The fundamental principle upon which any plan of insurance is based is that the premiums paid, together with interest earned thereon, if any, must provide sufficient reserves to pay all losses over the period covered by the contract. The amounts in excess of the current cost of protection contributed by each insured member under a limited payment life plan are in the nature of prepayments on account of protection to be furnished in the future. For that reason an insured under a 20-payment life plan pays more premium each year over a shorter period of time than an insured under a 30-payment life plan, while both pay more each year over a limited premium paying period than an insured under an ordinary life plan who continues his premium payments throughout life. On the other hand, the premiums charged for insurance under the 5-year-level-premium term plan cover only the cost of the protection furnished over a 5-year period, and therefore no reserve is accumulated other than that which is temporarily built up for the leveling of the term premium over the 5-year period and which is exhausted at the end of each period. Hence, the cost of the protection furnished under term insurance is always approximately equal to the premiums received. Therefore, it would always be to the advantage of term policyholders to carry their insurance to age 70 as term insurance, thus avoiding paying the higher premiums for permanent insurance. Moreover, if the bill were enacted, no holder of permanent insurance who has or will have paid premiums for 25 years or more and who would be protected under extended insurance to age 70, would need to pay any further premiums to be fully protected for life. The bill would apply to both participating and nonparticipating insurance issued by the Government. Under the former, the insured is allowed to participate, that is, receive as dividends a portion of the surplus, after deducting the reserve value of the policies, resulting from savings from mortality and gains from investment and forfeitures. With the exception of insurance issued to certain disabled persons all United States Government life insurance, and national service life insurance issued prior to April 25, 1951, was participating insurance. The amendments made by the act of April 25, 1951 (Public Law 23, 82d Cong.), to the National Service Life Insurance Act of 1940, as amended, restricted the issuance of participating insurance to certain persons discharged from the Armed Forces after that date who previously had such insurance, and provided that otherwise only nonparticipating national service life insurance may be issued and only to such persons who apply therefor within 120 days of discharge, or if suffering from service-connected disabilities within 1 year from the date service connection is determined by the Veterans' Administration. United States Government life insurance and participating national service life insurance are operated as mutual life insurance organized on the level premium, legal reserve basis. All premiums paid on such insurance and all interest earned thereon are covered into special funds in the Treasury designated as the United States Government life insurance fund and the national service life insurance fund. These funds are administered by the Government, as trustee, for the sole benefit of the policyholders and their beneficiaries. On the other hand, under nonparticipating national service life insurance all premiums and other collections therefor are credited directly to a revolving fund in the Treasury, and any payments on such insurance are made directly from the revolving fund. The law specifically authorizes appropriations to such fund. The insurance which would be "considered fully paid" under the bill would include the usual features of such contracts. Under present law only United States Government life insurance and national service life insurance issued on a permanent plan may become paid up. Such permanent plan contracts contain provisions for cash and loan values. Under the bill, insurance issued on the 5-year level premium term basis would be deemed paid up. However, such insurance would have no cash or loan values since such features are not contained in the present contracts of term insurance. All United States Government life insurance contains provision for the payment of benefits of $5.75 per thousand dollars of insurance in force in the event of total and permanent disability. The retroactive effect of the bill would entail a very considerable amount of administrative work. All claims and insurance folders would have to be searched in order to ascertain those cases where premiums had been paid on United States Government life insurance for 25 years or more and the insurance lapsed after age 70 but prior to the insured's death or becoming permanently and totally disabled. These cases would have to be readjudicated, estates reopened, and insurance payments to beneficiaries adjusted. Such review and adjustment would undoubtedly result in controversies and litigation and would, of course, greatly increase any costs which might be estimated in connection with this bill. Since no benefits, by reason of enactment of this bill, could accrue to national service life insurance policyholders before 1965 at the earliest, it would be possible for many affected policyholders to be charged for their benefits by drastically cutting or complely wiping out their future dividends. These policyholders would in effect be in possession of, and be charged for, life-paid-up-at-70 policies regardless of the fact that they wished to pay for only ordinary life or 5-year term policies. As indicated, generally holders of nonparticipating national service life