used for no other. 
 The Carnegie Foundation has never at- 
 tempted to exert upon its associated col- 
 leges and universities any such influence 
 as this unworthy suspicion suggests. 
 This form of complaint is an inheritance 
 of the Teachers Insurance Association 
 from the Carnegie Foundation. 
 
 The Lessons of Experience. 
 
 A certain disappointment and even a 
 certain resentment toward the Founda- 
 tion on the part of some teachers appeared 
 when the Foundation changed its pension 
 system from a full pension for a limited 
 group of teachers, to a contributory and 
 contractual plan open to all college 
 teachers. This outcome (for the pres- 
 ent at least) was ineluctable, no matter 
 how compelling the reasons for the 
 change, and nothwithstanding the fact 
 that the Foundation continues the free 
 pension system to the six thousand 
 teachers in the associated colleges for 
 fifty years to come at a cost of approxi- 
 mately sixty millions of dollars. The 
 minds of college men were adjusted to 
 the notion of the free pension for col- 
 lege teachers and largely through the 
 influence of the Carnegie Foundation. 
 
 66 
 
The Foundation was instituted at a 
 time when no other conception of a pen- 
 sion was entertained. The conception 
 was found to be a mistaken one from 
 every point of view — social, economic, 
 financial. The trustees of the Founda- 
 tion have met the situation in the only 
 way that honest men could — first, by a 
 thorough study to determine a sound 
 solution of the pension problem, one 
 available not only to a small group but 
 to the whole body of college teachers of 
 English-speaking North America; and 
 secondly, by a generous fulfilment of 
 the expectations of teachers under the old 
 system. The Teachers Insurance and 
 Annuity Association is the constructive 
 result. The extension of the old rules 
 for fifty years into the future is the 
 most generous solution of such a situa- 
 tion ever carried out by a board of trus- 
 tees dealing with pension expectations. 
 It is a generous fulfilment of the moral 
 obligations of the Foundation, there were 
 no legal obligations. Fifty years hence 
 the Carnegie Foundation will be paying 
 the pensions of teachers whose only claim 
 to this privilege will rest on a few months 
 of teaching as a college instructor a gen- 
 eration before. The only change made 
 in the rules which appreciably afifected 
 the pensions these teachers will receive 
 30 or 40 years hence was the change in 
 
the minimum age of retirement after a 
 certain date — a change the Foundation 
 had specifically reserved the right to 
 make. 
 
 The Desires of College Teachers. 
 
 Notwithstanding all these circum- 
 stances, notwithstanding the fact that 
 the Teachers Insurance Association car- 
 ries out faithfully the notions of college 
 teachers themselves as obtained by wide 
 correspondence and extended confer- 
 ences, it was inevitable that when the 
 Foundation changed from a free pen- 
 sion system to a contributory system 
 there should be a certain discontent and 
 distrust, and that this should find ex- 
 pression not only toward the Carnegie 
 Foundation but against its child, the 
 Teachers Insurance and Annuity Asso- 
 ciation. It is too much to expect of 
 human nature that all the beneficiaries 
 of a system would approve a decision 
 which curtails to some extent privileges 
 whose rules of administration few had 
 read and which were therefore regarded 
 by many in the light of a contract. The 
 great body of teachers, while not entirely 
 accepting the notion that the free pension 
 is not justified, and while they regret 
 the changes in the minimum age of re- 
 tirement, nevertheless realize that the re- 
 
 6i 
 
sponslblllty for this determination rests 
 upon the trustees, that it involves a num- 
 ber of difficult questions in the use of 
 trust funds and that the solution which 
 has been reached represents a sincere and 
 well-considered effort to deal justly with 
 many interests. Those who have made 
 the loudest complaints are generally the 
 same group which has consistently stood 
 for a conception of the teacher's pension 
 as a subsidy to be given early in life. It 
 would astonish the teaching profession 
 to read the list of those who, for one 
 reason or another, felt they ought to be 
 subsidized in the early fifties in order 
 to leave teaching for some other career 
 which seemed more attractive. 
 
 To this feeling of irritation — it is a 
 feeling, not a reasonable opinion — there 
 is only one reply. Honest and sincere 
 men differ not from any difference in 
 honesty but from difference in the point 
 of view. Two men looking from win- 
 dows on opposite sides of a house are 
 not likely to describe the same things, 
 though both may be honest and both 
 accurate as far as they see. The trus- 
 tees of the Foundation have sought as 
 well as they were able to view this ques- 
 tion from every point of view. Those 
 who regard it solely from the stand- 
 point of the beneficiary are looking from 
 one window. That the two views dif- 
 
 69 
 
fer as little as they do is due to the 
 fact that the trustees of the Founda- 
 tion and of the Carnegie Corporation 
 have gone to great lengths to fulfill ex- 
 pectations in the spirit rather than In 
 the letter. 
 
 So far as the Teachers Insurance and 
 Annuity Association is concerned It de- 
 serves to stand upon its own merits. Its 
 policies are already making their own 
 way as their value is understood and mis- 
 understandings and misapprehensions 
 have been cleared away. Their wider 
 use may safely be left to time and to 
 fuller knowledge. 
 
