Veto of War Risk Insurance Term Policies Bill.

To the House of Representatives:

I return herewith, without my approval, H.R. 5478, "An Act to amend existing law to provide privilege of renewing expiring five-year level-premium term policies for another five year period."

The War Risk Insurance Act which authorized the writing of life insurance by the Government for the members of the Military and Naval forces stated that "not later than five years after the termination of the war as declared by proclamation of the President of the United States, the term insurance shall be converted," thus clearly manifesting the intent that term insurance was to be temporary in character and of limited duration. This pronouncement put all applicants on notice that within five years after the declared ending of the World War it was expected that so far as Government life insurance was concerned they were to have properly planned their permanent insurance program. By amendment to the law, the five year period was extended for one year so that on July 2, 1927, yearly renewable term insurance ceased except for a few types of cases.

The kind of insurance to which term insurance was to be converted was founded upon a mutual basis, the Government simply administering the system for the benefit of the policyholders. Premiums received on account of such insurance were for deposit in the Treasury in a trust account separated from and not commingled with the general funds of the United States.

When the last date fixed for converting term policies approached, it was argued that many veterans were not then able to do so, and the law was further amended authorizing for issuance a special five-year term policy providing for automatic change to a converted form at the end of the five year period. Subsequently, in 1932, when many of these policies expired as term insurance, it was contended that the personal affairs of some veterans were still so unsettled as not to permit them to convert the term insurance they continued to carry, and again the law was amended granting another five years' grace. The bill before me would provide for a fourth postponement.

It is not believed that any further delay in the adoption of an insurance program is warranted or ultimately will prove profitable to the individuals concerned. The lower initial premium rates on term insurance policies are beguiling, and the holders thereof should realize that the time must ultimately come when such charges, which keep ever increasing, will become so great as to compel numbers of veterans to drop their insurance when it will probably be most needed.

Furthermore, enactment of this proposed legislation would constitute a breach of faith on the part of the Federal Government toward the large body of converted policy holders contributing to the Government life insurance fund, and on two counts: (1) the small group of term insurance policyholders would continue to carry their life insurance at considerably lower premium rates than the great majority of converted policyholders are allowed; and (2) the reserves which have been built up almost entirely by the converted policyholders would continue to be drawn off to meet undue losses sustained in carrying the low-premium term policies.

It should be kept firmly in mind that the veterans of the World War expected that the Federal Government, in setting a limiting date for the conversion of term insurance into some permanent form of life insurance, would stand by its declaration. Consequently at the close of the five-year period allowed to veterans within which to convert their term insurance, 423,557 had converted to some permanent form of insurance in a total sum of $2,773,075,664. In many cases, veterans made considerable sacrifices, either reducing the amount of insurance carried or paying the increased premiums required to maintain the original temporary war insurance on a permanent lifetime basis. When legislation was subsequently enacted and reenacted, permitting a relatively small preferred group who had not seen fit to make the same sacrifices as the converted policyholders have made, to extend their temporary insurance at the war-time low premium rates, an unwarrantable disservice was rendered to the several hundred thousand who had placed their insurance on a permanent basis.

Of the present policyholders over 85 percent have converted their insurance to whole life or endowment forms, while the reserve which the converted policyholders have been chiefly instrumental in creating is being used to supplement the inadequate premiums paid by term insurance policyholders in order to pay the extra losses on the policies of the latter group. It is pertinent here to observe that at no time has the loss ratio on term policies been down to the level of the American Experience Table of Mortality according to which the premiums are computed, the most favorable year showing a loss ratio of 3.89 percent above that table and in one year it went as high as 32.44 percent above the table. In other words, had the accounts of the term policyholders been kept separate from those of the converted policyholders their fund for the payment of losses would now be hopelessly insolvent. In contrast to the above loss experience on term policies, the highest loss ratio on converted policies in any year was only 84.03 percent of the expected loss under the American Experience Table of Mortality, and in one year it got down to as low as 53.52 percent. In other words, the loss ratios on term policies range from 45 to over 100 percent higher than those on the converted forms.

There appears to be no justification whatever for continuing to burden the converted policyholders with the excess losses of the term insurance policyholders who, under the present law, without physical examination are privileged to convert their policies to whole life or endowment forms. It, therefore, should be obvious that the remaining less than 15 percent of the policyholders who continue to carry term insurance should now make provisions for the future by determining the amount which they can afford to pay as insurance premiums and plan accordingly.

For these reasons I am withholding my approval of this bill.