insurance pay lower premiums and are not entitled to dividends. Hence, there is no way in which such policyholders could be charged for the benefits provided by the bill. Such cost, which would undoubtedly be very large, would have to be borne by the Government. In the case of United States Government life insurance, where there are already approximately 4,000 policies which would be eligible under this bill, if enacted (and this number would increase rapidly in the future), it will not be possible, in general, to charge the cost of benefits of the bill in any important degree to the recipients thereof even by completely wiping out their dividends. These costs would have to be assessed against the future dividends of other policyholders, many of whom would never be eligible for benefits under the bill. Because of the uncertainty of future rates of mortality, disability, withdrawal among United States Government life insurance and participating national service life insurance policyholders, and uncertainty as to the number who in the future will become eligible for and apply for issue of nonparticipating national service life insurance under section 620 and section 621 of the National Service Life Insurance Act of 1940, as amended, it is not possible to give a reasonable estimate of the cost of the bill. Because of the adverse effect which the enactment of the bill would have upon the United States Government life insurance fund and the national service life insurance fund, it is my belief that enactment thereof would not serve the best interest of the policyholders for whom such funds are maintained. Advice has been received from the Bureau of the Budget that the enactment of the proposed legislation would not be in accord with the program of the President. Sincerely yours, CARL R. GRAY, Jr., Administrator. [No. 64] COMMITTEE ON VETERANS' AFFAIRS, HOUSE OF REPRESENTATIVES VETERANS' ADMINISTRATION, Washington 25, D. C., May 14, 1953. Hon. EDITH NOURSE ROGERS, House of Representatives, Washington 25, D. C. DEAR MRS. ROGERS: This is in reply to your request for a report by the Veterans' Administration on H. R. 4791, 83d Congress, a bill to provide waiver of premiums on national service life insurance policies for certain disabled veterans. The purpose of the bill is to amend section 602 (n) of the National Service Life Insurance Act of 1940, as amended, by adding after the words "and (3) prior to the insured's sixtieth birthday" the words "except in the case of those persons called into active duty after attaining the age of sixty years." Section 602 (n) of the National Service Life Insurance Act of 1940, as amended, provides, in pertinent part, as follows: “*** payment of premiums on such insurance may be waived during the continuous total disability of the insured, which continues or has continued for six or more consecutive months, if such disability commenced (1) subsequent to the date of his application for insurance, (2) while the insurance was in force under premium-paying conditions, and (3) prior to the insured's sixtieth birthday: ***" The waiver of premium benefit terminating at age 60 was originally adopted in the National Service Life Insurance Act because it was considered by the Congress that a lifetime disability benefit, such as that included in United States Government life insurance policies, was difficult to administer and tended to produce inequities as between classes of policyholders. The effect of the bill would be to entitle all national service life insurance policyholders who were called into active service after age 60 to premium waiver for total disability commencing after age 60 regardless of when they had entered or left the service. Policyholders who attain age 60 while in active service would not be covered under the provisions of the bill. Because of its very limited application, this proposal is in the nature of a private bill. Relatively few persons are called into active service after reaching the age of 60, and generally are of high rank. There appears to be no reason why such persons, if disabled after separation from the service, should be placed in a different category from other national service life insurance policyholders over age 60. Excepting those whose disabilities are deemed totally disabling by statute, a large portion of those who qualify for waiver of premiums at the younger ages eventually recover from their total disability. At ages over 60, it becomes increasingly difficult to establish whether or not it is possible for the insured to follow any substantially gainful occupation and the rate of recovery from total disability in such cases is practically nil. The criteria generally applied to determine the existence of total disability commencing prior to the insured's 60th birthday for the purpose of waiving premiums on national service life insurance, if applied in cases where the total disability commenced at ages over 60, would in almost every case result in waiver of premiums for the remainder of the premiumpaying period. The probability of total disability increases after the 60th birthday to such an extent that waiver of premiums after that age might result in an excessive loss of premiums. Commercial insurers generally limit waiver of premiums for total disability to cases in which total disability commences prior to the insured's 60th birthday, and some commercial insurers limit such waivers to cases in which total disability commences prior to the insured's 55th birthday. In enacting the National Service Life Insurance Act of 1940, as amended, and in making provision for waiver of premiums for total disability, the Congress intended to grant insurance upon terms and conditions similar to those which