o t e I,, 0 0 ID D 0 13 … 0 00 o 000 oana The WESTBROOV Main and Fourth Streets 300 Restful Rooms Newly Air-Conditioned IP Co mp l e t e l y p ..e,.ecorated Family Plan Rates ‘4 to $ 8 50 ROY M. FOX, Manager A Famous Western Hotel located in the Heart of Fort Worth p What To Do Before The Mortician Comes Austin There has been a terrific increase in burial policy premiums in Texas in the last year or two, the Observer has learned. It has fallen especially heavily upon very old people who may have been paying on their policies for a long time at lower rates. There are about 600 mutual-aid type companies that sell insurance of this type in Texas. The creation of new companies of this kind was prohibited by the legislature four years ago. Burial-aid associations can provide burial insurance of up to $150; mutual-aid associations can provide benefits of up to $5,000, including burial benefits. The law requires that not more than 40% of these firms’ income go for expenses; the rest must go into reserves for benefits. The present situation was first brought to’the Observer’s attention by Jim Presley, our contributing editor in Texarkana, Tex. He called a Texarkana funeral home to check on a policy for a third party. This kind of company is often administered and operated by a funeral home director, who thus administers the burial insurance premiums of his association’s members while they are alive and then stands to get the burial business when they die. “Last year,” Presley wrote to the Observer, “the annual rate for his policy was, I believe, $5.70. This year, it will be $18.69over three times, 300%, as much!” Presley said he asked the lady at the funeral home why the rates had zoomed up. She replied, he said, that ” ‘The State Insurance Board made us raise it.’ ” IN AUSTIN, Assistant Commissioner Paul Connor of the State Insurance Board explained the background to the Observer. In 1965 a law that was passed at the instance, as Connor understood it, of the association of these companiesnot at the Insurance Commission’s initiation, “although they surely had no objection” required the companies to establish actuarial standards for their reserves. Theretofore, Connor said, these companies had no reserve requirements. In other words, they were being permitted to FRIED CHICKEN MAX Sun.-Thurs. . 11 a.m.-10 p.m. Fri.-Sat. 11 a.m.-12 p.m. CLOSED TUESDAY Las Casuelas Restaurant “Specializing in Mexican Food” Los Mariachis El Trio Los Amigos Wednesday & Thursday Lee R. and Lucille Zamora, Owners 1516 South Lamar Austin HI 4-5827 charge too little for their insurance to enable them to pay the claims that could be anticipated on the basis of probabilities. The law did not require to the contrary. “Some of them were reaching a point where they would have to drop their policies or increase their rates,” Connor said. That is, they were potentially insolvent. Under Article 1415 of the Insurance Code passed in 1965, the companies were required to compute their own “deficiency reserve” on the basis of assets, membership, and premium rates and come up with a plan for correcting the deficiency within 18 years. Raising rates “was the most obvious solution,” Connor said. About 100 or 150 of the firms had been charging rates that obviated increases, but most of the others have increased their rates. This kind of insurance is equivalent to “term insurance.” That is, it is not fixedrate, whole-life insurance, but is paid for on a year-by-year basis. Term insurance becomes more expensive as the insured gets older. Thus, the largest increases fell on the oldest policyholdersthose who had been paying for the longest time and also those who would be the likeliest to have little money. GIVEN THE circumstances, Connor said, “there’s no way out of it. In the case of the old man, most of these plans involved a mathematically proper computation of what the rate of insurance should be.” Two or three bills were introduced in 1967 to inhibit the increases on the old, but, said Connor, “In all frankness, they would repeal some hard and fast rules of nature and mathematics.” Setting a limit on the premiums for the old “would sound all right,” but would leave the younger members of the mutual associations to run the risk of insufficient protection for their premiums. In defense of the operators of these firms, Connor mentioned that “a number of them” included, in their 18-year plans to correct their “deficiency reserve,” a scaling down of the proportion of their income for expenses from the legally permitted 40% to 20% and in some cases as little as 15%. Connor also thought inflation had a good deal to do with the situation in which the burial associationsand the old people who thought they had low-rate burial insurancehave found themselves. September 29, 1967 11
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