act as stockholders. They receive all the dividends and elect the directors. All who insure in the mutual companies thereby become members of the organization. The student must not confuse mutual life insurance companies with mutual benefit associations. All mutual benefit associations are mutual companies, in so far as their control is concerned, but all mutual companies are not mutual benefit associations. For example, the New York Life Insurance Company is a mutual company, but not a mutual benefit association. The third form of organization is the mixed company, which partakes of the features of both stock and mutual companies. There is a limited number of stockholders who are not in exclusive control, but, in many cases, share the right of election of officers with the policyholders. 80. Same subject-The mutual benefit association. The mutual benefit association has assumed many forms in this country, from the perfectly organized corporation of immense financial proportions to the society of but a handful of employees in a particular business establishment. One of the most prominent characteristics of these organizations, though not an inseparable one, is the payment of losses by assessments, not by premiums as in the old line companies. Hence, the mutual benefit association is frequently called an assessment company. Assessments are levied to meet losses after they occur. If no one dies for ten years, no one is assessed during that time. On the other hand, premiums are fixed in amount and are payable whether or not any of the members have died since the company was or ganized. Mutual benefit associations are frequently referred to as fraternal insurance associations, though a distinction may be drawn between the two and, for the sake of clearness, we may also compare them with mutual life insurance companies: (1) Mutual life insurance companies have as members only policyholders, but collect premiums, not assessments. (2) Mutual benefit associations, though controlled solely by their members, collect assessments, not premiums. (3) Fraternal insurance companies possess the characteristics just stated in regard to mutual benefit associations, but have many social features attached, particularly the usual accompaniments of the lodge system with secret rituals and ceremonials. The distinction between the mutual benefit and old line company is of great importance, owing to the fact that stringent rules and regulations exist in reference to the conduct of the life insurance business. Many mutual benefit associations have succeeded in convincing the courts and legislatures that they are not life insurance companies at all, and hence need not comply with the aforesaid regulations. The result has been that many of these societies have escaped regulation almost entirely, or have been confronted with a separate group of statutes designed to control their management. Starting with this distinction between the old line and mutual benefit company, certain differences in terminology, frequently in use, must be noted. The insured in the old line company is a policyholder, in the mutual benefit association a member. The pol icyholder receives a policy, the member a certificate of membership. To protect one's policy from forfeiture, one must pay premiums; to prevent loss of membership, one must pay assessments. The head of the old line company is known as President; the head of a fraternal order is the Worthy Commander, or, perhaps, the Supreme Potentate, or Matchless Dictator. It has been suggested, not unwittily, that the legal powers of the head of a fraternal order over its members must not be determined by the title of his office. On the death of the insured in an old line company, the beneficiary receives the insurance; on the death of a member of a fraternal order, the beneficiary or those dependent on the member receive death benefits. 81. Payment of premiums.-A life insurance contract is generally regarded as unilateral. The insurer promises to pay the insurance on the death of the insured, if the insured will pay the premiums as they fall due. The insured does not agree to pay anything, at least nothing beyond the first premium, although persons insured, who have given their notes in payment of premiums, have been held liable in many cases, in actions on such notes. Moreover, it has happened frequently that an insurance agent has advanced a premium and is compelled to sue to get his money back. Clearly, such actions are not maintainable because of any provision in the policy, but by virtue of subsequent or collateral agreements. Most of the thousand and one decisions in regard to the payment of insurance premiums are in exact accord with the general rules governing payment, as to the time when payment must be made if the day of payment falls on a legal holiday. One peculiar situation of great importance has arisen: X's quarterly premium falls due on October 29, and amounts to eleven dollars and seventy cents. At the time, there is on hand in the office of the company a dividend due to B on the same policy, amounting to twelve dollars. Must the insurer automatically transfer dividends to the payment of premiums and thus avoid a forfeiture, even though X has given them no direction to do so, and although the insurer has not agreed to make the transfer without a request from X? Most of the reported cases are based on the ground of waiver or agreement and hence do not enable us to determine the answer to this question. There is an intimation in an Illinois decision that the retention of the dividend must be regarded as payment on the premium.38 Hence, it would seem that these reciprocal claims compensate each other. 82. Payment of assessments.-What penalty can be imposed for failure to pay assessments to a mutual benefit association? Clearly, the member may be expelled. But can he be compelled to pay in an action at law? A conflict of authority confronts us here. Since the theory on which assessments are based is that they go to pay for protection already received, the same court might hold, consistently, that assessments, though not premiums, may be recovered in legal proceedings. Change of assessments. Much bitterness has ever arisen over attempts on the part of mutual benefit 38 Chicago Life Ins. Co. v. Warner, 80 Ill. 410. associations to raise their assessments. It is well settled that the member on entering the association may be required to submit to future amendments of the by-laws in reference to assessments, including those raising rates. But suppose that he makes no such agreement? In many cases, it has been held that, unless the member agrees to be bound by future by-laws, he cannot be forced to pay a higher rate by such a change.39 83. Effect of nonpayment.-In the absence of any provision in the policy to the contrary, failure to pay insurance premiums, when due, works a forfeiture of all rights of the policyholder. However, one of the most commendable features of modern life insurance is the provision now made for reinstatement of the insured within a certain time upon paying a lapsed premium,40 or, much more frequently, for a cash surrender value, a cash loan value, paid-up insurance or extended insurance after the payment of the first two or three premiums. These terms may be illustrated by the provisions of a policy actually issued to a person thirty-five years of age, in the amount of $10,000, by an eastern company. The insured was required to pay each year until his death, $281.10, as premium, to the insurer. The insurer agreed, in addition to paying the annual dividends, to grant the insured the following options: (1) To borrow from the company $320 at the end of three years, up to $4,250 at the end of twenty-five years, with interest at five per cent. This is the 39 Covenant Mut. Life Assoc. v. Kentner, 188 Ill. 431, 58 N. E. 966. 40 Lovick v. Provident Life Assn., 110 N. C. 93, 14 S. E. 506. |