could be obtained by civilians from commercial insurers. Under the act the pre mium rates for insurance are the net rates based upon the American Experience Table of Mortality and interest at the rate of 3 percent per annum. This table is based upon peacetime experience only. The United States bears the excess mortality cost and cost of waiver of premiums on account of death or total disability traceable to the extra hazard of military or naval service. No deductions from benefits otherwise payable are made for any premiums waived, and premium rates are calculated without charge for the cost of waiver of premiums, although commercial insurers charge an extra premium for such protection. The cost of providing for waiver of premiums on account of total disability is not the same for all policyholders, but varies with the plan of insurance and the age of the insured. If the age restriction were removed, as proposed, the cost would be much greater under the ordinary life plan than under the limited payment life and endowment plans for the reason that under the former the waiver would be continued for the whole period of life, while under the latter it would cease at the end of the premium-paying period. Furthermore, the cost under any given plan increases with the age of the insured. Since no additional premium is charged for the benefit granted on account of total disability, it is necessary to make provision for the cost of this benefit out of earnings which otherwise would be considered as surplus before any part of these earnings can be distributed as dividends. As far as the national service life insurance fund is concerned, the adoption of this proposal would cause dissatisfaction and inequities. Policyholders in the group covered by the bill would have to be subsidized to a greater or lesser extent by the other policyholders. Through the operation of section 607 (c) of the National Service Life Insurance Act of 1940, as amended, the national service life insurance appropriation would have to bear its proportionate share of the cost of waiving premiums for total disabilities incurred after age 60. Experience under United States Government life insurance indicates that approximately 18 percent of the claims for waiver of premiums would be traceable to the extra hazard of military or naval service. It is not possible to estimate the cost of the bill, if enacted, since it is not known what would be the total amount of national service life insurance issued to persons ordered to active duty after age 60, nor are there any figures available as to the incidence of total disability after age 60. It is obvious that such cost would be very small. There are only about 10,000 national service life insurance policies in force held by persons having attained age 60, and it is likely that only a very small percentage of this number will be called back to active service. In view of the fact that the cost of the bill would have to be borne in part by the national service life insurance fund, it is believed that enactment of the bill would not generally serve the best interests of policyholders for whom the fund is maintained. H. R. 4791 is similar in purpose to H. R. 1981, 82d Congress, on which the Veternas' Administration submitted a report to your committee under date of June 18, 1951 (Committee Print No. 144). Advice has been received from the Bureau of the Budget that while there is no objection to the Veterans' Administration report the Bureau of the Budget recommends against the favorable consideration of this legislation. Sincerely yours, CARL R. GRAY, Jr., Administrator. [No. 65] COMMITTEE ON VETERANS' AFFAIRS, HOUSE OF REPRESENTATIVES VETERANS' ADMINISTRATION, Washington 25, D. C., May 15, 1953. Hon. EDITH NOURSE ROGERS, House of Representatives, Washington 25, D. C. DEAR MRS. ROGERS: This is in reply to your request for a report on H. R. 24, 83d Congress, a bill to amend the World War Veterans Act, 1924, as amended, to mature United States Government life insurance when the insured becomes 70 years of age. The purpose of the bill is to amend title III of the World War Veterans' Act, 1924, as amended, by adding thereto a new section No. 314 to provide that any person having United States Government life insurance in force on his 70th virthday shall be deemed to be permanently and totally disabled on and after such date for insurance purposes. H. R. 24 is identical with H. R. 295, 82d Congress, on which the Veterans' Administration submitted a similar report to the committee under date of April 12, 1951 (Committee Print No. 91). The bill would automatically mature by operation of law all United States Government life insurance policies in force when the insured has reached age 70. All policies of United States Government life insurance include a provision granting monetary benefits at the rate of $5.75 for each $1,000 of insurance, if the insured becomes totally and permanently disabled while the insurance is in force, and all premiums are waived during the continuance of such disability. Upon the death of the insured while totally and permanently disabled, the commuted value of the remaining unpaid installments (240 less any paid) is payable to the beneficiary in accordance with the optional settlement provisions of the policy. Hence, the effect of the bill, if enacted, would be to grant a benefit to every person who has United States Government life insurance in force at age 70, regardless of the condition of his health, the plan of insurance, or the amount of premiums paid into the fund. In the event of the bill's enactment, the insured under a life or endowment policy with sufficient equity to provide extended term insurance to age 70 could lapse his