 THE REAL QUESTIONS BEFORE 
 THE TEACHER AND HIS COL- 
 LEGE 
 
 The long, and somewhat heated dis- 
 cussions, over the details of insurance or- 
 ganization laid before college teachers 
 have gone far to obscure in their minds 
 the fundamental questions Involved. We 
 have the curious spectacle of men deeply 
 stirred over matters of Insurance or- 
 ganization and administration! The 
 terms mutual or non-mutual, participat- 
 ing or non-participating have been made 
 the subjects of appeals full of feeling by 
 persons most of whom never considered 
 these matters until a few months ago. 
 
 70 
 
As a matter of fact the college teacher 
 has no real interest in these technical de- 
 tails. Once the machinery has been set 
 up it will not make the slightest differ- 
 ence to him whether these details are 
 finally determined in one way or in an- 
 other, provided the trustees who manage 
 the machinery are honest, capable and 
 sincerely desire to provide college teach- 
 ers a secure means for protection against 
 the hazards incident to family life on a 
 modest salary. The simple knowledge 
 necessary to decide his own insurance 
 questions he can easily attain, a knowl- 
 edge of insurance technique and manage- 
 ment he cannot hope to reach without 
 an expenditure of time and study wholly 
 unjustifiable. The experience of insur- 
 ance management throughout the world 
 shows that these details are nonessentials. 
 Let us for a moment step aside from the 
 confusion into which all these discus- 
 sions have brought us and statue in the 
 lowest terms the essential questions be- 
 fore the teacher and his college so far 
 as his protection and that of his depend- 
 ents are concerned. 
 
 Fundamental Questions. 
 
 Every college teacher faces these two 
 questions. How shall I protect my fam- 
 ily against my premature death, and how 
 
 71 
 
shall 1 protect myself against depend- 
 ence, should I survive to old age? Every 
 college board in the United States and 
 Canada must on its side face the ques- 
 tion, shall the college board, as employer, 
 cooperate in some form of old age pro- 
 tection for the teacher that will enable 
 him to retire when his powers wane? 
 
 As long as these questions were met by 
 the offer of a pension paid by an outside 
 agency the teachers and the colleges to 
 whom they were made available accepted 
 the protection heartily and gladly. 
 
 Experience has shown that considera- 
 tions partly social, partly economic and 
 financial, make such a solution impossi- 
 ble for the teachers of a democratic na- 
 tion. No state, no corporation, no col- 
 lege can afford to embark upon a system 
 of free old age pensions for its citizens, 
 its employes, or its teachers. The non- 
 contributory pension for college teachers 
 has gone. In its place, after years of 
 study and with the aid of the expert ad- 
 vice of Europe and America, a form of 
 cooperation between the teacher and his 
 college has been worked out for provid- 
 ing the necessary protection. It places 
 upon the teacher the responsibility he 
 ought to take and upon the college board 
 the responsibility resting upon the em- 
 ployer. It meets the fundamental con- 
 ditions of a pension system as defined by 
 
 72 
 
a commission composed of college presi- 
 dents, university teachers designated by 
 the Association of American "University 
 Professors, and representatives of educa- 
 tional organizations. The commission 
 had the benefit of the literature on the 
 subject and of expert advice. As funda- 
 mental conditions of a permanent pension 
 S5^stem it named the following: 
 
 Pension Principles. 
 
 (i) The pension must be contractual 
 with the individual teacher and 
 the reserve to carry out the con- 
 tract must be set aside year by 
 year. 
 
 (2) The pension, or old age annuity, 
 should rest on the joint contribu- 
 tions of the teacher and his col- 
 lege. 
 
 (3) The benefits of all payments into 
 the contract of any teacher 
 whether by himself or his college 
 must with their accumulations be 
 secured to the teacher whether he 
 remain in the college, go to an- 
 other college or leave teaching 
 altogether. 
 
 (4) The contributions must be upon 
 a plan which shall provide old age 
 
 73 
 
annuities proportional to the sal- 
 aries at a cost capable of estima- 
 tion in advance and within the 
 financial ability of the teacher 
 and of his college. 
 
 ! fundamental question which the 
 r and his trustees face is, Are they 
 
 _ , ^. Jly willing to cooperate in a system 
 
 so conceived? 
 
 Approval of Leading Institutions. 
 
 Neither teachers nor boards of trustees 
 have given very serious attention to this 
 fundamental question. College boards 
 and college presidents are pressed for 
 money for many other purposes. They 
 are not likely to cooperate in teachers 
 pensions until the nature of this obliga- 
 tion is more generally understood. One 
 thing will operate to bring this matter to 
 decision. The stronger American and 
 Canadian institutions of higher learning 
 are ready to meet their obligations in 
 this matter. They will cooperate upon 
 some plan with their teachers — and par- 
 ticularly with younger teachers — to solve 
 this problem. In time every strong col- 
 lege will find it necessary to cooperate 
 with its teachers in some plan for old 
 age protection. 
 
 The Teachers Insurance and Annuity 
 
 74