The Use of Life Insurance as a Means of Enhancing the Credit of Business Enterprises During Times of Financial Stringency.

Just as endowment insurance proves serviceable
as a means of accumulating a substantial fund without the
insured being conscious of any sacrifice, so nearly all other
forms of life-insurance policies, as will be explained more
fully later, contain a savings feature, although in none does
that feature appear so prominently as in the ordinary types
of endowment policies. Nearly all policies are paid for by
an annual premium which is uniform throughout life or the
premium-paying period, with the result that the company
gradually accumulates through overcharges in the early years,
when the premium is more than sufficient to meet the current
cost of insurance, a fund which when improved at interest
at an assumed rate will just enable the company to meet
its claims as they mature. On a whole-life policy, for exam-
ple, this fund reaches large proportions in the course of years. 4
It follows, therefore, that the taking out of life-insurance
policies from time to time, made payable to either the in-
sured's estate or to his business, means the gradual accumu-
lation of increasing cash or loan values which are obtainable
at any time by surrendering the policy or by borrowing against
its cash value.

It is not intended here to encourage the altogether too
common habit of borrowing the loan value of policies, because
in many instances the privilege is exercised unnecessarily,
simply because some luxury is desired or because the security
market seems low, or because some other apparent opportu-
nity to make money quickly seems to present itself. And,
even where these considerations are not the motive, the insured
frequently uses this asset because it is so easily obtained,
never considering at the time the relation of that asset to his
beneficiary and often overlooking some other available asset
which should have been used in preference to the cash value
of his policy. Borrowing under such conditions is not con-
templated in this discussion. "What it is intended to show is
that the surrender or loan value of a policy is a real asset
which enhances the credit of the business man because it is
available on demand, irrespective of the financial conditions
which may prevail, and usually at the fixed rate of 5 or 6
per cent.
Bankers and other creditors always regard the cash value
of a business man's policies as an additional asset justifying
larger extension of credit on his firm's paper. But sup-
pose the borrower must have additional credit at a time when
the condition of the money market is such as to make it
highly inconvenient or impossible for the banks to meet his
requirements. It is at such times that the loan privilege
contained in insurance contracts affords a convenient and
most excellent means of relief, as has been amply testified to
by many of the nation's leading business men. During the
panic of 1907, for example, when such stringency prevailed
in the credit market as to make impossible the floating of
loans even on the best collateral, millions of dollars were bor-
rowed on life-insurance policies and numerous business men,
firms and corporations used their life-insurance contracts
as a means of securing funds to make up their payrolls or to
meet other pressing obligations. This service of life insur-
ance to the business community and the spirit in which it
should be used is well exemplified by the experience of one
of the nation's leading business men.
Never, except as a last resource, should a man use his insur-
ance policies as the basis for borrowing. It should be a source
of joy and satisfaction that this sacred investment is kept clear
of encumbrance. Whatever advantageous financial operations
may offer with reference to other investments, sums set aside
for insurance should be regarded as of a different class, to be
maintained unimpaired. It is a satisfaction to know that the
gradually increasing cash value offers, however, a resource al-
ways available and unquestionable. It is a stout anchor to
windward holding firm against any storm of family or business
misfortune that may arise. In the autumn of 1907, there was
a panic, during which there was a practical suspension both
of currency payments and of credits. Rates of interest ad-
vanced to prohibitory figures, but notwithstanding the enhanced
rates, loans were practically impossible to obtain. Three or
four years before, one of my partners and I had taken out
life-insurance policies for considerable amounts. These gave
the right to borrow from the insurance company at the fixed
rate of 5 per cent. We were, therefore, enabled to place this
credit at the disposal of the partnership of which we were
members, and about $120,000 of cash was instantly available in
a time of great need. Of course, these loans were repaid to
the insurance company immediately upon the restoration of
normal conditions. Such a privilege must in many cases mean
the avoidance of actual disaster.
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