policy and receive a benefit equivalent to the full face amount of the policy at age 70 without further premium payments. Ordinarily, the nonforfeiture provision of extended term insurance is used voluntarily, only by those who have very good reason to believe they will not live beyond the term period. However, under the bill all policyholders whose policies would continue in force as extended insurance until they become 70 years of age would immediately cease to make any further payment of premiums. United States Government life insurance is operated as a mutual life insurance organized on the level premium, legal reserve basis. All premiums paid on this insurance and all interest earned thereon are covered into a special fund in the Treasury designated as the Unit d States Government life insurance fund, which is administered by the Government, as trustee, for the sole benefit of the policyholder and his beneficiaries. The premiums charged for United States Government life insurance, including both death and total and permanent disability benefits, are the net premiums for the death benefit only, based on the assumption that deaths will occur in accordance with the American Experience Table of Mortality and that the invested funds will earn 31⁄2-percent interest per annum. The premium charged for the ordinary 33667-53--2 life plan is the mathematical equivalent of the premium charged for limited payment life plans. The insured under a 20-payment life plan pays more each year over a shorter period of time than an insured under a 30-payment life plan, while both pay more each year over a limited premium-paying period than the insured under an ordinary life plan who continues his premium payments throughout life. On the other hand, the premiums on insurance under the 5-year level premium term plan cover only the cost of the protection and therefore no reserve is accumulated other than that which is temporarily built up for the leveling of the term premium over a 5-year period and which is exhausted at the end of each period. As all policies have not built reserves sufficient to pay this proposed benefit and only those in a particular group would be entitled to it, it follows that this limited group would be granted a special benefit all out of proportion to their contributions and at the expense of other policyholders. Since all policyholders entered into insurance contracts which contained the conditions under which contributions to the United States Government life insurance fund could be accepted and from which payments from such fund could be made, this proposal would appear to be of doubtful constitutionality. It is assumed that the bill is intended to have only prospective application. However, if it should be held to have retroactive effect, it would entail a very considerable amount of administrative work. All claims and insurance folders would have to be searched in order to ascertain those death cases where insurance had been in force beyond age 70 and lapse had thereafter occurred. These cases would have to be readjudicated, estates reopened, and insurance payments to beneficiaries adjusted. Such review and adjustment would undoubtedly result in controversies and litigation and would, of course, greatly increase any costs which might be estimated in connection with this bill. As of November 30, 1952, there were 440,618 United States Government life insurance policies in force amounting to $1,914,232,871 of insurance. Of these 24,736 were 5-year-level premium-term policies amounting to $159,043,325 insurance, 10,717 were extended policies amounting to $21,514,468 insurance, and 504,165 were permanent-plan policies amounting to $1,733,675,078 insurance. It must be assumed that all policyholders of United States Government life insurance, because of the attractive features of the bill, would plan to mature their policies at age 70 with the least possible expense to themselves. Few, if any, term policies would be converted to permanent plans of insurance and most permanent plan policies would be placed as extended insurance as soon as the extension would carry the insurance to maturity at age 70. Since the bill makes no provision for payment of the cost thereof by the Government, it is probable that the United States Government life insurance fund would be made insolvent. Because of the adverse effect which this proposal would have upon the United States Government life insurance fund, it is my belief that enactment thereof would not serve the best interests of the policyholders for whom such fund is maintained. Advice has been received from the Bureau of the Budget that the enactment of the proposed legislation would not be in accord with the program of the President. Sincerely yours, CARL R. GRAY, Jr., Administrator. [No. 66] COMMITTEE ON VETERANS' AFFAIRS, HOUSE OF REPRESENTATIVES Hon. EDITH NOURSE ROGERS, VETERANS' ADMINISTRATION, Washington 25, D. C., May 15, 1953. Chairman, Committee on Veterans' Affairs, House of Representatives, Washington 25, D. C. DEAR MRS. ROGERS: This is in reply to your request for a report by the Veterans' Administration on H. R. 2752, 83d Congress, a bill to authorize the issue of United States Government life insurance and national service life insurance under certain circumstances, and for other purposes. Section 1 of the bill, if enacted, would restore for 2 years the eligibility (in effect prior to April 25, 1951) of persons who served between October 6, 1917, and July 2, 1921, both dates inclusive, to apply for and be granted United States Government life insurance under section 310 of the World War Veterans' Act, 1924, as amended, and would restore for 2 years the eligibility (in effect prior to April 25, 1951) of |